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Natural Gas and Oil Property Transactions | 12 Months Ended
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Dec. 31, 2022
Property, Plant and Equipment [Abstract] |
Oil and Natural Gas Property Transactions |
4. | Natural Gas and Oil Property Transactions
Marcellus Acquisition On March 9, 2022, we completed the acquisition of Chief and associated non-operated interests held by affiliates of Tug Hill, Inc. of premium drilling locations in the Marcellus Shale in Northeast Pennsylvania (“Marcellus Acquisition”) for total consideration of approximately $2.77 billion, consisting of approximately $2 billion in cash, including working capital adjustments and approximately 9.4 million shares of our common stock, to acquire high quality producing assets and a deep inventory of premium drilling locations in the prolific Marcellus Shale in Northeast Pennsylvania. The Marcellus Acquisition was indebtedness free, effective as of January 1, 2022 and was subject to customary purchase price adjustments. We funded the cash portion of the consideration with cash on hand and $914 million of borrowings under the Company’s Exit Credit Facility. See Note 6 for further discussion of debt. Marcellus Acquisition Purchase Price Allocation We have accounted for the Marcellus Acquisition as a business combination, using the acquisition method. The following table represents the allocation of the total purchase price to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date. We finalized the acquisition accounting for this transaction during the 2022 Successor Period, which resulted in measurement period adjustments of $39 million to both restricted cash and current liabilities, to reflect funds restricted for future payment of certain royalties.
| Purchase Price Allocation
Consideration: |
Cash | $ | 2,000 |
Fair value of Chesapeake’s common stock issued in the merger (a) | 764 |
Working capital adjustments | 6 |
Total consideration | $ | 2,770 |
Fair Value of Liabilities Assumed: |
Current liabilities | $ | 459 |
Other long-term liabilities | 129 |
Amounts attributable to liabilities assumed | $ | 588 |
Fair Value of Assets Acquired: |
Cash, cash equivalents and restricted cash | $ | 39 |
Other current assets | 218 |
Proved natural gas and oil properties | 2,309 |
Unproved properties | 788 |
Other property and equipment | 1 |
Other long-term assets | 3 |
Amounts attributable to assets acquired | $ | 3,358 |
Total identifiable net assets | $ | 2,770 |
____________________________________________ (a)The fair value of our common stock is a Level 1 input, as our stock price is a quoted price in an active market as of the acquisition date. Natural Gas and Oil Properties For the Marcellus Acquisition, 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 natural gas and oil properties as of the acquisition date was based on estimated natural gas and oil 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 NYMEX strip pricing adjusted for inflation to value the reserves. 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 natural gas and oil properties acquired. Additionally, the fair value estimate of proved and unproved natural gas and oil properties was corroborated by utilizing a market approach, which considers recent comparable transactions for similar assets. The inputs used to value natural gas and oil properties require significant judgment and estimates made by management and represent Level 3 inputs. Marcellus Acquisition Revenues and Expenses Subsequent to Acquisition We included in our consolidated statements of operations natural gas, oil and NGL revenues of $1,331 million, marketing revenues of $20 million, net losses on natural gas and oil derivatives of $379 million, and direct operating expenses of $483 million, including depreciation, depletion and amortization, related to the Marcellus Acquisition businesses for the period from March 10, 2022 (the date immediately following the completion of the Marcellus Acquisition) through December 31, 2022. Vine Acquisition On November 1, 2021, we acquired Vine, an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana pursuant to a definitive agreement with Vine dated August 10, 2021, for total consideration of approximately $1.5 billion, consisting of approximately 18.7 million shares of our common stock and $90 million in cash. In conjunction with the Vine Acquisition, Vine’s Second Lien Term Loan was repaid and terminated for $163 million inclusive of a $13 million make whole premium with cash on hand due to the agreement containing a change in control provision making the term loan callable upon closing. Vine’s reserve-based loan facility, which had no borrowings as of November 1, 2021, was terminated at the time of the acquisition. Additionally, Vine’s 6.75% Senior Notes, with a principal amount of $950 million were assumed by the Company. See Note 6 for additional discussion of the assumed debt. We funded the cash portion of the consideration with cash on hand. Vine Purchase Price Allocation We have accounted for the Vine Acquisition as a business combination, using the acquisition method. The following table represents the allocation of the total purchase price of Vine to the identifiable assets acquired and the liabilities assumed based on the fair values as of the acquisition date. We finalized the acquisition accounting for this transaction during the 2022 Successor Period, which resulted in measurement period adjustments of $19 million to both deferred tax liabilities and unproved properties. See Note 11 for additional information regarding the change to deferred tax liabilities.
| Purchase Price Allocation
Consideration: |
Cash | $ | 253 |
Fair value of Chesapeake’s common stock issued in the merger (a) | 1,231 |
Restricted stock unit replacement awards | 6 |
Total consideration | $ | 1,490 |
Fair Value of Liabilities Assumed: |
Current liabilities | $ | 765 |
Long-term debt | 1,021 |
Deferred tax liabilities | 30 |
Other long-term liabilities | 272 |
Amounts attributable to liabilities assumed | $ | 2,088 |
Fair Value of Assets Acquired: |
Cash and cash equivalents | $ | 59 |
Other current assets | 206 |
Proved natural gas and oil properties | 2,181 |
Unproved properties | 1,099 |
Other property and equipment | 1 |
Other long-term assets | 32 |
Amounts attributable to assets acquired | $ | 3,578 |
Total identifiable net assets | $ | 1,490 |
____________________________________________ (a)The fair value of our common stock is a Level 1 input, as our stock price is a quoted price in an active market as of the acquisition date. Natural Gas and Oil Properties For the Vine Acquisition, 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 natural gas and oil properties as of the acquisition date was based on estimated natural gas and oil 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 NYMEX strip pricing adjusted for inflation to value the reserves. 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 natural gas and oil properties acquired. Additionally, the fair value estimate of proved and unproved natural gas and oil properties was corroborated by utilizing a market approach, which considers recent comparable transactions for similar assets. The inputs used to value natural gas and oil 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. Restricted Stock Unit Replacement Awards Included in consideration for the Vine Acquisition is approximately $6 million related to pre-combination service recognized on Vine’s restricted stock unit awards. For restricted stock units that were accelerated or transitioned at the time of the merger, we recognized expense for the portion of the award that was accelerated and included in consideration the portion of the award related to pre-combination service. Vine Revenues and Expenses Subsequent to Acquisition We included in our consolidated statements of operations natural gas, oil and NGL revenues of $290 million, net gains on natural gas and oil derivatives of $144 million, direct operating expenses of $177 million, including depreciation, depletion and amortization, and other expense of $12 million related to the Vine business for the period from November 1, 2021 to December 31, 2021. We included in our consolidated statements of operations natural gas, oil and NGL revenues of $1,863 million, net losses on natural gas and oil derivatives of $624 million, direct operating expenses of $924 million, including depreciation, depletion and amortization, and other expense of $39 million related to the Vine business for the 2022 Successor Period. Combined Pro Forma Financial Information As the Vine Acquisition closed on November 1, 2021, all activity in 2022 is included in Chesapeake’s consolidated statements of operations for the 2022 Successor Period. The following unaudited pro forma financial information is based on our historical consolidated financial statements adjusted to reflect as if the Marcellus Acquisition and Vine Acquisition had each occurred on February 10, 2021, the date Chesapeake emerged from bankruptcy. See Note 2 for additional information on the bankruptcy. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including the estimated tax impact of the pro forma adjustments.
|  | Successor
|  | Year Ended December 31, 2022 |  | Period from February 10, 2021 through December 31, 2021
Revenues |  | $ | 11,743 |  |  | $ | 5,891 |
Net income (loss) available to common stockholders |  | $ | 4,765 |  |  | $ | (5) |
Earnings (loss) per common share: |  |  |  |
Basic |  | $ | 37.37 |  |  | $ | (0.04) |
Diluted |  | $ | 32.26 |  |  | $ | (0.04) |
Powder River Divestiture On January 24, 2022, Chesapeake signed an agreement to sell its Powder River Basin assets in Wyoming to Continental Resources, Inc. for approximately $450 million, subject to customary closing adjustments. The divestiture, which closed on March 25, 2022, resulted in the recognition of a gain of approximately $293 million, which included $13 million of post-close adjustments, based on the difference between the carrying value of the assets and the cash received. 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 Companies 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 Companies 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.

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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 https://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 https://asc.fasb.org/topic&trid=2303972 + Details
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