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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, 2023
    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. 001-13726
chesapeakelogocolora42.jpg
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 classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par value per shareCHKThe Nasdaq Stock Market LLC
Class A Warrants to purchase Common StockCHKEWThe Nasdaq Stock Market LLC
Class B Warrants to purchase Common StockCHKEZThe Nasdaq Stock Market LLC
Class C Warrants to purchase Common StockCHKELThe Nasdaq Stock Market LLC
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  
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes   No
As of October 27, 2023, there were 131,072,227 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, 2023
 



Definitions
Unless the context otherwise indicates, references to “us,” “we,” “our,” “ours,” “Chesapeake,” the “Company” and “Registrant” refer to Chesapeake Energy Corporation and its consolidated subsidiaries. All monetary values, other than per unit and per share amounts, are stated in millions of U.S. dollars unless otherwise specified. In addition, the following are other abbreviations and definitions of certain terms used within this Quarterly Report on Form 10-Q:
“ASC” means Accounting Standards Codification.
“Bankruptcy Code” means Title 11 of the United States Code, 11 U.S.C. §§ 101–1532, as amended.
“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of Texas.
“Bbl” or “Bbls” means barrel or barrels.
“Bcf” means billion cubic feet.
“Chapter 11 Cases” means, when used with reference to a particular Debtor, the case pending for that Debtor under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, and when used with reference to all the Debtors, the procedurally consolidated Chapter 11 cases pending for the Debtors in the Bankruptcy Court.
“Chief” means Chief E&D Holdings, LP.
“Class A Warrants” means warrants to purchase 10 percent of the New Common Stock (after giving effect to the Rights Offering, but subject to dilution by the Management Incentive Plan, the Class B Warrants, and the Class C Warrants), at an initial exercise price per share of $27.63. The Class A Warrants are exercisable from the Effective Date until February 9, 2026.
“Class B Warrants” means warrants to purchase 10 percent of the New Common Stock (after giving effect to the Rights Offering, but subject to dilution by the Management Incentive Plan and the Class C Warrants), at an initial exercise price per share of $32.13. The Class B Warrants are exercisable from the Effective Date until February 9, 2026.
“Class C Warrants” means warrants to purchase 10 percent of the New Common Stock (after giving effect to the Rights Offering, but subject to dilution by the Management Incentive Plan), at an initial exercise price per share of $36.18. The Class C Warrants are exercisable from the Effective Date until February 9, 2026.
“Confirmation Order” means the order confirming the Fifth Amended Joint Chapter 11 Plan of Reorganization of Chesapeake Energy Corporation and its Debtor Affiliates, Docket No. 2915, entered by the Bankruptcy Court on January 16, 2021.
“Current Period” means the nine months ended September 30, 2023.
“Current Quarter” means the three months ended September 30, 2023.
“DD&A” means depreciation, depletion and amortization.
“Debtors” means the Company, together with all of its direct and indirect subsidiaries that have filed the Chapter 11 Cases.
“Effective Date” means February 9, 2021.
“ESG” means environmental, social and governance.
“Exit Credit Facility” means the reserve-based revolving credit facility available upon emergence from bankruptcy.
“G&A” means general and administrative expenses.
“GAAP” means U.S. generally accepted accounting principles.



“General Unsecured Claim” means any Claim against any Debtor that is not otherwise paid in full during the Chapter 11 Cases pursuant to an order of the Bankruptcy Court and is not an Administrative Claim, a Priority Tax Claim, an Other Priority Claim, an Other Secured Claim, a Revolving Credit Facility Claim, a FLLO Term Loan Facility Claim, a Second Lien Notes Claim, an Unsecured Notes Claim, an Intercompany Claim, or a Section 510(b) Claim.
“LNG” means liquefied natural gas.
“LTIP” means the Chesapeake Energy Corporation 2021 Long-Term Incentive Plan.
“Marcellus Acquisition” means Chesapeake’s acquisition of Chief and associated non-operated interests held by affiliates of Radler and Tug Hill, Inc., which closed on March 9, 2022 with an effective date of January 1, 2022.
“MBbls” means thousand barrels.
“MMBbls” means million barrels.
“Mcf” means thousand cubic feet.
“Mcfe” means one thousand cubic feet of natural gas equivalent, with one barrel of oil or NGL converted to an equivalent volume of natural gas using the ratio of one barrel of oil or NGL to six Mcf of natural gas.
“MMcf” means million cubic feet.
“MMcfe” means million cubic feet of natural gas equivalent.
“New Common Stock” means the single class of common stock issued by Reorganized Chesapeake on the Effective Date.
“NGL” means natural gas liquids.
“NYMEX” means New York Mercantile Exchange.
“OPEC+” means Organization of the Petroleum Exporting Countries Plus.
“Petition Date” means June 28, 2020, the date on which the Debtors commenced the Chapter 11 Cases.
“Plan” means the Fifth Amended Joint Chapter 11 Plan of Reorganization of Chesapeake Energy Corporation and its Debtor Affiliates, attached as Exhibit A to the Confirmation Order.
“Prior Period” means the nine months ended September 30, 2022.
“Prior Quarter” means the three months ended September 30, 2022.
“Radler” means Radler 2000 Limited Partnership.
“Rights Offering” means the New Common Stock rights offering for the Rights Offering Amount consummated by the Debtors on the Effective Date.
“SEC” means United States Securities and Exchange Commission.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator, the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“Vine Acquisition” means Chesapeake’s acquisition of Vine Energy Inc. which closed on November 1, 2021.
“Warrants” means collectively, the Class A Warrants, Class B Warrants and Class C Warrants.
“/Bbl” means per barrel.
“/Mcf” means per Mcf.
“/Mcfe” means per Mcfe.


Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Financial Statements
CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

($ in millions, except per share data)September 30, 2023December 31, 2022
Assets
Current assets:
Cash and cash equivalents$713 $130 
Restricted cash73 62 
Accounts receivable, net685 1,438 
Short-term derivative assets361 34 
Assets held for sale520 819 
Other current assets163 215 
Total current assets2,515 2,698 
Property and equipment:
Natural gas and oil properties, successful efforts method
Proved natural gas and oil properties11,002 11,096 
Unproved properties1,907 2,022 
Other property and equipment496 500 
Total property and equipment13,405 13,618 
Less: accumulated depreciation, depletion and amortization(3,299)(2,431)
Total property and equipment, net10,106 11,187 
Long-term derivative assets30 47 
Deferred income tax assets1,032 1,351 
Other long-term assets565 185 
Total assets$14,248 $15,468 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$540 $603 
Accrued interest41 42 
Short-term derivative liabilities20 432 
Other current liabilities1,013 1,627 
Total current liabilities1,614 2,704 
Long-term debt, net2,032 3,093 
Long-term derivative liabilities40 174 
Asset retirement obligations, net of current portion273 323 
Other long-term liabilities21 50 
Total liabilities3,980 6,344 
Contingencies and commitments (Note 5)
Stockholders' equity:
Common stock, $0.01 par value, 450,000,000 shares authorized: 131,182,918 and 134,715,094 shares issued
1 1 
Additional paid-in capital5,735 5,724 
Retained earnings4,532 3,399 
Total stockholders' equity10,268 9,124 
Total liabilities and stockholders' equity$14,248 $15,468 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
($ in millions, except per share data)2023202220232022
Revenues and other:
Natural gas, oil and NGL$682 $2,987 $2,784 $7,691 
Marketing724 1,206 1,987 3,296 
Natural gas and oil derivatives106 (1,029)1,195 (3,668)
Gains (losses) on sales of assets (2)807 298 
Total revenues and other1,512 3,162 6,773 7,617 
Operating expenses:
Production73 121 293 349 
Gathering, processing and transportation192 286 663 802 
Severance and ad valorem taxes27 67 136 187 
Exploration4 2 19 14 
Marketing723 1,200 1,985 3,279 
General and administrative29 40 95 102 
Separation and other termination costs  3  
Depreciation, depletion and amortization382 440 1,148 1,300 
Other operating expense, net3 1 15 32 
Total operating expenses1,433 2,157 4,357 6,065 
Income from operations79 1,005 2,416 1,552 
Other income (expense):
Interest expense(23)(52)(82)(120)
Other income15 4 48 29 
Total other expense(8)(48)(34)(91)
Income before income taxes71 957 2,382 1,461 
Income tax expense1 74 532 105 
Net income$70 $883 $1,850 $1,356 
Earnings per common share:
Basic$0.53 $7.29 $13.86 $11.03 
Diluted$0.49 $6.12 $12.90 $9.35 
Weighted average common shares outstanding (in thousands):
Basic132,153 121,150 133,460 122,924 
Diluted142,348 144,390 143,463 145,031 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30,
($ in millions)20232022
Cash flows from operating activities:
Net income$1,850 $1,356 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization1,148 1,300 
Deferred income tax expense319 19 
Derivative (gains) losses, net(1,195)3,668 
Cash receipts (payments) on derivative settlements, net167 (2,845)
Share-based compensation25 16 
Gains on sales of assets(807)(298)
Exploration9 10 
Other26 19 
Changes in assets and liabilities368 (170)
Net cash provided by operating activities1,910 3,075 
Cash flows from investing activities:
Capital expenditures(1,450)(1,299)
Business combination, net (1,967)
Contributions to investments(149) 
Proceeds from divestitures of property and equipment1,967 409 
Net cash provided by (used in) investing activities368 (2,857)
Cash flows from financing activities:
Proceeds from New Credit Facility1,125  
Payments on New Credit Facility(2,175) 
Proceeds from Exit Credit Facility 7,255 
Payments on Exit Credit Facility (6,805)
Funds held for transition services91  
Proceeds from warrant exercise 3 
Cash paid to repurchase and retire common stock(313)(667)
Cash paid for common stock dividends(412)(788)
Net cash used in financing activities(1,684)(1,002)
Net increase (decrease) in cash, cash equivalents and restricted cash594 (784)
Cash, cash equivalents and restricted cash, beginning of period192 914 
Cash, cash equivalents and restricted cash, end of period$786 $130 
Cash and cash equivalents$713 $74 
Restricted cash73 56 
Total cash, cash equivalents and restricted cash$786 $130 


The accompanying notes are an integral part of these condensed consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(Unaudited)

Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:

Nine Months Ended September 30,
($ in millions)20232022
Supplemental cash flow information:
Interest paid, net of capitalized interest$90 $107 
Income taxes paid (refunds) received, net$(18)$181 
Supplemental disclosure of significant
  non-cash investing and financing activities:
Change in accrued drilling and completion costs$(39)$193 
Common stock issued for business combination$ $764 
Operating lease obligations recognized$65 $25 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

Common Stock
($ in millions)SharesAmountAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Total Stockholders' Equity
Balance as of December 31, 2022134,715,094 $1 $5,724 $3,399 $9,124 
Share-based compensation92,048 — 5 — 5 
Issuance of common stock for warrant exercise4,654 — — —  
Repurchase and retirement of common stock(792,543)— — (60)(60)
Net income— — — 1,389 1,389 
Dividends on common stock— — — (175)(175)
Balance as of March 31, 2023134,019,253 $1 $5,729 $4,553 $10,283 
Share-based compensation109,012 — 7 — 7 
Issuance of common stock for warrant exercise878 — — —  
Repurchase and retirement of common stock(1,444,402)— (10)(115)(125)
Net income— — — 391 391 
Dividends on common stock— — — (160)(160)
Balance as of June 30, 2023132,684,741 $1 $5,726 $4,669 $10,396 
Share-based compensation5,859 — 10 — 10 
Issuance of common stock for warrant exercise1,809 — — —  
Repurchase and retirement of common stock(1,509,491)— (1)(130)(131)
Net income— — — 70 70 
Dividends on common stock— — — (77)(77)
Balance as of September 30, 2023131,182,918 $1 $5,735 $4,532 $10,268 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - (Continued)
(Unaudited)

Common Stock
($ in millions)SharesAmountAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Total Stockholders' Equity
Balance as of December 31, 2021117,917,349 $1 $4,845 $825 $5,671 
Issuance of common stock for Marcellus Acquisition9,442,185 — 764 — 764 
Share-based compensation23,169 — 5 — 5 
Issuance of common stock for warrant exercise669,669 — 1 — 1 
Repurchase and retirement of common stock(1,000,000)— — (83)(83)
Net loss— — — (764)(764)
Dividends on common stock— — — (211)(211)
Balance as of March 31, 2022127,052,372 $1 $5,615 $(233)$5,383 
Share-based compensation146,054 — 3 — 3 
Issuance of common stock for warrant exercise166,606 — 1 — 1 
Issuance of reserved common stock and warrants36,951 — — — — 
Repurchase and retirement of common stock(5,811,727)— — (515)(515)
Net income— — — 1,237 1,237 
Dividends on common stock— — — (301)(301)
Balance as of June 30, 2022121,590,256 $1 $5,619 $188 $5,808 
Share-based compensation991 — 7 — 7 
Issuance of common stock for warrant exercise493,016 — 1 — 1 
Repurchase and retirement of common stock(749,600)— — (69)(69)
Net income— — — 883 883 
Dividends on common stock— — — (283)(283)
Balance as of September 30, 2022121,334,663 $1 $5,627 $719 $6,347 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.Basis of Presentation and Summary of Significant Accounting Policies
Description of Company
Chesapeake Energy Corporation (“Chesapeake,” “we,” “our,” “us” or the “Company”) is a natural gas and oil exploration and production company engaged in the acquisition, exploration and development of properties for the production of natural gas, oil and NGL from underground reservoirs. Our operations are located onshore in the United States.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Chesapeake were prepared in accordance with GAAP and the rules and regulations of the SEC. Pursuant to such rules and regulations, certain disclosures have been condensed or omitted.
This Quarterly Report on Form 10-Q (this “Form 10-Q”) relates to our financial position as of September 30, 2023 and December 31, 2022, and our results of operations for the three months ended September 30, 2023 (“Current Quarter”), the nine months ended September 30, 2023 (“Current Period”), the three months ended September 30, 2022 (“Prior Quarter”) and the nine months ended September 30, 2022 (“Prior Period”). Our annual report on Form 10-K for the year ended December 31, 2022 (“2022 Form 10-K”) should be read in conjunction with this Form 10-Q. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair statement of our condensed consolidated financial statements and accompanying notes and include the accounts of our direct and indirect wholly owned subsidiaries and entities in which we have a controlling financial interest. Intercompany accounts and balances have been eliminated. For the time periods covered by this Form 10-Q, we did not have any changes or items impacting other comprehensive income.
Segments
Operating segments are defined as components of an enterprise that engage in activities from which it may earn revenues and incur expenses for which separate operational financial information is available and is regularly evaluated by the chief operating decision maker for the purpose of allocating an enterprise’s resources and assessing its operating performance. We have concluded that we have only one reportable operating segment due to the similar nature of the exploration and production business across Chesapeake and its consolidated subsidiaries and the fact that our marketing activities are ancillary to our operations.
Restricted Cash
As of September 30, 2023, we had restricted cash of $73 million. Our restricted cash represents funds legally restricted for payment of certain convenience class unsecured claims following our emergence from bankruptcy, as well as for future payment of certain royalties.
Assets Held for Sale
We may market certain non-core natural gas and oil assets or other properties for sale. At the end of each reporting period, we evaluate if these assets should be classified as held for sale. The held for sale criteria includes the following: management commits to a plan to sell, the asset is available for immediate sale, an active program to locate a buyer exists, the sale of the asset is probable and expected to be completed within a year, the asset is actively being marketed for sale and that it is unlikely that significant changes to the plan will be made. If each of the criteria are met, then the assets and associated liabilities are classified as held for sale. Additionally, once assets are classified as held for sale, we cease depreciation on those related assets. See Note 2 for further discussion.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

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 adjustments6 
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 properties2,309 
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.


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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
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.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
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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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

3.Earnings Per Share
Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is calculated in the same manner but includes the impact of potentially dilutive securities. Potentially dilutive securities consists of issuable shares related to warrants, unvested restricted stock units (“RSUs”), and unvested performance share units (“PSUs”).
The reconciliations between basic and diluted earnings per share are as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Numerator
Net income, basic and diluted$70 $883 $1,850 $1,356 
Denominator (in thousands)
Weighted average common shares outstanding, basic132,153 121,150 133,460 122,924 
Effect of potentially dilutive securities
Warrants9,841 22,794 9,639 21,692 
Restricted stock units306 396 316 368 
Performance share units48 50 48 47 
Weighted average common shares outstanding, diluted142,348 144,390 143,463 145,031 
Earnings per common share:
Basic$0.53 $7.29 $13.86 $11.03 
Diluted$0.49 $6.12 $12.90 $9.35 

During the Current Quarter and Current Period, the diluted earnings per share calculation excludes the effect of 789,458 reserved shares of common stock and 1,489,337 reserved Class C Warrants related to the settlement of General Unsecured Claims associated with the Chapter 11 Cases, as all necessary conditions had not been met for such shares to be considered dilutive shares.
During the Prior Quarter and Prior Period, the diluted earnings per share calculation excludes the effect of 1,191,877 reserved shares of common stock and 2,248,726 reserved Class C Warrants related to the settlement of General Unsecured Claims associated with the Chapter 11 Cases, as all necessary conditions had not been met for such shares to be considered dilutive shares during the Prior Quarter and Prior Period.
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CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)

4.Debt
Our long-term debt consisted of the following as of September 30, 2023 and December 31, 2022:
September 30, 2023December 31, 2022
Carrying Amount
Fair Value(a)
Carrying Amount
Fair Value(a)
New Credit Facility$ $ $1,050 $1,050 
5.50% senior notes due 2026
500 484 500 485 
5.875% senior notes due 2029
500 470 500 475 
6.75% senior notes due 2029
950 928 950 917 
Premiums on senior notes88 — 100 — 
Debt issuance costs(6)— (7)— 
Total long-term debt, net$2,032 $1,882 $3,093 $2,927 
____________________________________________
(a)The carrying value of borrowings under our New Credit Facility approximate fair value as the interest rates are based on prevailing market rates; therefore, they are a Level 1 fair value measurement. For all other debt, a market approach, based upon quotes from major financial institutions, which are Level 2 inputs, is used to measure the fair value.
New Credit Facility. In December 2022, we entered into a senior secured reserve-based credit agreement (the “New Credit Agreement”) with the lenders and issuing banks party thereto (the “Lenders”), and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent (in such capacity, the “Administrative Agent”), providing for a reserve-based credit facility (the “New Credit Facility”) with an initial borrowing base of $3.5 billion and aggregate commitments of $2.0 billion. The New Credit Facility matures in December 2027. The New Credit Facility provides for a $200 million sublimit available for the issuance of letters of credit and a $50 million sublimit available for swingline loans.

Initially, the obligations under the New Credit Facility are guaranteed by certain of Chesapeake’s subsidiaries (the “Guarantors”), and the New Credit Facility is secured by substantially all of the assets owned by the Company and the Guarantors (subject to customary exceptions), including mortgages on not less than 85% of the total PV-9 of the borrowing base properties evaluated in the most recent reserve report (where PV-9 is the net present value, discounted at 9% per annum, of the estimated future net revenues). The borrowing base will be redetermined semi-annually in or around April and October of each year, with one interim “wildcard” redetermination available to each of the Company and the Administrative Agent, the latter at the direction of the Required Lenders (as defined in the New Credit Agreement), between scheduled redeterminations. Our borrowing base was reaffirmed in October 2023, and the next scheduled redetermination will be in or around April 2024. The New Credit Agreement contains restrictive covenants that limit Chesapeake and its subsidiaries’ ability to, among other things but subject to exceptions customary to reserve-based credit facilities: (i) incur additional indebtedness, (ii) make investments, (iii) enter into mergers; (iv) make or declare dividends; (v) repurchase or redeem certain indebtedness; (vi) enter into certain hedges; (vii) incur liens; (viii) sell assets; and (ix) engage in certain transactions with affiliates. The New Credit Agreement requires Chesapeake to maintain compliance with the following financial ratios: (A) a current ratio, which is the ratio of Chesapeake’s and its restricted subsidiaries’ consolidated current assets (including unused commitments under the New Credit Facility but excluding certain non-cash assets) to their consolidated current liabilities (excluding the current portion of long-term debt and certain non-cash liabilities), of not less than 1.00 to 1.00; (B) a net leverage ratio, which is the ratio of total indebtedness (less unrestricted cash up to a specified threshold) to Consolidated EBITDAX (as defined in the Credit Agreement) for the prior four fiscal quarters, of not greater than 3.50 to 1.00 and (C) a PV-9 coverage ratio of the net present value, discounted at 9% per annum, of the estimated future net revenues expected in the proved reserves to Chesapeake’s and its restricted subsidiaries’ total indebtedness of not less than 1.50 to 1.00.

Borrowings under the New Credit Agreement may be alternate base rate loans or term SOFR loans, at our election. Interest is payable quarterly for alternate base rate loans and at the end of the applicable interest period for
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
term SOFR loans. Term SOFR loans bear interest at term SOFR plus an applicable rate ranging from 175 to 275 basis points per annum, depending on the percentage of the commitments utilized, plus an additional 10 basis points per annum credit spread adjustment. Alternate base rate loans bear interest at a rate per annum equal to the greatest of: (i) the prime rate; (ii) the federal funds effective rate plus 50 basis points; and (iii) the adjusted term SOFR rate for a one-month interest period plus 100 basis points, plus an applicable margin ranging from 75 to 175 basis points per annum, depending on the percentage of the commitments utilized. Chesapeake also pays a commitment fee on unused commitment amounts under the Credit Facility ranging from 37.5 to 50 basis points per annum, depending on the percentage of the commitments utilized.

The New Credit Facility is subject to customary events of default, remedies, and cure rights for credit facilities of this nature. The Company has no additional secured debt outstanding as of September 30, 2023.

5.Contingencies and Commitments
Contingencies
Business Operations and Litigation and Regulatory Proceedings
We are involved in, and expect to continue to be involved in, various lawsuits and disputes incidental to our business operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract actions.
Our total accrued liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel. Significant judgment is required in making these estimates, and our final liabilities may ultimately be materially different.
The majority of the Company’s pre-petition legal proceedings were settled during the Chapter 11 Cases or will be resolved in connection with the claims reconciliation process before the Bankruptcy Court, together with actions seeking to collect pre-petition indebtedness or to exercise control over the property of the Company’s bankruptcy estates. Any allowed claim related to such litigation will be treated in accordance with the Plan. The Plan in the Chapter 11 Cases, which became effective on February 9, 2021, provided for the treatment of claims against the Company’s bankruptcy estates, including pre-petition liabilities that had not been satisfied or addressed during the Chapter 11 Cases. Many of these proceedings were in early stages, and many of them sought damages and penalties, the amount of which is indeterminate.
Environmental Contingencies
The nature of the natural gas and oil business carries with it certain environmental risks for us and our subsidiaries. We have implemented various policies, programs, procedures, training and audits to reduce and mitigate such environmental risks. We conduct periodic reviews, on a company-wide basis, to assess changes in our environmental risk profile. Environmental reserves are established for environmental liabilities for which economic losses are probable and reasonably estimable. We manage our exposure to environmental liabilities in acquisitions by using an evaluation process that seeks to identify pre-existing contamination or compliance concerns and address the potential liability. Depending on the extent of an identified environmental concern, we may, among other things, exclude a property from the transaction, require the seller to remediate the property to our satisfaction in an acquisition or agree to assume liability for the remediation of the property.

Other Matters
Based on management’s current assessment, we are of the opinion that no pending or threatened lawsuit or dispute relating to our business operations is likely to have a material adverse effect on our future consolidated financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts accrued, however, and actual results could differ materially from management’s estimates.

Commitments
Gathering, Processing and Transportation Agreements
We have contractual commitments with midstream service companies and pipeline carriers for future gathering, processing and transportation of natural gas, oil and NGL to move certain of our production to market. Working interest owners and royalty interest owners, where appropriate, will be responsible for their proportionate share of these costs. Commitments related to gathering, processing and transportation agreements are not recorded as obligations in the accompanying condensed consolidated balance sheets; however, they are reflected in our estimates of proved reserves.
The aggregate undiscounted commitments under our gathering, processing and transportation agreements, excluding any reimbursement from working interest and royalty interest owners, credits for third-party volumes or future costs under cost-of-service agreements, are presented below:
September 30, 2023
Remainder of 2023$79 
2024352 
2025323 
2026303 
2027276 
2028-20361,321 
Total$2,654 
During the Current Period, certain gathering, processing and transportation agreements were transferred to the buyer of a portion of our Eagle Ford assets. In addition, we have long-term agreements for certain natural gas gathering and related services within specified acreage dedication areas in exchange for cost-of-service based fees redetermined annually, or tiered fees based on volumes delivered relative to scheduled volumes. Future gathering fees may vary with the applicable agreement.
Other Commitments
As part of our normal course of business, we enter into various agreements providing, or otherwise arranging for, financial or performance assurances to third parties on behalf of our wholly owned guarantor subsidiaries. These agreements may include future payment obligations or commitments regarding operational performance that effectively guarantee our subsidiaries’ future performance.
In connection with acquisitions and divestitures, our purchase and sale agreements generally provide indemnification to the counterparty for liabilities incurred as a result of a breach of a representation or warranty by the indemnifying party and/or other specified matters. These indemnifications generally have a discrete term and are intended to protect the parties against risks that are difficult to predict or cannot be quantified at the time of entering into or consummating a particular transaction. For divestitures of natural gas and oil properties, our purchase and sale agreements may require the return of a portion of the proceeds we receive as a result of uncured title or environmental defects.
While executing our strategic priorities, we have incurred certain cash charges, including contract termination charges, financing extinguishment costs and charges for unused natural gas transportation and gathering capacity.
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6.Other Current Liabilities
Other current liabilities as of September 30, 2023 and December 31, 2022 are detailed below:
September 30, 2023December 31, 2022
Revenues and royalties due to others$411 $734 
Accrued drilling and production costs194 253 
Accrued hedging costs 109 
Accrued compensation and benefits51 72 
Taxes payable189 84 
Operating leases75 86 
Joint interest prepayments received22 34 
Current liabilities held for sale(a)
11 144 
Other60 111 
Total other current liabilities$1,013 $1,627 
_________________________________________
(a)Current liabilities held for sale are associated with the divestiture transactions related to our Eagle Ford assets. See Note 2 for additional information.

7.Revenue
The following table shows revenue disaggregated by operating area and product type:
Three Months Ended September 30, 2023
Natural GasOilNGLTotal
Marcellus$259 $ $ $259 
Haynesville310   310 
Eagle Ford18 71 24 113 
Natural gas, oil and NGL revenue$587 $71 $24 $682 
Marketing revenue$219 $448 $57 $724 

Three Months Ended September 30, 2022
Natural GasOilNGLTotal
Marcellus$1,324 $ $ $1,324 
Haynesville1,093   1,093 
Eagle Ford79 437 54 570 
Natural gas, oil and NGL revenue$2,496 $437 $54 $2,987 
Marketing revenue$827 $328 $51 $1,206 
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Nine Months Ended September 30, 2023
Natural GasOilNGLTotal
Marcellus$1,126 $ $ $1,126 
Haynesville968   968 
Eagle Ford59 548 83 690 
Natural gas, oil and NGL revenue$2,153 $548 $83 $2,784 
Marketing revenue$735 $1,117 $135 $1,987 
Nine Months Ended September 30, 2022
Natural GasOilNGLTotal
Marcellus$3,085 $ $ $3,085 
Haynesville2,733   2,733 
Eagle Ford211 1,390 173 1,774 
Powder River Basin20 66 13 99 
Natural gas, oil and NGL revenue$6,049 $1,456 $186 $7,691 
Marketing revenue$1,872 $1,231 $193 $3,296 
Accounts Receivable
Our accounts receivable are primarily from purchasers of natural gas, oil and NGL and from exploration and production companies that own interests in properties we operate. This industry concentration could affect our overall exposure to credit risk, either positively or negatively, because our purchasers and joint working interest owners may be similarly affected by changes in economic, industry or other conditions. We monitor the creditworthiness of all our counterparties, and we generally require letters of credit or parent guarantees for receivables from parties deemed to have sub-standard credit, unless the credit risk can otherwise be mitigated. We utilize an allowance method in accounting for bad debt based on historical trends in addition to specifically identifying receivables that we believe may be uncollectible.
Accounts receivable as of September 30, 2023 and December 31, 2022 are detailed below:
September 30, 2023December 31, 2022
Natural gas, oil and NGL sales$483 $1,171 
Joint interest196 246 
Other6 24 
Allowance for doubtful accounts (3)
Total accounts receivable, net$685 $1,438 
8.Income Taxes
We estimate our annual effective tax rate (“AETR”) for continuing operations in recording our interim quarterly income tax provision for the various jurisdictions in which we operate. The tax effects of statutory rate changes, significant unusual or infrequently occurring items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of our estimated AETR as such items are recognized as discrete items in the quarter in which they occur. Our estimated AETR during the Current Period was 22.4% as a result of projecting current and deferred federal and state income taxes and a partial valuation allowance against our anticipated net deferred tax asset position at December 31, 2023. Our estimated AETR during the Prior Period was 5.9% as a result of projecting current federal and state income taxes and maintaining a full valuation allowance against our net deferred tax asset position.

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As of December 31, 2022, we were in a net deferred tax asset position and anticipate being in a net deferred tax asset position as of December 31, 2023. Based on all available positive and negative evidence, including projections of future taxable income, we believe it is more likely than not that some of our deferred tax assets will not be realized. As such, a partial valuation allowance was recorded against our net deferred tax asset position for federal and state purposes as of September 30, 2023 and December 31, 2022.
On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act of 2022, which includes provisions for a 15% corporate alternative minimum tax (“CAMT”) on book income for companies whose average book income exceeds $1 billion for any three consecutive years preceding the tax year and a 1% excise tax on stock buybacks. These changes are generally in effect for tax years beginning after December 31, 2022. Although we do not currently project that we will be subject to the CAMT on book income for the 2023 tax period, we do anticipate that we will be subject to the CAMT on book income in the foreseeable future. The impact of the 1% excise tax was immaterial during the Current Period.

9.Equity
Dividends
In May 2021, we initiated a new annual dividend on our shares of common stock, expected to be paid quarterly. The table below presents the dividends paid during the Current Period and Prior Period:
BaseVariableRate Per ShareTotal
2023:
First Quarter$0.55 $0.74 $1.29 $175 
Second Quarter$0.55 $0.63 $1.18 $160 
Third Quarter$0.575 $ $0.575 $77 
2022:
First Quarter$0.4375 $1.33 $1.7675 $210 
Second Quarter$0.50 $1.84 $2.34 $298 
Third Quarter$0.55 $1.77 $2.32 $280 
On October 31, 2023, we declared a base quarterly dividend payable of $0.575 per share, which will be paid on December 6, 2023 to stockholders of record at the close of business on November 16, 2023.
Share Repurchase Program
As of December 2, 2021, the Company was authorized to purchase up to $1.0 billion of the Company’s common stock and/or warrants under a share repurchase program, and in March 2022, we commenced our share repurchase program. In June 2022, our Board of Directors authorized an expansion of the share repurchase program by $1.0 billion, bringing the total authorized share repurchase amount to $2.0 billion for stock and/or warrants. The share repurchase program will expire on December 31, 2023.
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The table below presents the shares purchased under our share repurchase program:
Shares Purchased (thousands)Dollar Value of Shares PurchasedAverage Price Per Share
2022
First Quarter1,000$83 $82.98 
Second Quarter5,812$515 $88.67 
Third Quarter750$69 $92.14 
Fourth Quarter4,105$406 $98.90 
2023
First Quarter793$60 $74.95 
Second Quarter(a)
1,444$115 $78.77 
Third Quarter(b)
1,509$130 $86.16 
Total to date15,413$1,378 
_____________________________________
(a)On May 26, 2023, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $50 million of shares of our common stock. Under the terms of the ASR agreement, we received an initial delivery of 515,265 shares representing approximately 80% of the expected total to be repurchased. Upon final settlement of the ASR agreement on July 31, 2023, we received an additional 108,556 shares of common stock.
(b)On September 15, 2023, we entered into an ASR agreement to repurchase $50 million of shares of our common stock. Under the terms of the ASR agreement, we received an initial delivery of 468,055 shares representing approximately 80% of the expected total to be repurchased. Upon final settlement of the ASR agreement on October 26, 2023, we received an additional 116,250 shares of common stock.
The repurchased shares of common stock were retired and recorded as a reduction to common stock and retained earnings. All share repurchases made after January 1, 2023 are subject to a 1% excise tax on share repurchases, as enacted under the Inflation Reduction Act of 2022. We are able to net this 1% excise tax on share repurchases against the issuance of shares of our common stock. The impact of this 1% excise tax was immaterial during the Current Period.

Warrants
Class A WarrantsClass B Warrants
Class C Warrants(a)
Outstanding as of December 31, 20224,495,004 4,404,564 4,006,229 
Converted into common stock(b)
(3,000)(1,000)(170)
Outstanding as of March 31, 20234,492,004 4,403,564 4,006,059 
Converted into common stock(b)
 (500)(467)
Outstanding as of June 30, 20234,492,004 4,403,064 4,005,592 
Converted into common stock(b)
  (2,575)
Outstanding as of September 30, 20234,492,004 4,403,064 4,003,017 
_________________________________________
(a)As of September 30, 2023, we had 1,489,337 of reserved Class C Warrants.
(b)During the Current Period, we issued 7,341 shares of common stock as a result of Warrant exercises.
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10.Share-Based Compensation
On the Effective Date, the Board of Directors adopted the 2021 Long-Term Incentive Plan (the “LTIP”) with a share reserve equal to 6,800,000 shares of common stock. The LTIP provides for the grant of RSUs, restricted stock awards, stock options, stock appreciation rights, performance awards and other stock awards to the Company’s employees and non-employee directors.
Restricted Stock Units. During the Current Period, we granted RSUs to employees and non-employee directors under the LTIP, which will vest over a three-year period and one-year period, respectively. The fair value of RSUs is based on the closing sales price of our common stock on the date of grant, and compensation expense is recognized ratably over the requisite service period. A summary of the changes in unvested RSUs is presented below:
Unvested Restricted Stock UnitsWeighted Average Grant Date Fair Value Per Share
(in thousands)
Unvested as of December 31, 2022957 $68.91 
Granted439 $72.20 
Vested(319)$60.79 
Forfeited(100)$67.54 
Unvested as of September 30, 2023977 $73.17 
The aggregate intrinsic value of RSUs that vested during the Current Period was approximately $24 million based on the stock price at the time of vesting.
As of September 30, 2023, there was approximately $54 million of total unrecognized compensation expense related to unvested RSUs. The expense is expected to be recognized over a weighted average period of approximately 2.34 years.
Performance Share Units. During the Current Period, we granted PSUs to senior management under the LTIP, which will generally vest over a three-year period and will be settled in shares. The performance criteria include total shareholder return (“TSR”) and relative TSR (“rTSR”) and could result in a total payout between 0% - 200% of the target units. The fair value of the PSUs was measured on the grant date using a Monte Carlo simulation, and compensation expense is recognized ratably over the requisite service period because these awards depend on a combination of service and market criteria.

The following table presents the assumptions used in the valuation of the PSUs granted in 2023.
AssumptionTSR, rTSR
Risk-free interest rate3.85 %
Volatility64.4 %

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A summary of the changes in unvested PSUs is presented below:
Unvested Performance Share UnitsWeighted Average Grant Date Fair Value Per Share
(in thousands)
Unvested as of December 31, 2022276 $88.28 
Granted131 $78.78 
Vested $ 
Forfeited(13)$69.79 
Unvested as of September 30, 2023394 $85.72 
As of September 30, 2023, there was approximately $17 million of total unrecognized compensation expense related to unvested PSUs. The expense is expected to be recognized over a weighted average period of approximately 1.87 years.

RSU and PSU Compensation.
We recognized the following compensation costs, net of actual forfeitures, related to RSUs and PSUs for the periods presented:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
General and administrative expenses$7 $5 $21 $14 
Natural gas and oil properties2 1 5 3 
Production expense1 1 3 2 
Total RSU and PSU compensation$10 $7 $29 $19 
Related income tax benefit$2 $ $6 $ 

11.Derivative and Hedging Activities
We use derivative instruments to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility. These commodity derivative financial instruments include financial price swaps, basis protection swaps, collars, three-way collars and options. All of our natural gas and oil derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty. We do not intend to hold or issue derivative financial instruments for speculative trading purposes and have elected not to designate any of our derivative instruments for hedge accounting treatment.
As of December 31, 2022, approximately $65 million of derivative liabilities (notional volume of 9.6 Bcf of natural gas and notional volume of 4.8 MMBbls of oil) were classified as liabilities held for sale. These derivative instruments were novated to WildFire Energy I LLC upon completion of the sale of a portion of our Eagle Ford assets on March 20, 2023. See Note 2 for more details.

The estimated fair values of our natural gas and oil derivative instrument assets (liabilities) as of September 30, 2023 and December 31, 2022 are provided below: 
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September 30, 2023December 31, 2022
Notional VolumeFair ValueNotional VolumeFair Value
Natural gas (Bcf):
Fixed-price swaps370 $ 382 $(494)
Collars589 338 721 49 
Three-way collars1 1 4 (2)
Call options  18 (22)
Basis protection swaps572 (8)652 (32)
Total natural gas1,532 331 1,777 (501)
Oil (MMBbls):
Fixed-price swaps  1 (32)
Collars  2 7 
Basis protection swaps  6 1 
Total oil  9 (24)
Total estimated fair value$331 $(525)
The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 on a gross basis and after same-counterparty netting:
Gross Fair Value(a)
Amounts Netted in the Condensed Consolidated Balance SheetsNet Fair Value Presented in the Condensed Consolidated Balance Sheets
As of September 30, 2023
Commodity Contracts:
Short-term derivative asset$434 $(73)$361 
Long-term derivative asset60 (30)30 
Short-term derivative liability(93)73 (20)
Long-term derivative liability(70)30 (40)
Total derivatives$331 $ $331 
As of December 31, 2022
Commodity Contracts:
Short-term derivative asset$200 $(166)$34 
Long-term derivative asset87 (40)47 
Short-term derivative liability(598)166 (432)
Long-term derivative liability(214)40 (174)
Total derivatives$(525)$ $(525)
___________________________________________
(a)These financial assets (liabilities) are measured at fair value on a recurring basis utilizing significant other observable inputs; see further discussion on fair value measurements below.
Fair Value
The fair value of our derivatives is based on third-party pricing models, which utilize inputs that are either readily available in the public market, such as natural gas, oil and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes, and, as such, are classified as Level 2. These values are
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compared to the values given by our counterparties for reasonableness. Derivatives are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a material impact on the values of our derivatives.
Credit Risk Considerations