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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 1-13726
CHK-20210331_G1.JPG
CHESAPEAKE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Oklahoma
73-1395733
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6100 North Western Avenue,
Oklahoma City,
Oklahoma
73118
(Address of principal executive offices) (Zip Code)
(405)
 848-8000
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share CHK The Nasdaq Stock Market LLC
Class A Warrants to purchase Common Stock CHKEW The Nasdaq Stock Market LLC
Class B Warrants to purchase Common Stock CHKEZ The Nasdaq Stock Market LLC
Class C Warrants to purchase Common Stock CHKEL The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer   Accelerated Filer   Non-accelerated Filer   
Smaller Reporting Company   Emerging Growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court Yes   No
As of May 6, 2021, there were 97,914,260 shares of our $0.01 par value common stock outstanding.


CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021
 
6
8
9



Definitions
Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Chesapeake,” the “Company” and “Registrant” refer to Chesapeake Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:
“ASC” means Accounting Standards Codification.
“Backstop Commitment Agreement” means that certain Backstop Commitment Agreement, dated as of June 28, 2020, by and between Chesapeake and the Backstop Parties, as may be further amended, modified, or supplemented from time to time, in accordance with its terms.
“Backstop Parties” means the members of the FLLO Ad Hoc Group that are signatories to the Backstop Commitment Agreement and Franklin Advisers, Inc., as investment manager on behalf of certain funds and accounts.
“Bankruptcy Code” means Title 11 of the United States Code, 11 U.S.C. §§ 101–1532, as amended.
“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of Texas.
“Bbl” or “Bbls” means barrel or barrels.
“Bcf” means billion cubic feet.
““Boe” means barrel of oil equivalent. Natural gas proved reserves and production are converted to Boe, at the pressure and temperature base standard of each respective state in which the natural gas is produced, at the rate of six Mcf of gas per Bbl of oil, based upon the approximate relative energy content of natural gas and oil. NGL proved reserves and production are converted to Boe on a one-to-one basis with oil.
“Chapter 11 Cases” means, when used with reference to a particular Debtor, the case pending for that Debtor under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, and when used with reference to all the Debtors, the procedurally consolidated Chapter 11 cases pending for the Debtors in the Bankruptcy Court.
“Class A Warrants” means warrants to purchase 10 percent of the New Common Stock (after giving effect to the Rights Offering, but subject to dilution by the Management Incentive Plan, the Class B Warrants, and the Class C Warrants), at an initial exercise price per share of $27.63. The Class A Warrants are exercisable from the Effective Date until February 9, 2026.
“Class B Warrants” means warrants to purchase 10 percent of the New Common Stock (after giving effect to the Rights Offering, but subject to dilution by the Management Incentive Plan and the Class C Warrants), at an initial exercise price per share of $32.13. The Class B Warrants are exercisable from the Effective Date until February 9, 2026.
“Class C Warrants” means warrants to purchase 10 percent of the New Common Stock (after giving effect to the Rights Offering, but subject to dilution by the Management Incentive Plan), at an initial exercise price per share of $36.18. The Class C Warrants are exercisable from the Effective Date until February 9, 2026.
“Confirmation Order” means the order confirming the Fifth Amended Joint Chapter 11 Plan of Reorganization of Chesapeake Energy Corporation and its Debtor Affiliates, [Docket No. 2915] entered by the Bankruptcy Court on January 16, 2021.
“Debtors” means the Company, together with all of its direct and indirect subsidiaries that have filed the Chapter 11 Cases.
“DIP Facility” means that certain debtor-in-possession financing facility documented pursuant to the DIP Documents and DIP Order.
“Effective Date” means February 9, 2021.



“Exit Credit Facility” means the reserve-based revolving credit facility available upon emergence from bankruptcy.
“FLLO Term Loan Facility” means the facility outstanding under the FLLO Term Loan Facility Credit Agreement.
“FLLO Term Loan Facility Credit Agreement” means that certain Term Loan Agreement, dated as of December 19, 2019 ((i) as supplemented by that certain Class A Term Loan Supplement, dated as of December 19, 2019 (as amended, restated or otherwise modified from time to time), by and among Chesapeake, as borrower, the Debtor guarantors party thereto, GLAS USA LLC, as administrative agent, and the lenders party thereto, and (ii) as further amended, restated, or otherwise modified from time to time), by and among Chesapeake, the Debtor guarantors party thereto, GLAS USA LLC, as administrative agent, and the lenders party thereto.
“GAAP” means U.S. generally accepted accounting principles.
“General Unsecured Claim” means any Claim against any Debtor that is not otherwise paid in full during the Chapter 11 Cases pursuant to an order of the Bankruptcy Court and is not an Administrative Claim, a Priority Tax Claim, an Other Priority Claim, an Other Secured Claim, a Revolving Credit Facility Claim, a FLLO Term Loan Facility Claim, a Second Lien Notes Claim, an Unsecured Notes Claim, and Intercompany Claim, or a Section 510(b) Claim.
“MBbls” means thousand barrels.
“MMBbls” means million barrels.
“MBoe” means thousand Boe.
“Mcf” means one thousand cubic feet.
“MMBoe” means million Boe.
“MMcf” means million cubic feet.
“New Common Stock” means the single class of common stock issued by Reorganized Chesapeake on the Effective Date.
“NGL” means natural gas liquids.
“NYMEX” means New York Mercantile Exchange.
“OPEC” means Organization of the Petroleum Exporting Countries.
“Petition Date” means June 28, 2020, the date on which the Debtors commenced the Chapter 11 cases.
“Plan” means the Fifth Amended Joint Chapter 11 Plan of Reorganization of Chesapeake Energy Corporation and its Debtor Affiliates, attached as Exhibit A to the Confirmation Order.
“Put Option Premium” means a nonrefundable aggregate fee of $60 million, which represents 10 percent of the Rights Offering Amount, payable to the Backstop Parties in accordance with, and subject to the terms of the Backstop Commitment Agreement based on their respective Backstop commitment percentages at the time such payment is made.
“Rights Offering” means the New Common Stock rights offering for the Rights Offering Amount consummated by the Debtors on the Effective Date.
“SEC” means United States Securities and Exchange Commission.
“Second Lien Notes” means the 11.500% senior notes due 2025 issued by Chesapeake pursuant to the Second Lien Notes Indenture.
“Second Lien Notes Claim” means any Claim on account of the Second Lien Notes.
“Tranche A Loans” means the fully revolving loans made under and on the terms set forth under the Exit Credit Facility which will be partially funded on the Effective Date, will have a scheduled maturity of 3 years from the Effective Date, and shall at all times be repaid prior to the repayment of the Tranche B Loans.



“Tranche B Loans” means term loans made under and on the terms set forth under the Exit Credit Facility which will be fully funded on the Effective Date, will have a scheduled maturity of 4 years from the Effective Date, will be repaid or prepaid only after there are no Tranche A Loans outstanding, and once so prepaid or repaid, may not be reborrowed.
“Warrants” means collectively, the Class A Warrants, Class B Warrants and Class C Warrants.
“WTI” means West Texas Intermediate.
“/Bbl” means per barrel.
“/Boe” means per Boe.
“/Mcf” means per Mcf.


PART I. FINANCIAL INFORMATION

ITEM 1.
Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Successor Predecessor
March 31,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents $ 340  $ 279 
Restricted cash 68  — 
Accounts receivable, net 704  746 
Short-term derivative assets 19 
Other current assets 74  64 
Total current assets 1,190  1,108 
Property and equipment:
Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties 4,748  25,734 
Unproved properties 483  1,550 
Other property and equipment 491  1,754 
Total property and equipment 5,722  29,038 
Less: accumulated depreciation, depletion and amortization (120) (23,806)
Property and equipment held for sale, net 10 
Total property and equipment, net 5,604  5,242 
Long-term derivative assets
— 
Other long-term assets
108  234 
Total assets $ 6,904  $ 6,584 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)
(Unaudited)
Successor Predecessor
March 31,
2021
December 31,
2020
Liabilities and equity (deficit)
Current liabilities:
Accounts payable
$ 346  $ 346 
Current maturities of long-term debt, net
—  1,929 
Accrued interest
11 
Short-term derivative liabilities
305  93 
Other current liabilities 781  723 
Total current liabilities 1,443  3,094 
Long-term debt, net
1,262  — 
Long-term derivative liabilities
76  44 
Asset retirement obligations, net of current portion
237  139 
Other long-term liabilities
Liabilities subject to compromise
—  8,643 
Total liabilities 3,023  11,925 
Contingencies and commitments (Note 6)
Stockholders’ equity (deficit):
Predecessor preferred stock, $0.01 par value, 20,000,000 shares authorized: 0 and 5,563,458 shares outstanding
—  1,631 
Predecessor common stock, $0.01 par value, 22,500,000 shares authorized: 0 and 9,780,547 shares issued
—  — 
Predecessor additional paid-in capital —  16,937 
Predecessor accumulated other comprehensive income —  45 
Successor common stock, $0.01 par value, 450,000,000 shares authorized: 97,907,081 and 0 shares issued
— 
Successor additional paid-in capital 3,585  — 
Retained earnings (accumulated deficit) 295  (23,954)
Total stockholders’ equity (deficit) 3,881  (5,341)
Total liabilities and stockholders’ equity (deficit) $ 6,904  $ 6,584 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Successor Predecessor
  Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Revenues and other:
Oil, natural gas and NGL $ 553  $ 398  $ 894 
Marketing 277  239  724 
Oil and natural gas derivatives 46  (382) 907 
Gains on sales of assets — 
Total revenues and other 880  260  2,525 
Operating expenses:
Production 40  32  122 
Gathering, processing and transportation 111  102  285 
Severance and ad valorem taxes 24  18  54 
Exploration 282 
Marketing 280  237  746 
General and administrative 15  21  65 
Separation and other termination costs —  22 
Depreciation, depletion and amortization 122  72  603 
Impairments —  —  8,522 
Other operating expense (income), net (12) 68 
Total operating expenses 595  494  10,752 
Income (loss) from operations 285  (234) (8,227)
Other income (expense):
Interest expense (12) (11) (145)
Gains on purchases or exchanges of debt —  —  63 
Other income (expense) 22  (17)
Reorganization items, net —  5,569  — 
Total other income (expense) 10  5,560  (99)
Income (loss) before income taxes 295  5,326  (8,326)
Income tax benefit
—  (57) (13)
Net income (loss) 295  5,383  (8,313)
Net loss attributable to noncontrolling interests —  —  16 
Net income (loss) attributable to Chesapeake 295  5,383  (8,297)
Preferred stock dividends —  —  (22)
Net income (loss) available to common stockholders $ 295  $ 5,383  $ (8,319)
Earnings (loss) per common share:
Basic
$ 3.01  $ 550.35  $ (852.97)
Diluted
$ 2.75  $ 534.51  $ (852.97)
Weighted average common shares outstanding (in thousands):
Basic
97,907  9,781  9,753 
Diluted
107,159  10,071  9,753 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
 
Net income (loss) $ 295  $ 5,383  $ (8,313)
Other comprehensive income, net of income tax:
Reclassification of losses on settled derivative instruments — 
Other comprehensive income — 
Comprehensive income (loss) 295  5,386  (8,304)
Comprehensive loss attributable to noncontrolling interests —  —  16 
Comprehensive income (loss) attributable to Chesapeake $ 295  $ 5,386  $ (8,288)
The accompanying notes are an integral part of these condensed consolidated financial statements.
9

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Successor Predecessor
  Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended
March 31, 2020
Cash flows from operating activities:
Net income (loss) $ 295  $ 5,383  $ (8,313)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation, depletion and amortization 122  72  603 
Deferred income tax benefit —  (57) (10)
Derivative (gains) losses, net (46) 382  (907)
Cash receipts (payments) on derivative settlements, net (32) (17) 89 
Stock-based compensation — 
Gains on sales of assets (4) (5) — 
Impairments —  —  8,522 
Non-cash reorganization items, net —  (6,680) — 
Exploration —  279 
Gains on purchases or exchanges of debt —  —  (63)
Other 45  31 
Changes in assets and liabilities 70  851  161 
Net cash provided by (used in) operating activities 409  (21) 397 
Cash flows from investing activities:
Capital expenditures (77) (66) (518)
Proceeds from divestitures of property and equipment — 
Net cash used in investing activities (73) (66) (511)
Cash flows from financing activities:
Proceeds from Exit Credit Facility - Tranche A Loans 30  —  — 
Payments on Exit Credit Facility - Tranche A Loans (80) (479) — 
Proceeds from pre-petition revolving credit facility borrowings —  —  2,331 
Payments on pre-petition revolving credit facility borrowings —  —  (2,021)
Payments on DIP Facility borrowings —  (1,179) — 
Proceeds from issuance of senior notes, net —  1,000  — 
Proceeds from issuance of common stock —  600  — 
Debt issuance and other financing costs (3) (8) — 
Cash paid to purchase debt —  —  (93)
Cash paid for preferred stock dividends —  —  (22)
Other —  (1) (5)
Net cash provided by (used in) financing activities (53) (67) 190 
Net increase (decrease) in cash, cash equivalents and restricted cash 283  (154) 76 
Cash, cash equivalents and restricted cash, beginning of period 125  279 
Cash, cash equivalents and restricted cash, end of period $ 408  $ 125  $ 82 
Cash and cash equivalents $ 340  $ 39  $ 82 
Restricted cash 68  86  — 
Total cash, cash equivalents and restricted cash $ 408  $ 125  $ 82 
The accompanying notes are an integral part of these condensed consolidated financial statements.
10

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Unaudited)
Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:
Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through February 9, 2021 Three Months Ended March 31, 2020
Supplemental cash flow information:
Cash paid for reorganization items, net $ 18  $ 66  $ — 
Interest paid, net of capitalized interest $ —  $ 13  $ 113 
Income taxes paid, net of refunds received $ (3) $ —  $ — 
Supplemental disclosure of significant non-cash investing and financing activities:
Change in accrued drilling and completion costs $ (12) $ (5) $ (29)
Put option premium on equity backstop agreement $ —  $ 60  $ — 

The accompanying notes are an integral part of these condensed consolidated financial statements.
11

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

Attributable to Chesapeake
Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total Stockholders’ Equity
Shares Amount Shares Amount
Balance as of December 31, 2019 (Predecessor) 5,563,458  $ 1,631  9,772,793  $ —  $ 16,973  $ (14,220) $ 12  $ (32) $ 37  $ 4,401 
Stock-based compensation —  —  10,980  —  (31) —  —  —  —  (31)
Dividends on preferred stock —  —  —  —  (22) —  —  —  —  (22)
Net loss attributable to Chesapeake —  —  —  —  —  (8,297) —  —  —  (8,297)
Hedging activity —  —  —  —  —  —  —  — 
Purchase of shares for company benefit plans —  —  —  —  —  —  —  (2) —  (2)
Release of shares for company benefit plans —  —  —  —  —  —  —  34  —  34 
Net loss attributable to noncontrolling interests —  —  —  —  —  —  —  —  (16) (16)
Balance as of March 31, 2020 (Predecessor) 5,563,458  $ 1,631  9,783,773  $ —  $ 16,920  $ (22,517) $ 21  $ —  $ 21  $ (3,924)
The accompanying notes are an integral part of these condensed consolidated financial statements.
12

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)
(Unaudited)
Attributable to Chesapeake
Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total Stockholders’ Equity
Shares Amount Shares Amount
Balance as of December 31, 2020 (Predecessor) 5,563,358  $ 1,631  9,780,547  $ —  $ 16,937  $ (23,954) $ 45  $ —  $ —  $ (5,341)
Stock-based compensation —  —  67  —  —  —  —  — 
Hedging activity —  —  —  —  —  —  —  — 
Net income —  —  —  —  —  5,383  —  —  —  5,383 
Cancellation of Predecessor Equity (5,563,358) (1,631) (9,780,614) —  (16,940) 18,571  (48) —  —  (48)
Issuance of Successor common stock —  —  97,907,081  3,330  —  —  —  —  3,331 
Issuance of Successor Class A warrants —  —  —  —  93  —  —  —  —  93 
Issuance of Successor Class B warrants —  —  —  —  94  —  —  —  —  94 
Issuance of Successor Class C warrants —  —  —  —  68  —  —  —  —  68 
Balance as of February 9, 2021 (Predecessor) —  $ —  97,907,081  $ $ 3,585  $ —  $ —  $ —  $ —  $ 3,586 
Balance as of February 10, 2021 (Successor) —  $ —  97,907,081  $ $ 3,585  $ —  $ —  $ —  $ —  $ 3,586 
Stock-based compensation —  —  —  —  —  —  —  —  —  — 
Net income —  —  —  —  —  295  —  —  —  295 
Balance as of March 31, 2021 (Successor) —  $ —  97,907,081  $ $ 3,585  $ 295  $ —  $ —  $ —  $ 3,881 
The accompanying notes are an integral part of these condensed consolidated financial statements.
13

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Company
Chesapeake Energy Corporation ("Chesapeake", “we,” “our”, “us” or the "Company") is an oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of oil, natural gas and NGL from underground reservoirs. Our operations are located onshore in the United States. As discussed in Note 2 below, we filed the Chapter 11 Cases on the Petition Date and subsequently operated as a debtor-in-possession, in accordance with applicable provisions of the Bankruptcy Code, until emergence on February 9, 2021. To facilitate our financial statement presentations, we refer to the post-emergence reorganized Company in these condensed consolidated financial statements and footnotes as the “Successor” for periods subsequent to February 9, 2021, and to the pre-emergence company as “Predecessor” for periods on or prior to February 9, 2021.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Chesapeake were prepared in accordance with GAAP and the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures have been condensed or omitted.
This Quarterly Report on Form 10-Q (this “Form 10-Q”) relates to the financial position and periods of February 10, 2021 through March 31, 2021 (“2021 Successor Period”), and January 1, 2021, through February 9, 2021 (“2021 Predecessor Period”) and the three months ended March 31, 2020 (“2020 Predecessor Period”). Our annual report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”) should be read in conjunction with this Form 10-Q. Except as disclosed herein, and with the exception of information in this report related to our emergence from Chapter 11 and fresh start accounting, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the 2020 Form 10-K. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of our condensed consolidated financial statements and accompanying notes and include the accounts of our direct and indirect wholly-owned subsidiaries and entities in which we have a controlling financial interest. Intercompany accounts and balances have been eliminated. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.
Segments
Operating segments are defined as components of an enterprise that engage in activities from which it may earn revenues and incur expenses for which separate operational financial information is available and is regularly evaluated by the chief operating decision maker for the purpose of allocating an enterprise’s resources and assessing its operating performance. We have concluded that we have only one reportable operating segment due to the similar nature of the exploration and production business across Chesapeake and its consolidated subsidiaries and the fact that our marketing activities are ancillary to our operations.
14

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Restricted Cash
As of March 31, 2021, we had restricted cash of $68 million. The restricted funds were maintained primarily to pay debtor-related professional fees associated with our Bankruptcy Filing as well as certain convenience class unsecured claims upon our emergence from bankruptcy.
Voluntary Filing under Chapter 11 Bankruptcy
On the Petition Date the Debtors filed the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. On June 29, 2020, the Bankruptcy Court entered an order authorizing the joint administration of the Chapter 11 Cases under the caption In re Chesapeake Energy Corporation, Case No. 20-33233. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries (collectively, the “Non-Filing Entities”) were not part of the Bankruptcy Filing. The Non-Filing Entities have continued to operate in the ordinary course of business.
The Bankruptcy Court confirmed the Plan and entered the Confirmation Order on January 16, 2021. The Debtors emerged from the Chapter 11 Cases on the Effective Date. The Company’s bankruptcy proceedings and related matters have been summarized below.
During the pendency of the Chapter 11 Cases, we continued to operate our business in the ordinary course as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court granted the first day relief we requested that was designed primarily to mitigate the impact of the Chapter 11 Cases on our operations, vendors, suppliers, customers and employees. As a result, we were able to conduct normal business activities and satisfy all associated obligations for the period following the Petition Date and were also authorized to pay mineral interest owner royalties, employee wages and benefits, and certain vendors and suppliers in the ordinary course for goods and services provided prior to the Petition Date. During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.
Subject to certain specific exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed all judicial or administrative actions against us and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities were subject to compromise and discharge under the Bankruptcy Code. The automatic stay was lifted on the Effective Date.
We have applied ASC 852, Reorganizations, in preparing the unaudited condensed consolidated financial statements for the period ended February 9, 2021. ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 Cases, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain revenues, expenses, realized gains and losses and provisions for losses that were realized or incurred during the bankruptcy proceedings, including gain on settlement of liabilities subject to compromise, losses related to executory contracts that have been approved for rejection by the Bankruptcy Court, and unamortized debt issuance costs, premiums and discounts associated with debt classified as liabilities subject to compromise, were recorded as reorganization items, net. In addition, pre-petition obligations that may be impacted by the Chapter 11 process have been classified on the condensed consolidated balance sheet as of December 31, 2020 as liabilities subject to compromise. See Note 3 for more information regarding reorganization items.
2. Chapter 11 Emergence
As described in Note 1, on June 28, 2020, the Debtors filed the Chapter 11 Cases and on September 11, 2020, the Debtors filed the Plan, which was subsequently amended, and entered the Confirmation Order on January 16, 2021. The Debtors then emerged from bankruptcy upon effectiveness of the Plan on February 9, 2021. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Plan.
Plan of Reorganization
In accordance with the Plan confirmed by the Bankruptcy Court, the following significant transactions occurred upon the Company’s emergence from bankruptcy on February 9, 2021:
15

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
On the Effective Date, we issued approximately 97,907,081 shares of New Common Stock, reserved 2,092,918 shares of New Common Stock for future issuance to eligible holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims and reserved 37,174,210 shares of New Common Stock for issuance upon exercise of the Warrants, which were the result of the transactions described below. We also entered into a registration rights agreement, warrant agreements and amended our articles of incorporation and bylaws for the authorization of the New Common Stock among other corporate governance actions. See Note 10 for further discussion of our post-emergence equity.
Each holder of an equity interest in Predecessor, including Predecessor’s common and preferred stock, had such interest canceled, released, and extinguished without any distribution.
Each holder of obligations under the pre-petition revolving credit facility received, at such holder's prior determined allocation, its pro rata share of either Tranche A Loans or Tranche B Loans, on a dollar for dollar basis.
Each holder of obligations under the FLLO Term Loan Facility received its pro rata share of 23,022,420 shares of New Common Stock.
Each holder of an Allowed Second Lien Notes Claim received its pro rata share of 3,635,118 shares of New Common Stock, 11,111,111 Class A Warrants to purchase 11,111,111 shares of New Common Stock, 12,345,679 Class B Warrants to purchase 12,345,679 shares of New Common Stock, and 6,858,710 Class C Warrants to purchase 6,858,710 shares of New Common Stock.
Each holder of an Allowed Unsecured Notes Claim received its pro rata share of 1,311,089 shares of New Common Stock and 2,473,757 Class C Warrants to purchase 2,473,757 shares of New Common Stock.
Each holder of an Allowed General Unsecured Claim received its pro rata share of 231,112 shares of New Common Stock and 436,060 Class C Warrants to purchase 436,060 shares of New Common Stock; provided that to the extent such Allowed General Unsecured Claim is a Convenience Claim, such holder instead received its pro rata share of $10 million, which pro rata share shall not exceed five percent of such Convenience Claim.
Participants in the Rights Offering extending to the applicable classes under the Plan received 62,927,320 shares of New Common Stock.
In connection with the Rights Offering described above, the Backstop Parties under the Backstop Commitment Agreement received 6,337,031 shares of New Common Stock in respect to the Put Option Premium, and 442,991 shares of New Common Stock were issued in connection with the backstop obligation thereunder to purchase unsubscribed shares of the New Common Stock.
2,092,918 shares of New Common Stock and 3,948,893 Class C Warrants were reserved for future issuance to eligible holders of Allowed Unsecured Notes Claims and Allowed General Unsecured Claims. The reserved New Common Stock and Class C Warrants will be issued on a pro rata basis upon the determination of the allowed portion of all disputed General Unsecured Claims and Unsecured Notes Claims.
The 2021 Long Term Incentive Plan (the “LTIP”) was approved with a share reserve equal to 6,800,000 shares of New Company Stock.
Each holder of an Allowed Other Secured Claim will receive, at the Company's option and in consultation with the Required Consenting Stakeholders (as defined in the Plan): (a) payment in full in cash; (b) the collateral securing its secured claim; (c) reinstatement of its secured claim; or (d) such other treatment that renders its secured claim unimpaired in accordance with Section 1124 of the Bankruptcy Code.
Each holder of an Allowed Other Priority Claim will receive cash up to the allowed amount of its claim.
16

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Additionally, pursuant to the Plan confirmed by the Bankruptcy Court, the Company’s post-emergence Board of Directors is comprised of six directors, including the Company’s Interim Chief Executive Officer, Mike Wichterich, and five non-employee directors, Timothy S. Duncan, Benjamin C. Duster, IV, Sarah Emerson, Matthew M. Gallagher and Brian Steck.
3. Fresh Start Accounting
Fresh Start Accounting
In connection with our emergence from bankruptcy and in accordance with ASC 852, we qualified for and applied fresh start accounting on the Effective Date. We were required to apply fresh start accounting because (i) the holders of existing voting shares of the Company prior to its emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan of approximately $6.8 billion was less than the post-petition liabilities and allowed claims of $13.2 billion.
In accordance with ASC 852, with the application of fresh start accounting, the Company allocated its reorganization value to its individual assets based on their estimated fair value in conformity with FASB ASC Topic 820 - Fair Value Measurements and FASB ASC Topic 805 - Business Combinations. Accordingly, the consolidated financial statements after February 9, 2021 are not comparable with the consolidated financial statements as of or prior to that date. The Effective Date fair values of the Successor’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheet of the Predecessor.
Reorganization Value
Reorganization value is derived from an estimate of enterprise value, or fair value of the Company’s interest-bearing debt and stockholders’ equity. Under ASC 852, reorganization value generally approximates fair value of the entity before considering liabilities and is intended to approximate the amount a willing buyer would pay for the assets immediately after the effects of a restructuring. As set forth in the disclosure statement, amended for updated pricing, and approved by the Bankruptcy Court, the enterprise value of the Successor was estimated to be between $3.5 billion and $4.9 billion. With the assistance of third-party valuation advisors, we determined the enterprise value and corresponding implied equity value of the Successor using various valuation approaches and methods, including: (i) income approach using a calculation of present value of future cash flows based on our financial projections, (ii) the market approach using selling prices of similar assets and (iii) the cost approach. For GAAP purposes, the Company valued the Successor’s individual assets, liabilities and equity instruments and determined an estimate of the enterprise value within the estimated range. Management concluded that the best estimate of enterprise value was $4.85 billion. Specific valuation approaches and key assumptions used to arrive at reorganization value, and the value of discrete assets and liabilities resulting from the application of fresh start accounting, are described below in greater detail within the valuation process.
The enterprise value and corresponding implied equity value are dependent upon achieving the future financial results set forth in our valuation using an asset-based methodology of estimated proved reserves, undeveloped properties, and other financial information, considerations and projections, applying a combination of the income, cost and market approaches as of the fresh start reporting date of February 9, 2021. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the financial projections, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, there is no assurance that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
17

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table reconciles the enterprise value to the implied fair value of the Successor’s equity as of the Effective Date:
February 9, 2021
Enterprise Value $ 4,851 
Plus: Cash and cash equivalents(a)
48 
Less: Fair value of debt (1,313)
Successor equity value $ 3,586 
____________________________________________
(a)Cash and cash equivalents includes $8 million that was initially classified as restricted cash as of the Effective Date but subsequently released from escrow and returned to the Successor. Restricted cash exclusive of the $8 million is not included in the table above.
The following table reconciles the enterprise value to the reorganization value as of the Effective Date:
February 9, 2021
Enterprise Value $ 4,851 
Plus: Cash and cash equivalents(a)
48 
Plus: Current liabilities 1,582 
Plus: Asset retirement obligations (non-current portion) 236 
Plus: Other non-current liabilities 97 
Reorganization value of Successor assets $ 6,814 
____________________________________________
(a)Cash and cash equivalents includes $8 million that was initially classified as restricted cash as of the Effective Date but subsequently released from escrow and returned to the Successor. Restricted cash exclusive of the $8 million is not included in the table above.
Valuation Process
The fair values of our oil and natural gas properties, other property and equipment, other long-term assets, long-term debt, asset retirement obligations and warrants were estimated as of the Effective Date.
Oil and natural gas properties. The Company’s principal assets are its oil and natural gas properties, which are accounted for under the successful efforts accounting method. The Company determined the fair value of its oil and natural gas properties based on the discounted future net cash flows expected to be generated from these assets. Discounted cash flow models by operating area were prepared using the estimated future revenues and operating costs for all developed wells and undeveloped properties comprising the proved and unproved reserves. Significant inputs associated with the calculation of discounted future net cash flows include estimates of (i) recoverable reserves, (ii) production rates, (iii) future operating and development costs, (iv) future commodity prices escalated by an inflationary rate after five years, adjusted for differentials, and (v) a market-based weighted average cost of capital by operating area. The Company utilized NYMEX strip pricing, adjusted for differentials, to value the reserves. The NYMEX strip pricing inputs used are classified as Level 1 fair value assumptions and all other inputs are classified as Level 3 fair value assumptions. The discount rates utilized were derived using a weighted average cost of capital computation, which included an estimated cost of debt and equity for market participants with similar geographies and asset development type by operating area.
Other property and equipment. The fair value of other property and equipment such as buildings, land, computer equipment, and other equipment was determined using replacement cost method under the cost approach which considers historical acquisition costs for the assets adjusted for inflation, as well as factors in any potential obsolescence based on the current condition of the assets and the ability of those assets to generate cash flow.
18

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Long-term debt. A market approach, based upon quotes from major financial institutions, was used to measure the fair value of the $500 million aggregate principal amount of 5.5% Senior Notes due 2026 (the “2026 Notes”) and $500 million aggregate principal amount of 5.875% Senior Notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “Notes”). The carrying value of borrowings under our Exit Credit Facility approximated fair value as the terms and interest rates are based on prevailing market rates.
Asset retirement obligations. The fair value of the Company’s asset retirement obligations was revalued based upon estimated current reclamation costs for our assets with reclamation obligations, an appropriate long-term inflation adjustment, and our revised credit adjusted risk-free rate. The credit adjusted risk-free rate was based on an evaluation of an interest rate that equates to a risk-free interest rate adjusted for the effect of our credit standing.
Warrants. The fair values of the Warrants issued upon the Effective Date were estimated using a Black-Scholes model, a commonly used option-pricing model. The Black-Scholes model was used to estimate the fair value of the warrants with an implied stock price of $20.52; exercise price per share of $27.63, $32.13 and $36.18 for Class A, Class B and Class C Warrants, respectively; expected volatility of 58% estimated using volatilities of similar entities; risk-free rate using a 5-year Treasury bond rate; and an expected annual dividend yield which was estimated to be zero.
Condensed Consolidated Balance Sheet
The following consolidated balance sheet is as of February 9, 2021. This consolidated balance sheet includes adjustments that reflect the consummation of the transactions contemplated by the Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”) as of the Effective Date. The explanatory notes following the table below provide further details on the adjustments, including the assumptions and methods used to determine fair value for its assets, liabilities and warrants.
Predecessor Reorganization Adjustments Fresh Start Adjustments Successor
Assets
Current assets:
Cash and cash equivalents $ 243  $ (203) (a) $ —  $ 40 
Restricted cash —  86  (b) —  86 
Accounts receivable, net 861  (18) (c) —  843 
Short-term derivative assets —  —  —  — 
Other current assets 66  (5) (d) —  61 
Total current assets 1,170  (140) —  1,030 
Property and equipment:
Oil and natural gas properties, successful efforts method
Proved oil and natural gas properties 25,794  —  (21,108) (o) 4,686 
Unproved properties 1,546  —  (1,063) (o) 483 
Other property and equipment 1,755  —  (1,256) (o) 499 
Total property and equipment 29,095  —  (23,427) (o) 5,668 
Less: accumulated depreciation, depletion and amortization (23,877) —  23,877  (o) — 
Property and equipment held for sale, net —  (7) (o)
Total property and equipment, net 5,227  —  443  (o) 5,670 
Other long-term assets
198  —  (84) (p) 114 
Total assets $ 6,595  $ (140) $ 359  $ 6,814 
19

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Predecessor Reorganization Adjustments Fresh Start Adjustments Successor
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable
$ 391  $ 24  (e) $ —  $ 415 
Current maturities of long-term debt, net
1,929  (1,929) (f) —  — 
Accrued interest
(4) (g) —  — 
Short-term derivative liabilities
398  —  —  398 
Other current liabilities 645  124  (h) —  769 
Total current liabilities 3,367  (1,785) —  1,582 
Long-term debt, net
—  1,261  (i) 52  (q) 1,313 
Long-term derivative liabilities
90  —  —  90 
Asset retirement obligations, net of current portion
139  —  97  (r) 236 
Other long-term liabilities
(j) — 
Liabilities subject to compromise
9,574  (9,574) (k) —  — 
Total liabilities 13,175  (10,096) 149  3,228 
Contingencies and commitments (Note 6)
Stockholders’ equity (deficit):
Predecessor preferred stock 1,631  (1,631) (l) —  — 
Predecessor common stock —  —  —  — 
Predecessor additional paid-in capital 16,940  (16,940) (l) —  — 
Successor common stock —  (m) — 
Successor additional paid-in-capital —  3,585  (m) —  3,585 
Accumulated other comprehensive income 48  —  (48) (s) — 
Accumulated deficit (25,199) 24,941  (n) 258  (t) — 
Total stockholders’ equity (deficit) (6,580) 9,956  210  3,586 
Total liabilities and stockholders’ equity (deficit) $ 6,595  $ (140) $ 359  $ 6,814 
Reorganization Adjustments
(a)The table below reflects the sources and uses of cash on the Effective Date from implementation of the Plan:
Sources:
Proceeds from issuance of the Notes $ 1,000 
Proceeds from Rights Offering 600 
Proceeds from refunds of interest deposit for the Notes
Total sources of cash $ 1,605 
Uses:
Payment of roll-up of DIP Facility balance $ (1,179)
Payment of Exit Credit Facility - Tranche A Loan (479)
Transfers to restricted cash for professional fee reserve (76)
Transfers to restricted cash for convenience claim distribution reserve (10)
Payment of professional fees (31)
Payment of DIP Facility interest and fees (12)
Payment of FLLO alternative transaction fee (12)
Payment of the Notes fees funded out of escrow (8)
Payment of RBL interest and fees (1)
Total uses of cash $ (1,808)
Net cash used $ (203)
(b)Represents the transfer of funds to a restricted cash account for purposes of funding the professional fee reserve and the convenience claim distribution reserve.
(c)Reflects the removal of an insurance receivable associated with a discharged legal liability.
(d)Reflects the collection of an interest deposit for the senior unsecured notes.
(e)Changes in accounts payable include the following:
Accrual of professional service provider success fees $ 38 
Accrual of convenience claim distribution reserve 10 
Accrual of professional service provider fees
Reinstatement of accounts payable from liabilities subject to compromise
Payment of professional fees (31)
Net impact to accounts payable $ 24 
(f)Reflects payment of the pre-petition credit facility for $1.179 billion and transfer of the Tranche A and Tranche B Loans to long-term debt for $750 million.
(g)Reflect payments of accrued interest and fees on the DIP Facility.
(h)Changes in other current liabilities include the following:
Reinstatement of other current liabilities from liabilities subject to compromise $ 191 
Accrual of the Notes fees
Settlement of Put Option Premium through issuance of Successor Common Stock (60)
Payment of DIP Facility fees (9)
Net impact to other current liabilities $ 124 
20

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(i)Change in long-term debt include the following:
Issuance of the Notes $ 1,000 
Issuance of Tranche A and Tranche B Loans 750 
Payments on Tranche A Loans (479)
Debt issuance costs for the Notes (10)
Net impact to long-term debt, net $ 1,261 
(j) Reflects reinstatement of a long-term lease liability.
(k) On the Effective Date, liabilities subject to compromise were settled in accordance with the Plan as follows:
Liabilities subject to compromise pre-emergence $ 9,574 
To be reinstated on the Effective Date:
Accounts payable $ (2)
Other current liabilities (191)
Other long-term liabilities (2)
Total liabilities reinstated $ (195)
Consideration provided to settle amounts per the Plan or Reorganization:
Issuance of Successor common stock associated with the Rights Offering and Backstop Commitment and settlement of the Put Option Premium (2,311)
Proceeds from issuance of Successor common stock associated with the Rights Offering and Backstop Commitment 600 
Issuance of Successor common stock to FLLO Term Loan holders, incremental to the Rights Offering and Backstop Commitment (783)
Issuance of Successor common stock to second lien note holders, incremental to the Rights Offering and Backstop Commitment (124)
Issuance of Successor common stock to unsecured note holders (45)
Issuance of Successor common stock to general unsecured claims (8)
Fair value of Class A Warrants (93)
Fair value of Class B Warrants (94)
Fair value of Class C Warrants (68)
Proceeds to holders of general unsecured claims (10)
Total consideration provided to settle amounts per the Plan (2,936)
Gain on settlement of liabilities subject to compromise $ 6,443 
(l)Pursuant to the Plan, as of the Effective Date, all equity interests in Predecessor, including Predecessor’s common and preferred stock, were cancelled without any distribution.
(m)Reflects the Successor equity including the issuance of 97,907,081 shares of New Common Stock, 11,111,111 shares of Class A Warrants, 12,345,679 shares of Class B Warrants and 9,768,527 shares of Class C Warrants pursuant to the Plan.
21

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Issuance of Successor equity associated with the Rights Offering and Backstop Commitment $ 2,371 
Issuance of Successor equity to holders of the FLLO Term Loan, incremental to the Rights Offering and Backstop Commitment 783 
Issuance of Successor equity to holders of the second lien notes, incremental to the Rights Offering and Backstop Commitment 124 
Issuance of Successor equity to holders of the unsecured senior notes 45 
Issuance of Successor equity to holders of allowed general unsecured claims
Fair value of Class A warrants 93 
Fair value of Class B warrants 94 
Fair value of Class C warrants 68 
Total change in Successor common stock and additional paid-in capital 3,586 
Less: par value of Successor common stock (1)
Change in Successor additional paid-in capital $ 3,585 
(n) Reflects the cumulative net impact of the effects on accumulated deficit as follows:
    
Gain on settlement of liabilities subject to compromise $ 6,443 
Accrual of professional service provider success fees (38)
Accrual of professional service provider fees (5)
Surrender of other receivable (18)
Payment of FLLO alternative transaction fee (12)
Total reorganization items, net 6,370 
Cancellation of predecessor equity 18,571 
Net impact on accumulated deficit $ 24,941 
Fresh Start Adjustments
(o)Reflects fair value adjustments to our (i) proved oil and natural gas properties, (ii) unproved properties, (iii) other property and equipment (iv) property and equipment held for sale, and the elimination of accumulated depletion, depreciation and amortization.
(p)Reflects the fair value adjustment to record historical contracts at their fair values.
(q)Reflects the fair value adjustments to the 2026 Notes and 2029 Notes for $22 million and $30 million, respectively.
(r)Reflects the adjustment to our asset retirement obligations using assumptions as of the Effective Date, including an inflation factor of 2% and an average credit-adjusted risk-free rate of 5.18%.
(s)Reflects the fair value adjustment to eliminate the accumulated other comprehensive income of $9 million related to hedging settlements offset by the elimination of $57 million of income tax effects which has resulted in the recording of an income tax benefit of $57 million. See Note 9 for a discussion of income taxes.
22

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(t)Reflects the net cumulative impact of the fresh start adjustments on accumulated deficit as follows:
Fresh start adjustments to property and equipment $ 443 
Fresh start adjustments to other long-term assets (84)
Fresh start adjustments to long-term debt (52)
Fresh start adjustments to long-term asset retirement obligations (97)
Fresh start adjustments to accumulated other comprehensive income (9)
Total fresh start adjustments impacting reorganizations items, net 201 
Income tax effects on accumulated other comprehensive income 57 
Net impact to accumulated deficit $ 258 
Reorganization Items, Net
We have incurred significant expenses, gains and losses associated with the reorganization, primarily the gain on settlement of liabilities subject to compromise, write-off of unamortized debt issuance costs and related unamortized premiums and discounts, debt and equity financing fees, provision for allowed claims and legal and professional fees incurred subsequent to the Chapter 11 filings for the restructuring process. The accrual for allowed claims primarily represents damages from contract rejections and settlements attributable to the midstream savings requirement as stipulated in the Plan. While the claims reconciliation process is ongoing, we do not believe any existing unresolved claims will result in a material adjustment to the financial statements. The amount of these items, which were incurred in reorganization items, net within our accompanying unaudited condensed consolidated statements of operations, have significantly affected our statements of operations.
The following table summarizes the components in reorganization items, net included in our unaudited condensed consolidated statements of operations:
Predecessor
Period from January 1, 2021 through
February 9, 2021
Gains on the settlement of liabilities subject to compromise $ 6,443 
Accrual for allowed claims (1,002)
Gain on fresh start adjustments 201 
Gain from release of commitment liabilities 55 
Professional service provider fees and other (60)
Success fees for professional service providers (38)
Surrender of other receivable (18)
FLLO alternative transaction fee (12)
Total reorganization items, net $ 5,569 

23

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
4. Earnings Per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated in the same manner, but includes the impact of potentially dilutive securities. Potentially dilutive securities during the Successor period consist of issuable shares related to warrants, and during the Predecessor period have historically consisted of unvested restricted stock, contingently issuable shares related to preferred stock and convertible senior notes unless their effect was antidilutive.
The reconciliations between basic and diluted earnings (loss) per share are as follows:
Successor Predecessor
Period from February 10, 2021 through March 31, 2021 Period from January 1, 2021 through
February 9, 2021
Three Months Ended
March 31, 2020
Numerator
Net income (loss), basic and diluted $ 295  $ 5,383  $ (8,319)
Denominator (in thousands)
Weighted average common shares outstanding, basic 97,907  9,781  9,753 
Effect of potentially dilutive securities
Preferred stock —  290  — 
Warrants 9,250  —  — 
Restricted stock —  — 
Weighted average common shares outstanding, diluted 107,159  10,071  9,753 
Earnings (loss) per common share
Earnings (loss) per common share, basic $ 3.01  $ 550.35  $ (852.97)
Earnings (loss) per common share, diluted $ 2.75  $ 534.51  $ (852.97)
Successor
During the 2021 Successor Period, the diluted earnings per share calculation excludes the effect of 2,092,918 reserved shares of common stock and 3,948,893 reserved Class C warrants related to the settlement of general unsecured claims associated with the Chapter 11 Cases as all necessary conditions had not been met to be considered dilutive shares as of the 2021 Successor Period.
Predecessor
The diluted earnings per share calculation for the 2020 Predecessor Period excludes the antidilutive effect of 290,618 shares of common stock equivalent of our preferred stock. Additionally, the 2020 Predecessor Period had a net loss and therefore the diluted earnings (loss) per share calculation excludes the antidilutive effect of 4,095 shares of restricted stock.
We had the option to settle conversions of the 5.5% convertible senior notes with cash, shares or common stock or any combination thereof. As the price of our common stock was below the conversion threshold level for any time during the conversion period, there was no impact to diluted earnings (loss) per share.
24

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
5. Debt
Our long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:
Successor Predecessor
March 31, 2021 December 31, 2020
Carrying Amount
Fair Value(a)
Carrying Amount
Fair Value(a)
Exit Credit Facility - Tranche A Loans $ —  $ —  $ —  $ — 
Exit Credit Facility - Tranche B Loans 221  221  —  — 
5.5% senior notes due 2026
500  521  —  — 
5.875% senior notes due 2029
500  530  —  — 
DIP Facility —  —  —  — 
Pre-petition revolving credit facility —  —  1,929  1,929 
Term loan due 2024 —  —  1,500  1,220 
11.5% senior secured second lien notes due 2025
—  —  2,330  373 
6.625% senior notes due 2020
—  —  176 
6.875% senior notes due 2020
—  —  73 
6.125% senior notes due 2021
—  —  167 
5.375% senior notes due 2021
—  —  127 
4.875% senior notes due 2022
—  —  272  12 
5.75% senior notes due 2023
—  —  167 
7.00% senior notes due 2024
—  —  624  29 
6.875% senior notes due 2025
—  — 
8.00% senior notes due 2025
—  —  246  10 
5.5% convertible senior notes due 2026
—  —  1,064  42 
7.5% senior notes due 2026
—  —  119 
8.00% senior notes due 2026
—  —  46 
8.00% senior notes due 2027
—  —  253  11 
Premiums on senior notes 51  —  —  — 
Debt issuance costs (10) —  —  — 
Total debt, net 1,262  1,272  9,095  3,666 
Less current maturities of long-term debt —  —  (1,929) (1,929)
Less amounts reclassified to liabilities subject to compromise —  —  (7,166) (1,737)
Total long-term debt, net $ 1,262  $ 1,272  $ —  $ — 
____________________________________________
(a)The carrying value of borrowings under our Exit Credit Facility approximate fair value as the interest rates are based on prevailing market rates; therefore, they are a Level 1 fair value measurement. For all other debt, a market approach, based upon quotes from major financial institutions, which are Level 2 inputs, is used to measure the fair value.
Successor Debt
Our post-emergence exit financing consists of the Exit Credit Facility, which includes a reserve-based revolving credit facility and a non-revolving loan facility, and the Notes.
Exit Credit Facility. On the Effective Date, pursuant to the terms of the Plan, the Company, as borrower, entered into a reserve-based credit agreement (the “Credit Agreement”) providing for a reserve-based credit facility
25

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
with an initial borrowing base of $2.5 billion. The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year and the next scheduled redetermination will be on or about October 1, 2021. The aggregate initial elected commitments of the lenders under the Exit Credit Facility will be $1.75 billion of Tranche A Loans and $221 million of fully funded Tranche B Loans.
The Exit Credit Facility provides for a $200.0 million sublimit of the aggregate commitments that are available for the issuance of letters of credit. The Exit Credit Facility bears interest at the ABR (alternate base rate) or LIBOR, at our election, plus an applicable margin (ranging from 2.25–3.25% per annum for ABR loans and 3.25–4.25% per annum for LIBOR loans, subject to a 1.00% LIBOR floor), depending on the percentage of the borrowing base then being utilized. The Tranche A Loans mature three years after the Effective Date and the Tranche B Loans mature four years after the Effective Date. The Tranche B Loans can be repaid if no Tranche A Loans are outstanding.
The Credit Agreement contains financial covenants that require the Company and its Guarantors, on a consolidated basis, to maintain (i) a first lien leverage ratio of not more than 2.75 to 1:00, (ii) a total leverage ratio of not more than 3.50 to 1:00, (iii) a current ratio of not less than 1.00 to 1:00 and (iv) at any time additional secured debt is outstanding, an asset coverage ratio of not less than 1.50 to 1:00, defined as PV10 of PDP reserves to total secured debt. The Company had no additional secured debt outstanding at emergence.
The Credit Agreement also contains customary affirmative and negative covenants, including, among other things, as to compliance with laws (including environmental laws and anti-corruption laws), delivery of quarterly and annual financial statements, conduct of business, maintenance of property, maintenance of insurance, restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments, and other customary covenants.
The Company is required to pay a commitment fee of 0.50% per annum on the average daily unused portion of the current aggregate commitments under the Tranche A Loans. The Company is also required to pay customary letter of credit and fronting fees.
Outstanding Senior Notes. On February 2, 2021, Chesapeake Escrow Issuer LLC (the “Escrow Issuer”) then an indirect wholly-owned subsidiary of the Company, issued $500 million aggregate principal amount of its 2026 Notes and $500 million aggregate principal amount of its 2029 Notes. The Notes included a $52 million premium to reflect fair value adjustments at the date of Emergence.
The Notes are guaranteed on a senior unsecured basis by each of the Company’s subsidiaries that guarantee the Exit Credit Facility.
The Notes were issued pursuant to an indenture, dated as of February 5, 2021 (the “Indenture”), among the Issuer, the Guarantors and Deutsche Bank Trust Company Americas, as trustee.
Interest on the Notes is payable semi-annually, on February 1st and August 1st of each year, commencing on August 1, 2021, to holders of record on the immediately preceding January 15th and July 15th.
The Notes are the Company’s senior unsecured obligations. Accordingly, they rank (i) equal in right of payment to all existing and future senior indebtedness, including borrowings under the Exit Credit Facility, (ii) effectively subordinate in right of payment to all of existing and future secured indebtedness, including indebtedness under the Exit Credit Facility, to the extent of the value of the collateral securing such indebtedness, (iii) structurally subordinate in right of payment to all existing and future indebtedness and other liabilities of any future subsidiaries that do not guarantee the Notes and any entity that is not a subsidiary that does not guarantee the Notes and (iv) senior in right of payment to all future subordinated indebtedness. Each guarantee of the Notes by a guarantor is a general, unsecured, senior obligation of such guarantor. Accordingly, the guarantees (i) rank equally in right of payment with all existing and future senior indebtedness of such guarantor (including such guarantor’s guarantee of indebtedness under the Exit Credit Facility), (ii) are subordinated to all existing and future secured indebtedness of such guarantor, including such guarantor’s guarantee of indebtedness under our Exit Credit Facility, to the extent of the value of the collateral of such guarantor securing such secured indebtedness, (iii) are structurally subordinated to all indebtedness and other liabilities of any future subsidiaries of such guarantor that do not guarantee the notes and (iv) rank senior in right of payment to all future subordinated indebtedness of such guarantor.
26

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Chapter 11 Proceedings - Predecessor Debt
Filing of the Chapter 11 Cases constituted an event of default with respect to certain of our previous secured and unsecured debt obligations. As a result of the Chapter 11 Cases, the principal and interest due under these debt instruments became immediately due and payable. However, Section 362 of the Bankruptcy Code stayed the creditors from taking any action as a result of the default.
The principal amounts outstanding under the FLLO Term Loan, Second Lien Notes and all of our other unsecured senior and convertible senior notes were reclassified as liabilities subject to compromise on the accompanying condensed consolidated balance sheet as of December 31, 2020.
The agreements for our FLLO Term Loan, Second Lien Notes, and unsecured senior and convertible senior notes contain provisions regarding the calculation of interest upon default. Upon default, the interest rate on the FLLO Term Loan increased from LIBOR plus 8.00% to alternative base rate (ABR) (3.25% during the 2021 Predecessor Period) plus Applicable Margin (7.00% during the 2021 Predecessor Period) plus 2.00%. For the Second Lien Notes and all of our other unsecured senior and convertible senior notes, the interest rate remained the same upon default. However, interest accrued on the amount of unpaid interest in addition to the principal balance. We did not pay or recognize interest on the FLLO Term Loan, Second Lien Notes, or unsecured senior and convertible senior notes during the Chapter 11 process.
Debtor-in-Possession Credit Agreement
On June 28, 2020, prior to the commencement of Chapter 11 Cases, the Company entered into a commitment letter with certain of the lenders (“New Money Lenders”) under the pre-petition revolving credit facility and/or their affiliates to provide the Debtors with a debtor-in-possession credit agreement in an aggregate principal amount of up to approximately $2.104 billion in commitments and loans from the New Money Lenders. The DIP Facility consisted of a revolving loan facility of new money in an aggregate principal amount of up to $925 million, which included a sub-facility of up to $200 million for the issuance of letters of credit, and a $1.179 billion term loan that reflected the roll-up of a portion of outstanding borrowings under the pre-petition revolving credit facility: (i) a $925 million term loan reflected the roll-up of a portion of outstanding existing borrowings made by the New Money Lenders under the existing revolving credit agreement and (ii) an up to approximately $254 million term loan reflected the roll-up or a portion of outstanding existing borrowings made by certain other lenders under the pre-petition revolving credit facility agreement. The $750 million of outstanding borrowings under the pre-petition revolving credit facility that were not rolled up remained outstanding throughout the Chapter 11 Cases but accrued interest at a lower rate than the rolled-up loans. The proceeds of the DIP Facility were used for, among other things, post-petition working capital, permitted capital investments, general corporate purposes, letters of credit, administrative costs, premiums, expenses and fees for the transactions contemplated by the Chapter 11 Cases, payment of court approved adequate protection obligations and other such purposes consistent with the DIP Facility. On the Effective Date, the DIP Facility was terminated and the holders of obligations under the DIP Facility received payment in full in cash; provided that to the extent such lender under the DIP Facility was also a lender under the Exit Credit Facility, such lender’s allowed DIP claims were first reduced dollar-for-dollar and satisfied by the amount of its Exit RBL Loans provided as of the Effective Date.
Predecessor Senior Notes
In the 2020 Predecessor Period, we repurchased approximately $156 million aggregate principal amount of certain senior notes for $93 million and recorded an aggregate gain of approximately $63 million.

27

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
6. Contingencies and Commitments
There have been no material developments in previously reported legal or environmental contingencies or commitments other than the items discussed below.
Contingencies
Chapter 11 Proceedings
Commencement of the Chapter 11 Cases automatically stayed the proceedings and actions against us that are described below, in addition to actions seeking to collect pre-petition indebtedness or to exercise control over the property of the Company’s bankruptcy estates. The Plan in the Chapter 11 Cases, which became effective on February 9, 2021, provided for the treatment of claims against the Company’s bankruptcy estates, including pre-petition liabilities that had not been satisfied or addressed during the Chapter 11 Cases. See Note 2 for additional information.
Litigation and Regulatory Proceedings
We were involved in a number of litigation and regulatory proceedings as of the Petition Date. Many of these proceedings were in early stages, and many of them sought damages and penalties, the amount of which is indeterminate. Our total accrued liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different.
We are involved in, and expect to continue to be involved in, various lawsuits and disputes incidental to our business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract actions. The majority of the prepetition legal proceedings have been settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process before the Bankruptcy Court. Any allowed claim related to such prepetition litigation will be treated in accordance with the Plan.
Environmental Contingencies
The nature of the oil and gas business carries with it certain environmental risks for us and our subsidiaries. We have implemented various policies, programs, procedures, training and audits to reduce and mitigate such environmental risks. We conduct periodic reviews, on a company-wide basis, to assess changes in our environmental risk profile. Environmental reserves are established for environmental liabilities for which economic losses are probable and reasonably estimable. We manage our exposure to environmental liabilities in acquisitions by using an evaluation process that seeks to identify pre-existing contamination or compliance concerns and addressing the potential liability. Depending on the extent of an identified environmental concern, we may, among other things, exclude a property from the transaction, require the seller to remediate the property to our satisfaction in an acquisition or agree to assume liability for the remediation of the property.
We are named as a defendant in numerous lawsuits in Oklahoma alleging that we and other companies have engaged in activities that have caused earthquakes. These lawsuits seek compensation for injury to real and personal property, diminution of property value, economic losses due to business interruption, interference with the use and enjoyment of property, annoyance and inconvenience, personal injury and emotional distress.  In addition, they seek the reimbursement of insurance premiums and the award of punitive damages, attorneys’ fees, costs, expenses and interest. We are actively seeking dismissal of these claims. Any allowed claim related to such prepetition litigation will be treated in accordance with the Plan.
We are in discussions with the Pennsylvania Department of Environmental Protection (“PADEP”) regarding gas migration in the vicinity of certain of our wells in Wyoming County, Pennsylvania. We believe we are close to identifying agreed-upon steps to resolve PADEP’s concerns regarding the issue. In addition to these steps, resolution of the matter may result in monetary sanctions of more than $300,000. Any allowed claim related to such monetary sanctions will be treated in accordance with the Plan.
Other Matters
Based on management’s current assessment, we are of the opinion that no pending or threatened lawsuit or dispute relating to our business operations is likely to have a material adverse effect on our future consolidated financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts accrued, however, and actual results could differ materially from management’s estimates.
Commitments
Gathering, Processing and Transportation Agreements
We have contractual commitments with midstream service companies and pipeline carriers for future gathering, processing and transportation of oil, natural gas and NGL to move certain of our production to market. Working interest owners and royalty interest owners, where appropriate, will be responsible for their proportionate share of these costs. Commitments related to gathering, processing and transportation agreements are not recorded as obligations in the accompanying condensed consolidated balance sheets; however, they are reflected in our estimates of proved reserves.
The aggregate undiscounted commitments under our gathering, processing and transportation agreements, excluding any reimbursement from working interest and royalty interest owners, credits for third-party volumes or future costs under cost-of-service agreements, are presented below:
Successor
March 31,
2021
Remainder of 2021 $ 499 
2022 569 
2023 458 
2024 390 
2025 310 
2026 – 2034 1,539 
Total $ 3,765 
In addition, we have entered into long-term agreements for certain natural gas gathering and related services within specified acreage dedication areas in exchange for cost-of-service based fees redetermined annually, or tiered fees based on volumes delivered relative to scheduled volumes. Future gathering fees may vary with the applicable agreement.
28

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
7. Other Current Liabilities
Other current liabilities as of March 31, 2021 and December 31, 2020 are detailed below:
Successor Predecessor
March 31,
2021
December 31,
2020
Revenues and royalties due others $ 418  $ 236 
Accrued drilling and production costs 71  104 
Other accrued taxes 60  82 
Accrued compensation and benefits 39  59 
Operating leases 27  24 
Debt and equity financing fees —  69 
Joint interest prepayments received 18 
Other 148  141 
Total other current liabilities $ 781  $ 723 

29

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
8. Revenue
The following table shows revenue disaggregated by operating area and product type:
Successor
Period from
February 10, 2021 through March 31, 2021
Oil Natural Gas NGL Total
Appalachia $ —  $ 163  $ —  $ 163 
Gulf Coast —  70  —  70 
South Texas 117  28  19  164 
Brazos Valley 89  15  108 
Powder River Basin 28  14  48 
Oil, natural gas and NGL revenue $ 234  $ 290  $ 29  $ 553 
Marketing revenue
$ 162  $ 97  $ 18  $ 277 
Predecessor
Period from
January 1, 2021 through February 9, 2021
  Oil Natural Gas NGL Total
Appalachia $ —  $ 119  $ —  $ 119 
Gulf Coast —  53  —  53 
South Texas 92  15  15  122 
Brazos Valley 67  71 
Powder River Basin 20  33 
Oil, natural gas and NGL revenue $ 179  $ 196  $ 23  $ 398 
Marketing revenue
$ 141  $ 78  $ 20  $ 239 
Predecessor
Three Months Ended March 31, 2020
  Oil Natural Gas NGL Total
Appalachia $ —  $ 175  $ —  $ 175 
Gulf Coast —  85  —  85 
South Texas 277  31  20  328 
Brazos Valley 172  180 
Powder River Basin 68  15  90 
Mid-Continent 22  10  36 
Oil, natural gas and NGL revenue $ 539  $ 320  $ 35  $ 894 
Marketing revenue from contracts with customers $ 508  $ 124  $ 30  $ 662 
Other marketing revenue 61  —  62 
Marketing revenue
$ 569  $ 125  $ 30  $ 724 
30

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Accounts Receivable
Our accounts receivable are primarily from purchasers of oil, natural gas and NGL and from exploration and production companies that own interests in properties we operate. This industry concentration could affect our overall exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our counterparties and we generally require letters of credit or parent guarantees for receivables from parties deemed to have sub-standard credit, unless the credit risk can otherwise be mitigated. We estimate expected credit losses using forecasts based on historical information and current information, in addition to specifically identifying receivables that may be uncollectible.
Accounts receivable as of March 31, 2021 and December 31, 2020 are detailed below:
Successor Predecessor
March 31,
2021
December 31,
2020
Oil, natural gas and NGL sales
$ 575  $ 589 
Joint interest
93  119 
Other
36  68 
Allowance for doubtful accounts
—  (30)
Total accounts receivable, net
$ 704  $ 746 
31

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
9. Income Taxes
We estimate our annual effective tax rate (“AETR”) for continuing operations in recording our interim quarterly income tax provision for the various jurisdictions in which we operate. The tax effects of statutory rate changes, significant unusual or infrequently occurring items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of our estimated AETR as such items are recognized as discrete items in the quarter in which they occur. Our estimated AETR for the 2021 Successor Period is 0.0% as a result of projecting a full valuation allowance against our anticipated net deferred asset position at December 31, 2021.
The income tax provision for the 2021 Predecessor Period was determined based on actual results for the period ended February 9, 2021, including those resulting from fresh start accounting. The effective tax rate for the 2021 Predecessor Period was (1.1%) which results from the elimination of the income tax effects associated with hedging settlements from accumulated other comprehensive income as part of fresh start accounting. We recorded an income tax benefit of $57 million in the 2021 Predecessor Period for the elimination of such income tax effects. Any changes to our deferred tax assets and liabilities for the 2021 Predecessor Period (whether resulting from Reorganization Adjustments, Fresh Start Adjustments or otherwise) were completely offset with a corresponding adjustment to our valuation allowance which results in the low effective tax rate. Accordingly, there are no balances shown for deferred tax assets or liabilities in the condensed consolidated balance sheet table shown in Note 3.
For the 2020 Predecessor Period, we recorded an income tax benefit of $13 million, which included the reversal of substantially all of the deferred tax liability associated with Texas through the application of the estimated AETR as well as recording a receivable for amounts previously sequestered from refunds of corporate alternative minimum tax credits. This resulted in a 0.2% effective tax rate for the 2020 Predecessor Period.
As of the Effective Date, we were in a net deferred tax asset position and anticipate being in a net deferred tax asset position as of December 31, 2021. Based on all available positive and negative evidence, including projections of future taxable income, we believe it is more likely than not that some or all of our deferred tax assets will not be realized. Our deferred tax assets relate primarily to the excess tax basis over post emergence book value of oil and natural gas properties along with federal and state net operating loss (“NOL”) carryforwards. A significant piece of objectively verifiable negative evidence evaluated is the cumulative loss incurred over the rolling thirty-six-month period ended March 31, 2021. Such evidence limits our ability to consider various forms of subjective positive evidence, such as any projections of future growth and earnings. However, should we begin to achieve a level of sustained profitability as a restructured entity, increased consideration will need to be given to projections of future taxable income to determine whether such projections provide an adequate source of taxable income for the realization of our deferred tax assets. A full valuation allowance was recorded against our net deferred tax asset position for federal and state purposes as of March 31, 2021 and December 31, 2020.
We have evaluated the income tax impact of the Plan, including the ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as a result of emergence from bankruptcy. Section 382(b) of the Code provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes existing at the time of an ownership change against future taxable income. We did not qualify for the exception under Section 382(l)(5) of the Code, and therefore an annual limitation was determined under Section 382(l)(6) of the Code, which is based on the post-emergence value of the taxpayer’s equity multiplied by the adjusted federal long-term rate in effect for the month in which the ownership change occurred. The amount of the annual limitation has been computed to be $54 million and will be prorated for the current year based on the number of days attributable to the post-Effective Date portion of the year. The limitation applies to our NOL carryforwards, disallowed business interest carryforwards and general business credits until such attributes expire or are fully utilized. As we believe we were in an overall net unrealized built-in loss position at the Effective Date, the limitation also applies to any recognized built-in losses incurred for a period of five years but only to the extent of the overall net unrealized built-in loss. We estimate that this will occur during the current year such that no further limitation for recognized built-in losses will occur in subsequent years. Some states impose similar limitations on tax attribute utilization upon experiencing an ownership change.
In Chapter 11 bankruptcy cases, the cancellation of debt income (“CODI”) realized upon emergence from bankruptcy is excludible from taxable income but results in a reduction of tax attributes in accordance with the attribute reduction and ordering rules of Section 108 of the Code. The amount of our CODI is estimated to be
32

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
$5 billion and will be taken completely against, and therefore will reduce, our NOL carryforwards. After taking into account the CODI and the impact of Section 382 of the Code, the remaining federal NOL carryforwards are estimated to be in the range of $2.5 billion to $3.0 billion. Approximately $900 million are NOL carryforwards which expire in 2037 and $1.6 billion to $2.1 billion are NOL carryforwards which do not expire. The reductions in NOL carryforwards for the CODI and expiring NOL carryforwards are expected to be fully offset by a corresponding decrease to our valuation allowance at December 31, 2021. Some states have similar rules for attribute reduction which will result in the reduction of certain of our state NOL carryforwards.
10. Equity
New Common Stock. As discussed in Note 2, on the Effective Date, we issued an aggregate of approximately 97.9 million shares of New Common Stock, par value $0.01 per share, to the holders of allowed claims, and approximately 2.1 million shares of New Common Stock were reserved for future distributions under the Plan.
Warrants. As discussed in Note 2, on the Effective Date, we issued approximately 11.1 million Class A Warrants, 12.3 million Class B Warrants and 13.7 million Class C Warrants that are initially exercisable for one share of New Common Stock per Warrant at initial exercise prices of $27.63, $32.13 and $36.18 per share, respectively, subject to adjustments pursuant to the terms of the Warrants. The Warrants are exercisable from the Effective Date until February 9, 2026. The Warrants contain customary anti-dilution adjustments in the event of any stock split, reverse stock split, reclassification, stock dividend or other distributions.
Chapter 11 Proceedings
Upon emergence from Chapter 11 on February 9, 2021, as discussed in Note 2, Predecessor common stock and preferred stock were canceled and released under the Plan without receiving any recovery on account thereof.
11. Share-Based Compensation
As discussed in Note 2, on the Effective Date, our common stock was canceled and New Common Stock was issued. Accordingly, our then existing share-based compensation awards were also canceled, which resulted in the recognition of any previously unamortized expense related to the canceled awards on the date of cancellation. Share based compensation for the Predecessor and Successor periods are not comparable.
Successor Share-Based Compensation
As of the Effective Date, the Board of Directors adopted the LTIP with a share reserve equal to 6,800,000 shares of New Common Stock. The LTIP provides for the grant of restricted stock units, restricted stock awards, stock options, stock appreciation rights, performance awards and other stock awards to the Company’s employees and non-employee directors.
Successor Restricted Stock
In the 2021 Successor Period, we granted restricted stock awards to non-employee directors under the LTIP, which will vest over a one-year period. The fair value of restricted stock awards is based on the closing sales price of our common stock on the date of grant, and compensation expense is recognized ratably over the requisite service period. A summary of the changes in unvested restricted stock is presented below:
Shares of
Unvested
Restricted Stock
Weighted Average
Grant Date
Fair Value Per Share
(in thousands)
Unvested as of February 10, 2021 —  $ — 
Granted 49  $ 43.84 
Vested —  $ — 
Forfeited/canceled —  $ — 
Unvested as of March 31, 2021 49  $ 43.84 
33

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Predecessor Share-Based Compensation
Our Predecessor share-based compensation program consisted of restricted stock, stock options, performance share units (PSUs) and cash restricted stock units (CRSUs) granted to employees and restricted stock granted to non-employee directors under our long-term incentive plans. The restricted stock and stock options were equity-classified awards and the PSUs and CRSUs were liability-classified awards.
Predecessor Equity-Classified Awards
Restricted Stock. We granted restricted stock units to employees and non-employee directors. A summary of the changes in unvested restricted stock is presented below:
Shares of
Unvested
Restricted Stock
Weighted Average
Grant Date
Fair Value Per Share
(in thousands)
Unvested as of January 1, 2021 $ 616.57 
Granted —  $ — 
Vested —  $ — 
Forfeited/canceled (1) $ 611.47 
Unvested as of February 9, 2021 —  $ — 
Stock Options. In the 2020 Predecessor Period, we granted members of management stock options that vested ratably over a three-year period. Each stock option award had an exercise price equal to the closing price of our common stock on the grant date. Outstanding options expired seven years to ten years from the date of grant.
We utilized the Black-Scholes option-pricing model to measure the fair value of stock options. The expected life of an option was determined using the simplified method. Volatility assumptions were estimated based on the average historical volatility of Chesapeake stock over the expected life of an option. The risk-free interest rate was based on the U.S. Treasury rate in effect at the time of the grant over the expected life of the option. The dividend yield was based on an annual dividend yield, taking into account our dividend policy, over the expected life of the option.
The following table provides information related to stock option activity:
Number of
Shares
Underlying  
Options
Weighted
Average
Exercise Price Per Share
Weighted  
Average
Contract Life in Years
Aggregate  
Intrinsic
Value(a)
(in thousands)