false0000895126 0000895126 2019-08-06 2019-08-06

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 6, 2019

CHESAPEAKE ENERGY CORPORATION
(Exact name of Registrant as specified in its Charter)
Oklahoma			1-13726			73-1395733
(State or other jurisdiction of incorporation)			(Commission File No.)			(IRS Employer Identification No.)
6100 North Western Avenue			Oklahoma City	OK		73118
(Address of principal executive offices)						(Zip Code)
			(405)	848-8000
	(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	CHK	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
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.		☐

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Item 2.02 Results of Operations and Financial Condition.

On August 6, 2019, Chesapeake Energy Corporation (“Chesapeake”) issued a press release reporting financial and operational results for the second quarter of 2019. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

The information in the press release is being furnished, not filed, pursuant to Item 2.02. Accordingly, the information in the press release will not be incorporated by reference into any registration statement filed by Chesapeake under the Securities Act of 1933, as amended, except as set forth by specific reference in such filing.

Item 7.01 Regulation FD Disclosure.

On August 6, 2019, Chesapeake will make a presentation about its financial and operating results for the second quarter of 2019, as noted in the press release described in Item 2.02 above. Chesapeake has made the presentation available on its website at http://www.chk.com/investors/presentations.

Item 9.01 Exhibits.

(d)

Exhibit No.		Document Description
99.1		Chesapeake Energy Corporation press release dated August 6, 2019
101.INS		XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CHESAPEAKE ENERGY CORPORATION
By:	/s/ JAMES R. WEBB
	James R. Webb
	Executive Vice President - General Counsel and Corporate Secretary

Date:  August 6, 2019

•	Increasing Oil Production, Enhancing Capital Efficiency, Growing Margins and Progressing Toward Sustainable Free Cash Flow

◦	Delivered record oil production of 122,000 barrels (bbls) of oil per day, year-over-year growth of 36%, or 10% adjusted for asset purchases and sales; record oil mix of 25%

◦	Operating cost reductions further enhance margins

▪	Reduced cash operating expenses consisting of production, gathering, processing and transportation (GP&T) and general and administrative expenses by $57 million, or approximately $0.40 per barrel of oil equivalent (boe), when compared to the prior year quarter

▪	Highest second quarter operating margin per boe since 2014

◦	Capital efficiency improvements redefine economics of Brazos Valley assets

▪	Projected 2019 total savings of $250 to $280 million; eliminated approximately $600,000 in costs per well; recognized up to $2 million in savings on certain wells

▪	Accelerating cycle times, with approximately 45 oil wells planned to be placed to sales in the second half of 2019 compared to 28 wells in the first half

▪	Expanded Eagle Ford higher-margin black oil window by approximately 230 locations

•	Maximizing Value of Diverse Portfolio Through Returns-Focused Capital Allocation

◦	Maintaining oil growth trajectory on flat capital

▪	Oil production poised to increase in the second half of 2019 as ~170 oil wells expected to be placed to sales, an increase of approximately 50% over the first half of 2019

▪	Projected to grow oil production by double-digits in 2020 on approximately flat year-over-year capex, yielding approximately flat adjusted EBITDAX at current NYMEX strip pricing and current hedge position

▪	Reducing capital allocation to gas assets, forecasting double-digit gas decline in 2020

•	Prudently Managing Maturities to Maintain Future Liquidity

◦	Exchanged $884 million senior notes maturing 2020 through 2021 into new senior notes maturing 2026

◦	Reduced maturities prior to 2022 to approximately $600 million

◦	Approximately 85% of 2019 forecasted oil, natural gas and NGL revenue hedged at prices significantly above the current strip

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(a)	Includes assets retained as of June 30, 2019.

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(a)	Includes the effects of realized gains (losses) from hedging, but excludes the effects of unrealized gains (losses) from hedging.

(b)	Excludes expenses associated with stock-based compensation, which are recorded in general and administrative expenses in Chesapeake's Condensed Consolidated Statement of Operations.

(c)	Includes the effects of realized (gains) losses from interest rate derivatives, excludes the effects of unrealized (gains) losses from interest rate derivatives and is shown net of amounts capitalized.

(d)	Marketing net margin is marketing gross margin of ($24) million and ($19) million for the three months ended June 30, 2019 and 2018, excluding non-cash amortization of $5 million related to the buy down of a transportation agreement.

(e)	Defined as net income (loss) before interest expense, income taxes, depreciation, depletion and amortization expense, and exploration expense, as adjusted to remove the effects of certain items detailed on page 17. This is a non-GAAP measure. See reconciliation of cash provided by operating activities to adjusted EBITDAX on page 16.

(f)	Defined as net income (loss) attributable to Chesapeake, as adjusted to remove the effects of certain items detailed on page 13. This is a non-GAAP measure. See reconciliations of net income (loss) to adjusted net income (loss) available to Chesapeake on pages 13 - 15.

(g)	Our presentation of diluted adjusted net loss attributable to Chesapeake per share excludes 207 million shares for the three months ended June 30, 2019 and 2018, which are considered antidilutive when calculating diluted earnings per share.

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(a)	Includes capitalized interest of $6 million and $5 million for the three months ended June 30, 2019 and 2018, respectively, and includes capitalized interest of $12 million and $9 million for the six months ended June 30, 2019 and 2018, respectively.

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(a)

Realized gains (losses) include the following items: (i) settlements and accruals for settlements of undesignated derivatives related to current period production revenues, (ii) prior period settlements for option premiums and for early-terminated derivatives originally scheduled to settle against current period production revenues, and (iii) gains (losses) related to de-designated cash flow hedges originally designated to settle against current period production revenues. Although we no longer designate our derivatives as cash flow hedges for accounting purposes, we believe these definitions are useful to management and investors in determining the effectiveness of our price risk management program.

(b)

Unrealized gains (losses) include the change in fair value of open derivatives scheduled to settle against future period production revenues (including current period settlements for option premiums and early terminated derivatives) offset by amounts reclassified as realized gains (losses) during the period. Although we no longer designate our derivatives as cash flow hedges for accounting purposes, we believe these definitions are useful to management and investors in determining the effectiveness of our price risk management program.

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(a)	Our presentation of diluted net earnings (losses) available to common stockholders per share and diluted adjusted net loss per share excludes 207 million shares considered antidilutive for the three months and six months ended June 30, 2019 and 2018. The number of shares used for the non-GAAP calculation was determined in a manner consistent with GAAP.

(b)	No income tax effect from the adjustments has been included in determining adjusted net income for the three months ended June 30, 2019 and 2018. Our effective tax rate was 0% due to our valuation allowance position.

(c)

Adjusted net loss available to common stockholders and total adjusted net loss attributable to Chesapeake, both in the aggregate and per dilutive share, are not measures of financial performance under GAAP, and should not be considered as an alternative to, or more meaningful than, net income (loss) available to common stockholders or earnings (loss) per share. Adjusted net income (loss) available to common stockholders and adjusted earnings (loss) per share exclude certain items that management believes affect the comparability of operating results. The company believes these adjusted financial measures are a useful adjunct to earnings calculated in accordance with GAAP because:

(i)	Management uses adjusted net income (loss) available to common stockholders to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies.

(ii)	Adjusted net income (loss) available to common stockholders is more comparable to earnings estimates provided by securities analysts.

(iii)	Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the company generally excludes information regarding these types of items.

(d)

The six months ended June 30, 2019 includes $26MM in integration and acquisition costs as a result of Chesapeake's merger with WildHorse Resource Development Corporation (WRD). Additionally, most WRD executives and employees were terminated and entitled to severance benefits of approximately $38 million in accordance with certain provisions of existing employment agreements that were triggered by the change in control.

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(e)

For the six months ended June 30, 2019, we recorded a net deferred tax liability of $314 million associated with the acquisition of WildHorse Resource Development Corporation. As a result of recording this net deferred tax liability through business combination accounting, we released a corresponding amount of the valuation allowance that we maintain against our net deferred tax asset position. This release resulted in an income tax benefit of $314 million. Further, no income tax expense or benefit is shown for the adjustments being made to arrive at adjusted net income (loss) available to common stockholders as a result of not recording an income tax expense or benefit on current period results due to maintaining a full valuation allowance against our net deferred tax asset position.

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(a)

Adjusted EBITDAX is not a measure of financial performance under GAAP, and should not be considered as an alternative to, or more meaningful than, cash flow provided by operating activities prepared in accordance with GAAP. Adjusted EBITDAX excludes certain items that management believes affect the comparability of operating results. The company believes this non-GAAP financial measure is a useful adjunct to cash flow provided by operating activities because:

(i)	Management uses adjusted EBITDAX to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies.

(ii)	Adjusted EBITDAX is more comparable to estimates provided by securities analysts.

(iii)	Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the company generally excludes information regarding these types of items.

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(a)

Adjusted EBITDAX is not a measure of financial performance under GAAP, and should not be considered as an alternative to, or more meaningful than, net income (loss) prepared in accordance with GAAP. Adjusted EBITDAX excludes certain items that management believes affect the comparability of operating results. The company believes this non-GAAP financial measure is a useful adjunct to net income (loss) because:

(i)	Management uses adjusted EBITDAX to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies.

(ii)	Adjusted EBITDAX is more comparable to estimates provided by securities analysts.

(iii)	Items excluded generally are one-time items or items whose timing or amount cannot be reasonably estimated. Accordingly, any guidance provided by the company generally excludes information regarding these types of items.

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(a)	Includes expected settlements for oil, natural gas and NGL derivatives adjusted for option premiums. For derivatives closed early, settlements are reflected in the period of original contract expiration.

(b)	Excludes expenses associated with stock-based compensation, which are recorded in general and administrative expenses in Chesapeake's Condensed Consolidated Statement of Operations.

(c)	Excludes non-cash amortization of approximately $8.7 million related to the buydown of a transportation agreement.

(d)

Adjusted EBITDAX is a non-GAAP measure used by management to evaluate the company's operational trends and performance relative to other oil and natural gas producing companies. Adjusted EBITDAX excludes certain items that management believes affect the comparability of operating results. The most directly comparable GAAP measure is net income but, it is not possible, without unreasonable efforts, to identify the amount or significance of events or transactions that may be included in future GAAP net income but that management does not believe to be representative of underlying business performance. The company further believes that providing estimates of the amounts that would be required to reconcile forecasted adjusted EBITDAX to forecasted GAAP net income would imply a degree of precision that may be confusing or misleading to investors. Items excluded from net income to arrive at adjusted EBITDAX include interest expense, income taxes, and depreciation, depletion and amortization expense, exploration expense as well as one-time items or items whose timing or amount cannot be reasonably estimated.

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(e)	Includes capital expenditures for drilling and completion, leasehold, developmental geological and geophysical costs, rig termination payments and other property, plant and equipment. Excludes any additional proved property acquisitions and expenditures classified as exploration expense.

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