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. 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. None of our open natural gas and oil derivative instruments were designated for hedge accounting as of December 31, 2023 and 2022.

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 4 for more details.

•Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options and swap options.

•Options: We have bought and sold call options in exchange for a premium. At the time of settlement, if the market price exceeded the fixed price of the call option, we paid the counterparty the excess on sold call options and received the excess on bought call options. If the market price settled below the fixed price of the call option, no payment was due from either party.

•Collars: These instruments contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the put and the call strike prices, no payments are due from either party. Three-way collars included the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminated the counterparty’s downside exposure below the second put option strike price.

•Basis Protection Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.

In November 2023, we sold the final portion of our Eagle Ford assets to SilverBow. As part of the divestiture agreement, SilverBow has agreed to pay Chesapeake an additional contingent payment of $25 million should WTI NYMEX prices average between $75 and $80 per barrel or $50 million should WTI NYMEX prices average above $80 per barrel during the year following the close of the transaction. All changes in fair value are recognized as a gain or loss in earnings in the period they occur within natural gas and oil derivatives in our consolidated statements of operations. During the 2023 Successor Period, we recorded $9 million of unrealized losses related to the contingent consideration arrangement.


	Successor
	December 31, 2023			December 31, 2022
	Notional Volume	Fair Value		Notional Volume	Fair Value
Natural gas (Bcf):
Fixed-price swaps	343	$	188	382	$	(494)
Collars	558	497		721	49
Three-way collars	—	—		4	(2)
Call options	—	—		18	(22)
Basis protection swaps	578	2		652	(32)
Total natural gas	1,479	687		1,777	(501)
Oil (MMBbls):
Fixed-price swaps	—	—		1	(32)
Collars	—	—		2	7
Basis protection swaps	—	—		6	1
Total oil	—	—		9	(24)
Contingent Consideration:
Eagle Ford divestiture		12			—
Total estimated fair value		$	699		$	(525)

The following table presents the fair value and location of each classification of derivative instrument included in the consolidated balance sheets as of December 31, 2023 and 2022 on a gross basis and after same-counterparty netting:


	Gross Fair Value(a)		Amounts Netted in the Consolidated Balance Sheets		Net Fair Value Presented in the Consolidated Balance Sheets
Successor
As of December 31, 2023
Commodity Contracts:
Short-term derivative asset	$	661	$	(36)	$	625
Long-term derivative asset	101		(27)		74
Short-term derivative liability	(39)		36		(3)
Long-term derivative liability	(36)		27		(9)
Contingent Consideration:
Short-term derivative asset	12		—		12
Total derivatives	$	699	$	—	$	699

As of December 31, 2022
Commodity Contracts:
Short-term derivative asset	$	200	$	(166)	$	34
Long-term derivative asset	87		(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.

The fair value of our commodity contracts 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 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. The valuation of the contingent consideration is based on an option pricing model using significant Level 2 inputs that include quoted future commodity prices based on active markets.

Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we only enter into commodity contracts derivatives with counterparties that are highly rated or deemed by us to have acceptable credit strength and deemed by management to be competent and competitive market-makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of December 31, 2023, our commodity contracts derivative instruments were spread among 15 counterparties.

Certain of our hedging arrangements are with counterparties that were also lenders (or affiliates of lenders) under our New Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the revolving credit facility. The counterparties’ obligations must be secured by cash or letters of credit to the extent that any mark-to-market amounts owed to us exceed defined thresholds. As of December 31, 2023, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.

A reconciliation of the changes in accumulated other comprehensive income (loss) in our consolidated statements of stockholders’ equity related to our cash flow hedges is presented below:


	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Before Tax		After Tax
Balance, beginning of period	$	(12)	$	45
Losses reclassified to income(a)	3		3
Fresh start adjustments	9		9
Elimination of tax effects	—		(57)
Balance, end of period	$	—	$	—

Our accumulated other comprehensive loss balance represented the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months had yet to occur. The remaining deferred gain or loss amounts were to be recognized in earnings in the month for which the original contract months were to occur. In connection with our adoption of fresh start accounting, we recorded a fair value adjustment to eliminate the accumulated other comprehensive income related to hedging settlements including the elimination of tax effects. See Note 3 for a discussion of fresh start accounting adjustments. We did not have any changes or items impacting other comprehensive income for the 2023, 2022 or 2021 Successor Periods.