10-QPeriod: Q2 FY2016

EXPAND ENERGY Corp Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:EXEEXEELEXEEWEXEEZ

Summary

Chesapeake Energy Corporation (EXE) reported its second quarter 2016 financial results, revealing significant impairments and a substantial reduction in revenue compared to the prior year. The company experienced a net loss of $1.75 billion for the quarter, largely driven by a $1.045 billion impairment of oil and natural gas properties. Total revenues plummeted to $1.62 billion from $3.52 billion in the same period last year, reflecting the continued impact of low commodity prices. Despite the substantial net loss, the company has focused on improving liquidity and financial flexibility. This includes efforts to reduce debt through repurchases and exchanges, amendments to its revolving credit facility to provide covenant relief and postpone redeterminations, and a significant reduction in capital expenditures. While the company's cash position has dwindled to $4 million, management expects to fund its operations and capital expenditures for the next 12 months through operating cash flow, available credit, and asset sales.

Financial Statements
Beta
Revenue$1.62B
Operating Expenses$3.40B
Operating Income-$1.78B
Interest Expense$62.00M
Net Income-$1.78B
EPS (Basic)$-2.51
EPS (Diluted)$-2.51
Shares Outstanding (Basic)724.00M
Shares Outstanding (Diluted)724.00M

Key Highlights

  • 1Net Loss: Reported a net loss of $1.75 billion ($2.48 per diluted share) for the three months ended June 30, 2016, compared to a net loss of $4.09 billion ($6.27 per diluted share) in the prior year period.
  • 2Revenue Decline: Total revenues decreased significantly to $1.62 billion from $3.52 billion in the comparable prior year period, primarily due to lower commodity prices and unrealized hedging losses.
  • 3Asset Impairment: Recorded an impairment charge of $1.045 billion for oil and natural gas properties in the current quarter, with prior year impairments also being substantial.
  • 4Reduced Capital Expenditures: Capital expenditures for drilling and completion were $337 million in the current quarter, a significant decrease from $787 million in the prior year quarter, reflecting efforts to conserve cash.
  • 5Debt Management: The company repurchased and exchanged approximately $181 million and $290 million of senior notes, respectively, and $118 million and $287 million of contingent convertible senior notes for cash and stock, resulting in a $168 million gain.
  • 6Liquidity Concerns: Cash and cash equivalents decreased sharply to $4 million from $825 million at the end of the prior year. The company highlighted its reliance on operating cash flow, asset sales, and its revolving credit facility to fund operations.
  • 7Credit Facility Amendment: Amended its revolving credit facility to reaffirm borrowing base, postpone redetermination, and modify/suspend certain financial covenants, including granting liens on assets.

Frequently Asked Questions

Chesapeake Energy reported a net loss of $1.75 billion ($2.48 per diluted share) for the three months ended June 30, 2016. Total revenues were $1.62 billion, a significant decrease from $3.52 billion in the same period last year. The loss was heavily impacted by a $1.045 billion impairment of oil and natural gas properties.

The company has been actively managing its debt through open market repurchases and private exchanges of senior and contingent convertible senior notes, recording a gain of $168 million from these transactions in the current period. To bolster liquidity, they amended their revolving credit facility to gain covenant relief and postponed borrowing base redeterminations. However, cash and cash equivalents have significantly decreased to $4 million, highlighting ongoing liquidity pressures.

The primary risks include the volatility of oil, natural gas, and NGL prices, which directly impact revenues and the ability to service debt. The company also faces risks related to its substantial indebtedness, potential downgrades in credit ratings leading to collateral requirements, and significant ongoing litigation and regulatory proceedings, particularly concerning royalty underpayments.

The company expects to record another write-down in the carrying value of its oil and natural gas properties in the third quarter of 2016 due to persistently low commodity prices. Further impairments are possible in subsequent quarters if commodity prices remain depressed. The company's financial performance is heavily dependent on the future trajectory of oil and natural gas prices.