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Oil and Natural Gas Property Transactions | 12 Months Ended
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Dec. 31, 2020
Property, Plant and Equipment [Abstract] |
Oil and Natural Gas Property Transactions | Oil and Natural Gas Property Transactions Mid-Continent Divestiture On October 13, 2020, we filed a notice with the Bankruptcy Court that we reached an agreement with Tapstone Energy in a Section 363 transaction under the Bankruptcy Code. An auction supervised by the Bankruptcy Court was held on November 10, 2020 in which other pre-qualified buyers submitted bids for the asset. We presented the results of the auction process to the Bankruptcy Court and the sale was approved on November 13, 2020. On December 11, 2020, we closed the transaction with Tapstone Energy for $130 million, subject to post-closing adjustments which resulted in the recognition of a gain of approximately $27 million. Haynesville Exchange On November 22, 2020, we filed notice with the Bankruptcy Court that we had reached an agreement with Williams to transfer certain Haynesville assets, including interests in 144 producing wells and approximately 50,000 net acres, in exchange for improved midstream contract terms with respect to assets we retained. On December 15, 2020, the Court approved the transaction with Williams and the exchange resulted in the recognition of loss of approximately $128 million based on the difference between the carrying value of the assets and the fair value of the assets surrendered. The exchange was executed to obtain sufficient savings on midstream obligations as required by the Plan. Therefore, the loss was recorded to reorganization items, net in our consolidated statements of operations. WildHorse Acquisition On February 1, 2019, we acquired WildHorse Resource Development Corporation (“WildHorse”), an oil and gas company with operations in the Eagle Ford Shale and Austin Chalk formations in southeast Texas, for approximately 3.6 million reverse stock split-adjusted shares of our common stock and $381 million in cash. We funded the cash portion of the consideration through borrowings under the pre-petition revolving credit facility. In connection with the closing, we acquired all of WildHorse’s debt. See Note 5 for additional information on the acquired debt. 2019 Purchase Price Allocation We have accounted for the acquisition of WildHorse and its corresponding merger (the “Merger”) with and into our wholly owned subsidiary, Brazos Valley Longhorn, L.L.C. (“Brazos Valley Longhorn” or “BVL”), as a business combination, using the acquisition method. The following table represents the final allocation of the total purchase price of WildHorse to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date.
| 2019 Purchase Price Allocation
| ($ in millions)
Consideration: |
Cash | $ | 381 |
Fair value of Chesapeake’s common stock issued in the Merger (a) | 2,037 |
Total consideration | $ | 2,418 |
Fair Value of Liabilities Assumed: |
Current liabilities | $ | 166 |
Long-term debt | 1,379 |
Deferred tax liabilities | 314 |
Other long-term liabilities | 36 |
Amounts attributable to liabilities assumed | $ | 1,895 |
Fair Value of Assets Acquired: |
Cash and cash equivalents | $ | 28 |
Other current assets | 128 |
Proved oil and natural gas properties | 3,264 |
Unproved properties | 756 |
Other property and equipment | 77 |
Other long-term assets | 60 |
Amounts attributable to assets acquired | $ | 4,313 |
Total identifiable net assets | $ | 2,418 |
___________________________________________ (a) Based on 3.6 reverse stock split-adjusted Chesapeake common shares issued at closing at $568 per share (closing price as of February 1, 2019). The fair values of assets acquired and liabilities assumed were based on the following key inputs: Oil and Natural Gas Properties For the acquisition of WildHorse, we applied applicable guidance, under which an acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition date at fair value. The fair value estimate of proved and unproved oil and natural gas properties as of the acquisition date was based on estimated oil and natural gas reserves and related future net cash flows discounted using a weighted average cost of capital, including estimates of future production rates and future development costs. We utilized a combination of the NYMEX strip pricing and consensus pricing to value the reserves. Our estimates of commodity prices for purposes of determining discounted cash flows ranged from a 2019 price of $56.33 per barrel of oil increasing to a 2023 price of $61.17 per barrel of oil. Similarly, natural gas prices ranged from a 2019 price of $2.82 per mmbtu then increasing to a 2023 price of $3.00 per mmbtu. Both oil and natural gas commodity prices were held flat after 2023 and adjusted for inflation. We then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired. Additionally, the estimated fair value estimate of proved and unproved oil and natural gas properties was corroborated by utilizing the market approach which considers recent comparable transactions for similar assets. The inputs used to value oil and natural gas properties require significant judgment and estimates made by management and represent Level 3 inputs. Financial Instruments and Other The fair value measurements of long-term debt were estimated based on a market approach using estimates provided by an independent investment data services firm and represent Level 2 inputs. Deferred Income Taxes For federal income tax purposes, the WildHorse acquisition qualified as a tax-free merger, as a result, we acquired carryover tax basis in WildHorse’s assets and liabilities. Deferred tax liabilities and assets were recorded for differences between the purchase price allocated to the assets acquired and liabilities assumed based on the fair value and the carryover tax basis. See Note 10 for further discussion of deferred income taxes. WildHorse Revenues and Expenses Subsequent to Acquisition We included in our consolidated statements of operations revenues of $752 million, direct operating expenses of $810 million, including depreciation, depletion and amortization, and other expense of $83 million related to the WildHorse business for the period from February 1, 2019 to December 31, 2019. Pro Forma Financial Information The following unaudited pro forma financial information for the years ended December 31, 2019 and 2018, respectively, is based on our historical consolidated financial statements adjusted to reflect as if the WildHorse acquisition had occurred on January 1, 2018. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including adjustments to conform the classification of expenses in WildHorse’s statements of operations to our classification for similar expenses and the estimated tax impact of pro forma adjustments.
|  | Years Ended December 31,
|  | 2019 |  | 2018
|  | ($ in millions except per share data)
Revenues |  | $ | 8,587 |  |  | $ | 11,211 |
Net income (loss) available to common stockholders |  | $ | (431) |  |  | $ | 195 |
Earnings (loss) per common share:(a) |  |  |  |
Basic |  | $ | (51.77) |  |  | $ | 42.89 |
Diluted |  | $ | (51.77) |  |  | $ | 42.89 |
____________________________________________ (a)All per share information has been retroactively adjusted to reflect the 1-for-200 (1:200) reverse stock split effective April 14, 2020. See Note 11 for additional information. This unaudited pro forma information has been derived from historical information. The unaudited pro forma financial information is not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the periods presented, nor is it necessarily indicative of future results. 2019 Transactions In 2019, we received proceeds of approximately $130 million, net of post-closing adjustments, and recognized a gain of approximately $46 million, primarily for the sale of non-core oil and natural gas properties. 2018 Transactions We sold all of our approximately 1,500,000 gross (900,000 net) acres in Ohio, of which approximately 320,000 net acres are prospective for the Utica Shale with approximately 920 producing wells, along with related property and equipment for net proceeds of $1.868 billion to Encino, with additional contingent payments to us of up to $100 million comprised of $50 million in consideration in each case if, on or prior to December 31, 2019, there is a period of twenty (20) trading days out of a period of thirty (30) consecutive trading days where (i) the average of the NYMEX natural gas strip prices for the months comprising the year 2022 equals or exceeds $3.00/mmbtu as calculated pursuant to the purchase agreement, and (ii) the average of the NYMEX natural gas strip prices for the months comprising the year 2023 equals or exceeds $3.25/mmbtu as calculated pursuant to the purchase agreement. The contingent consideration expired on December 31, 2019 with no value attributed to the arrangement. We recognized a loss of approximately $273 million associated with the transaction. In 2018, we sold portions of our acreage, producing properties and other related property and equipment in the Mid-Continent, including our Mississippian Lime assets, for approximately $491 million, subject to certain customary closing adjustments. Included in the sales were approximately 238,500 net acres and interests in approximately 3,200 wells. We recognized a gain of approximately $12 million associated with the transactions. Also, in 2018, we received proceeds of approximately $37 million subject to customary closing adjustments, for the sale of other oil and natural gas properties covering various operating areas.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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