EX-99.2 3 exhibit_992xmarcellusxprox.htm MARCELLUS PRO FORMA FINANCIALS Exhibit_99.2_Marcellus_Pro_Forma_Financials
Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On December 22, 2014, Chesapeake Appalachia, L.L.C., a wholly owned subsidiary of Chesapeake Energy Corporation (the “Company”), closed the sale of its southern Marcellus Shale and a portion of its eastern Utica Shale assets to Southwestern Energy Production Company, a wholly owned subsidiary of Southwestern Energy Company, for net proceeds of approximately $4.975 billion.
The following unaudited pro forma condensed consolidated balance sheet and statement of operations are derived from the historical consolidated financial statements of the Company. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2014 gives effect to the disposition of the Company’s southern Marcellus and eastern Utica Shale assets as if it had occurred on September 30, 2014. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 reflect the southern Marcellus and eastern Utica Shale asset disposition as if it had occurred on January 1, 2013. The unaudited pro forma condensed consolidated balance sheet and statement of operations should be read in conjunction with the notes thereto and the historical financial statements, including the notes thereto, of the Company included in its Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 and in its Annual Report on Form 10-K for the year ended December 31, 2013.
The preparation of the unaudited pro forma consolidated financial information is based on financial statements prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates that affect the reported amounts of revenues and expenses. Actual results could differ from those estimates.
The unaudited pro forma consolidated financial information is provided for illustrative purposes only and does not purport to represent what the actual results of operations would have been had the transaction occurred on the respective dates assumed, nor is it necessarily indicative of the Company’s future operating results. However, the pro forma adjustments reflected in the accompanying unaudited pro forma consolidated financial information reflect estimates and assumptions that the Company’s management believes to be reasonable.


CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2014


 
 
Historical
 
Pro Forma
Adjustments
 
Pro Forma
 
 
($ in millions)
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 
$
90

 
$
4,975

(a) 
$
5,065

Other current assets
 
3,039

 
—

 
3,039

Total Current Assets
 
3,129

 
4,975

 
8,104

PROPERTY AND EQUIPMENT:
 
 
 
 
 
 
Natural gas and oil properties, at cost based on full cost accounting:
 
 
 
 
 
 
Proved natural gas and oil properties
 
60,260

 
(3,991
)
(b)(c)(d) 
56,269

Unproved properties
 
11,513

 
(1,001
)
(d) 
10,512

Other property and equipment
 
3,127

 
(9
)
(e) 
3,118

Total Property and Equipment, at Cost
 
74,900

 
(5,001
)
 
69,899

Less: accumulated depreciation, depletion and amortization
 
(38,349
)
 
3

(e) 
(38,346
)
Property and equipment held for sale, net
 
101

 
—

 
101

Total Property and Equipment, Net
 
36,652

 
(4,998
)
 
31,654

OTHER LONG-TERM ASSETS
 
737

 
—

 
737

TOTAL ASSETS
 
$
40,518

 
$
(23
)
 
$
40,495

 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
Current liabilities
 
$
5,602

 
$
36

(f) 
$
5,638

 
 
 
 
 
 
 
LONG-TERM LIABILITIES:
 
 
 
 
 
 
Long-term debt, net
 
11,592

 
—

 
11,592

Deferred income tax liabilities
 
4,285

 
(319
)
(f) 
3,966

Other long-term liabilities
 
1,408

 
144

(f)(c) 
1,552

Total Long-Term Liabilities
 
17,285

 
(175
)
 
17,110

 
 
 
 
 
 
 
EQUITY:
 
 
 
 
 
 
Total Equity
 
17,631

 
116

(f)(g) 
17,747

 
 
 
 
 
 
 
TOTAL LIABILITIES AND EQUITY
 
$
40,518

 
$
(23
)
 
$
40,495



The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
1

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014


 
 
Historical
 
Pro Forma
Adjustments
 
Pro Forma
 
 
($ in millions)
REVENUES:
 
 
 
 
 
 
Natural gas, oil and NGL
 
$
5,812

 
$
(347
)
(h) 
$
5,465

Marketing, gathering and compression
 
9,543

 
(188
)
(i) 
9,355

Oilfield services
 
546

 
—

 
546

    Total Revenues
 
15,901

 
(535
)
 
15,366

OPERATING EXPENSES:
 
 
 
 
 
 
Natural gas, oil and NGL production
 
868

 
(36
)
(h) 
832

Production taxes
 
185

 
(20
)
(j) 
165

Marketing, gathering and compression
 
9,515

 
(187
)
(i) 
9,328

Oilfield services
 
431

 
—

 
431

General and administrative
 
229

 
—

 
229

Restructuring and other termination costs
 
12

 
—

 
12

Provision for legal contingencies
 
100

 
—

 
100

Natural gas, oil and NGL depreciation, depletion and amortization
 
1,977

 
(40
)
(k) 
1,937

Depreciation and amortization of other assets
 
194

 
(1
)
(l) 
193

Impairments of fixed assets and other
 
75

 
—

 
75

Net gains on sales of fixed assets
 
(201
)
 
—

 
(201
)
    Total Operating Expenses
 
13,385

 
(284
)
 
13,101

INCOME FROM OPERATIONS
 
2,516

 
(251
)
 
2,265

OTHER EXPENSE:
 
 
 
 
 
 
Interest expense
 
(82
)
 
(38
)
(m) 
(120
)
Losses on investments
 
(72
)
 
—

 
(72
)
Other expense
 
(116
)
 
—

 
(116
)
    Total Other Expense
 
(270
)
 
(38
)
 
(308
)
INCOME BEFORE INCOME TAXES
 
2,246

 
(289
)
 
1,957

INCOME TAX EXPENSE:
 
 
 
 
 
 
Current income taxes
 
10

 
—

 
10

Deferred income taxes
 
849

 
(109
)
(n) 
740

     Total Income Tax Expense
 
859

 
(109
)
 
750

NET INCOME
 
1,387

 
(180
)
 
1,207

Net income attributable to noncontrolling interests
 
(110
)
 
—

 
(110
)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE
 
1,277

 
(180
)
 
1,097

Preferred stock dividends
 
(128
)
 
—

 
(128
)
Redemption on purchase of preferred shares of a subsidiary
 
(447
)
 
—

 
(447
)
Earnings allocated to participating securities
 
(15
)
 
4

(o) 
(11
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
687

 
$
(176
)
 
$
511

 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
1.04

 
 
 
$
0.78

Diluted
 
$
1.04

 
 
 
$
0.77

 
 
 
 
 
 
 
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
659

 
 
 
659

Diluted
 
659

 
 
 
659


The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
2

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013



 
 
Historical
 
Pro Forma
Adjustments
 
Pro Forma
 
 
($ in millions)
REVENUES:
 
 
 
 
 
 
Natural gas, oil and NGL
 
$
7,052

 
$
(349
)
(h) 
$
6,703

Marketing, gathering and compression
 
9,559

 
(172
)
(i) 
9,387

Oilfield services
 
895

 
—

 
895

Total Revenues
 
17,506

 
(521
)
 
16,985

OPERATING EXPENSES:
 
 
 
 
 
 
Natural gas, oil and NGL production
 
1,159

 
(44
)
(h) 
1,115

Production taxes
 
229

 
(21
)
(j) 
208

Marketing, gathering and compression
 
9,461

 
(170
)
(i) 
9,291

Oilfield services
 
736

 
—

 
736

General and administrative
 
457

 
—

 
457

Restructuring and other termination costs
 
248

 
—

 
248

Natural gas, oil and NGL depreciation, depletion and amortization
 
2,589

 
(56
)
(k) 
2,533

Depreciation and amortization of other assets
 
314

 
(1
)
(l) 
313

Impairments of fixed assets and other
 
546

 
—

 
546

Net gains on sales of fixed assets
 
(302
)
 
—

 
(302
)
Total Operating Expenses
 
15,437

 
(292
)
 
15,145

INCOME FROM OPERATIONS
 
2,069

 
(229
)
 
1,840

OTHER EXPENSE:
 
 
 
 
 
 
Interest expense
 
(227
)
 
(58
)
(m) 
(285
)
Losses on investments
 
(226
)
 
—

 
(226
)
Other expense
 
(174
)
 
—

 
(174
)
Total Other Expense
 
(627
)
 
(58
)
 
(685
)
INCOME BEFORE INCOME TAXES
 
1,442

 
(287
)
 
1,155

INCOME TAX EXPENSE:
 
 
 
 
 
 
Current income taxes
 
22

 
—

 
22

Deferred income taxes
 
526

 
(108
)
(n) 
418

Total Income Tax Expense
 
548

 
(108
)
 
440

NET INCOME
 
894

 
(179
)
 
715

Net income attributable to noncontrolling interests
 
(170
)
 
—

 
(170
)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE
 
724

 
(179
)
 
545

Preferred stock dividends
 
(171
)
 
—

 
(171
)
Redemption on purchase of preferred shares of a subsidiary
 
(69
)
 
—

 
(69
)
Earnings allocated to participating securities
 
(10
)
 
4

(o) 
(6
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
474

 
$
(175
)
 
$
299

 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE:
 
 
 
 
 
 
Basic
 
$
0.73

 
 
 
$
0.46

Diluted
 
$
0.73

 
 
 
$
0.46

 
 
 
 
 
 
 
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
 
 
 
 
 
 
Basic
 
653

 
 
 
653

Diluted
 
653

 
 
 
653


The accompanying notes are an integral part of these pro forma condensed consolidated financial statements.
3




NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a)
Adjustment to reflect the $4.975 billion in cash from the sale of the Company’s divested southern Marcellus and eastern Utica Shale assets.
(b)
Adjustment to reduce the full cost pool for the estimated fair market value of $4.969 billion attributable to the Company’s divested southern Marcellus and eastern Utica Shale natural gas and oil proved reserves. The Company follows the full cost method of accounting. Proceeds from the sale of properties are accounted for as reductions of capitalized costs unless such sales involve a significant change in proved reserves and significantly alter the relationship between costs and proved reserves. The sale of the Company's southern Marcellus and eastern Utica Shale natural gas and oil properties did not involve a significant change in proved reserves for the Company and as such no gain was recognized on this sale.
(c)
Adjustment to reflect the elimination of $23 million of asset retirement obligations associated with the Company’s divested southern Marcellus and eastern Utica Shale assets and the associated asset retirement cost capitalized in the full cost pool.
(d)
Adjustment to reclassify $1.0 billion of the historical cost basis of unproved natural gas and oil properties associated with the sale of the Company’s divested southern Marcellus and eastern Utica Shale assets into the Company's amortization base.
(e)
Adjustment to reduce other property and equipment by $9 million for the sale of the Company’s divested southern Marcellus and eastern Utica Shale other property and equipment and the associated accumulated depreciation of $3 million.
(f)
Adjustment to reflect the change in the current income taxes payable, non-current income taxes payable, and deferred income tax liability associated with the sale of the Company's divested southern Marcellus and eastern Utica Shale assets.
(g)
No gain or loss is expected to result on the sale of the Company’s other property and equipment based on the preliminary estimated fair market value relative to the proceeds received.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(h)
Adjustment to eliminate revenue and direct operating expenses of the divested southern Marcellus and eastern Utica Shale assets.
(i)
Adjustment to reflect the reduction of marketing revenue and expenses the Company generates through marketing activities with joint operating agreement partners relating to the divested southern Marcellus and eastern Utica Shale assets.
(j)
Adjustment to reduce production taxes for the production of natural gas, oil and NGL relating to the divested southern Marcellus and eastern Utica Shale properties.
(k)
Adjustment to reflect the reduction in depreciation, depletion and amortization (DD&A) expense based on the production volumes attributable to the properties sold and revision to the Company’s DD&A rate reflecting the reserve volumes sold. DD&A is calculated using the unit of production method under full cost accounting.
(l)
Adjustment to reflect the reduction in DD&A attributable to the sale of the Company’s divested southern Marcellus and eastern Utica Shale other property and equipment.
(m)
Adjustment to reflect the increased interest expense associated with the change in the amount of interest capitalized on the Company's divested southern Marcellus and eastern Utica Share natural gas and oil properties. The reclassification of the historical cost basis of unproved natural gas and oil properties changed the amount of interest capitalized.
(n)
Adjustment to reflect income tax expense based on the Company’s historical statutory tax rate applied to the cumulative effect of changes referenced within the unaudited pro forma condensed consolidated statement of operations.
(o)
Adjustment to reflect the change in earnings allocated to participating securities associated with the sale of the Company's divested southern Marcellus and eastern Utica Shale assets. Participating securities consist of unvested restricted stock issued to the Company's employees and non-employee directors that provide dividend rights.