UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 1-13726

CHESAPEAKE ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Oklahoma			73-1395733
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
6100 North Western Avenue,	Oklahoma City,	Oklahoma	73118
(Address of principal executive offices)			(Zip Code)
		(405)	848-8000
(Registrant’s telephone number, including area code)

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	CHK	New York Stock Exchange
6.625% Senior Notes due 2020	CHK20A	New York Stock Exchange
6.875% Senior Notes due 2020	CHK20	New York Stock Exchange
6.125% Senior Notes due 2021	CHK21	New York Stock Exchange
5.375% Senior Notes due 2021	CHK21A	New York Stock Exchange
4.875% Senior Notes due 2022	CHK22	New York Stock Exchange
5.75% Senior Notes due 2023	CHK23	New York Stock Exchange
4.5% Cumulative Convertible Preferred Stock	CHK Pr D	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒      No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒  Accelerated Filer ☐  Non-accelerated Filer ☐ 

Smaller Reporting Company ☐  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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐      No ☒ 

As of October 31, 2019, there were 1,954,162,667 shares of our $0.01 par value common stock outstanding.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2019

	PART I. FINANCIAL INFORMATION	Page
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Operations  for the Three and Nine Months Ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Comprehensive Income  for the Three and Nine Months Ended September 30, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	7
	Condensed Consolidated Statements of Stockholders’ Equity  for the Three and Nine Months Ended September 30, 2019 and 2018	9
	Notes to the Condensed Consolidated Financial Statements
	Note 1. Basis of Presentation and Summary of Significant Accounting Policies	11
	Note 2. Change in Accounting Principle	13
	Note 3. Oil and Natural Gas Property Transactions	26
	Note 4. Capitalized Exploratory Well Costs	28
	Note 5. Earnings per Share	28
	Note 6. Debt	29
	Note 7. Contingencies and Commitments	33
	Note 8. Other Liabilities	34
	Note 9. Leases	35
	Note 10. Revenue Recognition	38
	Note 11. Income Taxes	40
	Note 12. Equity	42
	Note 13. Share-Based Compensation	43
	Note 14. Derivative and Hedging Activities	47
	Note 15. Investments	53
	Note 16. Other Operating Expenses	53
	Note 17. Restructuring and Other Termination Costs	53
	Note 18. Fair Value Measurements	54
	Note 19. Condensed Consolidating Financial Information	54
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	63
	Liquidity and Capital Resources	64
	Results of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	69
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	78
Item 4.	Controls and Procedures	82
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	83
Item 1A.	Risk Factors	83
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	85
Item 6.	Exhibits	86
Signatures		88

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2019			December 31, 2018
	($ in millions)
CURRENT ASSETS:
Cash and cash equivalents ($2 and $1 attributable to our VIE)	$	14		$	4
Accounts receivable, net	977			1,247
Short-term derivative assets	272			209
Other current assets	140			138
Total Current Assets	1,403			1,598
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, at cost based on successful efforts accounting:
Proved oil and natural gas properties ($755 and $755 attributable to our VIE)	30,288			25,407
Unproved properties	2,200			1,561
Other property and equipment	1,810			1,721
Total Property and Equipment, at Cost	34,298			28,689
Less: accumulated depreciation, depletion and amortization (($711) and ($707) attributable to our VIE)	(19,432		)	(17,886		)
Property and equipment held for sale, net	10			15
Total Property and Equipment, Net	14,876			10,818
LONG-TERM ASSETS:
Long-term derivative assets	51			76
Other long-term assets	249			243
TOTAL ASSETS	$	16,579		$	12,735

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)

(Unaudited)

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	September 30, 2019			December 31, 2018
	($ in millions)
CURRENT LIABILITIES:
Accounts payable	$	526		$	763
Current maturities of long-term debt, net	208			381
Accrued interest	124			141
Short-term derivative liabilities	—			3
Other current liabilities ($1 and $2 attributable to our VIE)	1,490			1,599
Total Current Liabilities	2,348			2,887
LONG-TERM LIABILITIES:
Long-term debt, net	9,133			7,341
Asset retirement obligations, net of current portion	177			155
Other long-term liabilities	186			219
Total Long-Term Liabilities	9,496			7,715
CONTINGENCIES AND COMMITMENTS (Note 7)
EQUITY:
Chesapeake Stockholders’ Equity:
Preferred stock, $0.01 par value, 20,000,000 shares authorized: 5,563,458 and 5,603,458 shares outstanding	1,631			1,671
Common stock, $0.01 par value, 3,000,000,000 and 2,000,000,000 shares authorized: 1,954,150,951 and 913,715,512 shares issued	19			9
Additional paid-in capital	16,975			14,378
Accumulated deficit	(13,896		)	(13,912		)
Accumulated other comprehensive income (loss)	3			(23		)
Less: treasury stock, at cost; 5,623,592 and 3,246,553 common shares	(36		)	(31		)
Total Chesapeake Stockholders’ Equity	4,696			2,092
Noncontrolling interests	39