Oil and Natural Gas Property Transactions

6 Months Ended

Jun. 30, 2019

Oil and Natural Gas Property Transactions

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 717.4 million shares of our common stock and $381 million in cash. We funded the cash portion of the consideration through borrowings under the Chesapeake revolving credit facility. In connection with the closing, we acquired all of WildHorse’s debt. See Note 6 for additional information on the acquired debt.

Purchase Price Allocation

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”) has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary 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. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, valuation of pre-acquisition contingencies, final tax returns that provide the underlying tax basis of WildHorse’s assets and liabilities and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate.



	Preliminary 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

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(a)	Based on 717,376,170 Chesapeake common shares issued at closing at $2.84 per share (closing price as of February 1, 2019).

We included in our condensed consolidated statements of operations revenues of $308 million, direct operating expenses of $369 million and other expenses of $54 million related to the WildHorse business for the period from February 1, 2019 to June 30, 2019.

Pro Forma Financial Information

The following unaudited pro forma financial information for the six months ended June 30, 2019 and three and six months ended 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.



	Three Months Ended June 30,			Six Months Ended June 30,
	2018			2019		2018
	($ in millions except per share data)
Revenues	$	2,403		$	4,574	$	5,085
Net income (loss) available to common stockholders	$	(332	)	$	16	$	(360	)
Earnings per common share:
Basic	$	(0.20	)	$	0.01	$	(0.22	)
Diluted	$	(0.20	)	$	0.01	$	(0.22	)

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.

Divestitures

In the Prior Period, 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. Also, in the Current Quarter, the Prior Quarter, the Current Period and the Prior Period, we received proceeds of approximately $56 million, $5 million, $82 million and $23 million, respectively, subject to customary closing adjustments, for the sale of other oil and natural gas properties covering various operating areas.