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Natural Gas and Oil Property Transactions | 9 Months Ended
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Sep. 30, 2023
Property, Plant and Equipment [Abstract] |
Natural Gas and Oil Property Transactions |
2. | Natural Gas and Oil Property Transactions
Marcellus Acquisition On March 9, 2022, we closed the 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. During the Prior Period, we recognized approximately $40 million of costs related to the Marcellus Acquisition, which included integration costs, consulting fees, financial advisory fees, legal fees and change in control expense in accordance with Chief’s existing employment agreements. These acquisition-related costs are included within other operating expense, net within our condensed consolidated statements of operations. 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 2022.
| 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 For the period from March 10, 2022 to September 30, 2022, we included in our condensed consolidated statements of operations natural gas, oil and NGL revenues of $959 million, marketing revenues of $20 million, net losses on natural gas and oil derivatives of $542 million, and direct operating expenses of $329 million, including depreciation, depletion and amortization related to the Marcellus Acquisition businesses. Pro Forma Financial Information As the Marcellus Acquisition closed on March 9, 2022, the condensed consolidated statements of operations for the Prior Quarter and Current Period include all activity related to the acquired properties. The following unaudited pro forma financial information is based on our historical consolidated financial statements adjusted to reflect as if the Marcellus Acquisition occurred on January 1, 2022. 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.
|  |  |  | Nine Months Ended September 30, 2022
Revenues |  |  |  | $ | 7,617 |
Net income |  |  |  | $ | 1,252 |
Earnings per common share: |  |  |  |
Basic |  |  |  | $ | 10.00 |
Diluted |  |  |  | $ | 8.50 |
Eagle Ford Divestitures In January 2023, we entered into an agreement to sell a portion of our Eagle Ford assets to WildFire Energy I LLC for approximately $1.425 billion, subject to customary closing adjustments. Approximately $225 million of the purchase price was recorded as deferred consideration and treated as a non-interest-bearing note to be paid in installments of $60 million per year for the next three years, with $45 million to be paid in the fourth year following the transaction close date. The deferred consideration is recorded at fair value with an imputed rate of interest as a Level 2 input, and approximately $57 million of the deferred consideration is reflected within other current assets and approximately $132 million is reflected within other long-term assets on the condensed consolidated balance sheets as of September 30, 2023. The divestiture, which closed on March 20, 2023 (with an effective date of October 1, 2022), resulted in a gain of approximately $337 million, inclusive of post-closing adjustments, based on the difference between the carrying value of the assets and consideration received. As of December 31, 2022, approximately $811 million of property and equipment, net, and $8 million of other assets were classified as assets held for sale on the condensed consolidated balance sheets. Additionally, approximately $65 million of derivative liabilities, $57 million of asset retirement obligations and $22 million of other liabilities were classified as held for sale and included within other current liabilities on the condensed consolidated balance sheets as of December 31, 2022. In February 2023, we entered into an agreement to sell a portion of our remaining Eagle Ford assets to INEOS Upstream Holdings Limited (“INEOS Energy”) for approximately $1.4 billion, subject to customary closing adjustments. Approximately $225 million of the purchase price was recorded as deferred consideration and treated as a non-interest-bearing note to be paid in installments of approximately $56 million per year for the next four years. The deferred consideration is recorded at fair value with an imputed rate of interest as a Level 2 input, and approximately $54 million of the deferred consideration is reflected within other current assets and approximately $141 million is reflected within other long-term assets on the condensed consolidated balance sheets as of September 30, 2023. The divestiture, which closed on April 28, 2023 (with an effective date of October 1, 2022), resulted in a gain of approximately $470 million, based on the difference between the carrying value of the assets and consideration received. Included within the liabilities assumed by INEOS Energy was approximately $53 million of asset retirement obligations. As part of the transition services agreement related to this divestiture, we have continued to collect and disburse cash on behalf of the parties in the divested properties. On our condensed consolidated balance sheets as of September 30, 2023, cash and cash equivalents includes approximately $91 million representing the net of cash inflows and outflows associated with these properties, with the corresponding liabilities reflected in accounts payable and other current liabilities. In August 2023, we entered into an agreement to sell the final portion of our Eagle Ford assets to SilverBow Resources, Inc. (“SilverBow”) for approximately $700 million, subject to customary post-closing adjustments. Subject to the satisfaction of certain commodity price triggers, we may receive additional cash consideration in an amount of up to $50 million shortly following the first anniversary of the transaction close date. We classified approximately $510 million of property and equipment, net and $10 million of other assets as held for sale included within current assets held for sale on the condensed consolidated balance sheets as of September 30, 2023. Additionally, approximately $11 million of asset retirement obligation liabilities were classified as held for sale and included within other current liabilities on the condensed consolidated balance sheets as of September 30, 2023. We expect this transaction to close during the fourth quarter of 2023. Powder River Divestiture In January 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.

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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 -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent + Details
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