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Chesapeake Energy Second Quarter 2021 Results

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   |    Wednesday,August 11,2021

Chesapeake Energy Corp. reported 2021 second quarter results.

Highlights include:

  • Net cash provided by operating activities of $394 million, resulting in unrestricted cash balance of $612 million
  • Net loss totaled $439 million, or $4.48 per diluted share; adjusted net income(1) of $181 million, or $1.64 per diluted share
  • Adjusted EBITDAX(1) of $429 million; free cash flow of $292 million; net debt(1) at June 30 to 2021E adjusted EBITDAX ratio of 0.3x
  • Initiating variable return program to deliver 50% of free cash flow(1) to shareholders on a quarterly basis, payable in the 2022 first quarter
  • Announced responsibly sourced gas (RSG) partnership; first company seeking to certify and continuously monitor production across two major shale gas basins
  • Positive 2021 guidance adjustments include increasing adjusted EBITDAX, raising oil and gas production estimates due to lower base decline rates, lower general and administrative (G&A) expenses, and no change in capital spending

Mike Wichterich, Chesapeake's Board Chairman and Interim Chief Executive Officer, commented, "Behind our talented employees, Chesapeake executed another quarter of strong results, improving our guidance outlook for the rest of the year as our base production decline rates continue to improve and general and administrative (G&A) expenses continue to fall. In addition, Chesapeake is pleased to launch a variable return program designed to deliver 50% of free cash flow to shareholders in cash on a quarterly basis. Chesapeake remains well positioned to responsibly deliver sustainable returns and cash flow through consistent quarterly performance."

Base Dividend Information

During the 2021 second quarter, Chesapeake generated $394 million of operating cash flow and ended the quarter with $612 million of cash on hand. Consistent with the company's strong liquidity and free cash flow generation, Chesapeake's Board of Directors declared a quarterly dividend on its common shares of $0.34375 per share. The dividend will be payable on September 9, 2021 to shareholders of record at the close of business on August 24, 2021. Additionally, Chesapeake announced the establishment of a variable return program to deliver 50% of the previous quarter's free cash flow to investors in cash, payable the following quarter, and beginning with results from the 2021 fourth quarter.

Operations Update

Chesapeake continues to see lower base production decline rates which helped achieve an average net production rate of approximately 433,000 boe per day (approximately 77% natural gas and 23% total liquids) during the 2021 second quarter. Chesapeake is currently operating seven rigs across all its business units, with three rigs in the Marcellus Shale in Pennsylvania, three rigs located in the Haynesville Shale in Louisiana and one rig in the South Texas Eagle Ford Shale.

ESG Update

In July 2021, Chesapeake announced a partnership with MiQ and Equitable Origin to independently certify and continuously monitor its natural gas production across two major shale gas basins, the Marcellus in Pennsylvania and the Haynesville in Louisiana, making Chesapeake the first company seeking to certify two basins for the industry. The MiQ certification will provide a verified approach to tracking the company's initiative to reduce its methane intensity to 0.09% by 2025, as well as support Chesapeake in its overall objective of achieving net-zero direct greenhouse gas emissions by 2035. The company has recently entered into, and is continuing to pursue, supply agreements providing certified RSG gas in the Marcellus Shale from its initial results under a previous pilot with Project Canary.

Additionally, in July the company began utilizing its first electric stimulation fleet in the Marcellus Shale to further reduce diesel usage in its fracture stimulations. The electric fleet will displace 100% of Chesapeake's associated diesel consumption during the stimulation operation, resulting in lower GHG emissions while also reducing the audible noise level with electric equipment. The company estimates that the use of this electric fleet alone could displace a total of up to approximately 4.4 million gallons of diesel per year. The company also plans to begin utilizing a Tier 4 dual-fuel fracture stimulation fleet in its Haynesville operations beginning in September 2021, reducing its diesel usage further.

2021 Outlook Update

In a positive update to 2021 guidance, Chesapeake increased its expected 2021 adjusted EBITDAX range to approximately $1.8 to $1.9 billion, up 16% from $1.55 to $1.65 billion previously. In addition, the company increased its total annual production, affirmed its commitment to disciplined spending with no change to its previous capital program and reduced its annual G&A expense guidance by approximately $25 million, or 15% (using midpoints).

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