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Chesapeake Energy Third Quarter 2021 Results; Preliminary 2022 Guidance

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Chesapeake Energy Corp. reported 2021 third quarter results.

Updates to 2021 and Preliminary 2022 Guidance

Chesapeake increased its expected 2021 adjusted EBITDAX range to approximately $2.1 to $2.2 billion, up from $1.8 to $1.9 billion previously, and incorporating the earlier than expected closing of the Vine acquisition. In addition, the company increased its total annual production while maintaining its commitment to disciplined spending with no change to its previous capital program.

Additionally, Chesapeake increased its preliminary 2022 adjusted EBITDAX outlook to $3.2 to $3.4 billion, up from $2.55 to $2.75 billion, with projected results largely based on recent commodity prices. The company expects to seek Board approval of its 2022 capital program later in the month and plans to provide formal 2022 guidance in early 2022.

Highlights include:

• Net cash provided by operating activities of $443 million, resulting in unrestricted cash balance of $849 million
• Net loss totaled $345 million, or $3.51 per diluted share; adjusted net income⁽¹⁾ of $269 million, or $2.38 per diluted share
• Adjusted EBITDAX⁽¹⁾ of $519 million; free cash flow⁽¹⁾ of $265 million; net debt⁽¹⁾ at September 30 to 2021E adjusted EBITDAX ratio of 0.2x
• Increased base dividend by 27%, as previously announced, to $1.75 per share annually and payable beginning in December 2021
• Increased 2021 guidance for adjusted EBITDAX and total production with no change in capital spending; increased preliminary 2022 guidance for adjusted EBITDAX significantly
• Intends to invest over $30 million in ESG initiatives by year end 2022, including retrofitting over 19,000 pneumatic devices, reducing reported GHG emissions⁽²⁾ by approximately 40% and methane emissions by approximately 80%

Nick Dell'Osso, Chesapeake's President and Chief Executive Officer, commented, "Chesapeake has built significant momentum throughout this year as our employees continue to deliver outstanding results by maintaining their focus on the execution of our strategy - maximizing sustainable cash flow through our high return drilling program, building inventory by reducing our breakeven levels in all assets and reducing operating costs. We look forward to integrating the outstanding assets in the Vine acquisition and expect our strong performance will continue into 2022. Additionally, we are very pleased to be making rapid progress on certifying 100% of our dry gas production as Responsibly Sourced Gas by mid-year 2022 as well as significantly reducing our emissions in our oil assets as we highlight the very low methane emissions profile of our modern, responsibly operated oil and gas operations."

Increase in Base Dividend

During the 2021 third quarter, Chesapeake generated $443 million of operating cash flow and ended the quarter with $849 million of cash on hand. Consistent with the company's strong liquidity, free cash flow generation and its previous announcement, Chesapeake's Board of Directors increased its base quarterly dividend on its common shares to $0.4375 per share, representing a 27% increase compared to the previous dividend amount. The base dividend will be payable on December 9, 2021 to shareholders of record at the close of business on November 24, 2021. Additionally, Chesapeake plans to adopt a variable return program that will result in the payment of an additional dividend, payable beginning in March 2022, equal to the sum of free cash flow from the prior quarter less the base quarterly dividend, multiplied by 50%.

Operations Update

Chesapeake continues to see lower base production decline rates which helped achieve an average net production rate of approximately 436,000 barrels of oil equivalent per day (approximately 80% natural gas and 20% total liquids) during the 2021 third quarter. Chesapeake is currently operating eleven rigs across all its business units, with three rigs in Appalachia, six rigs located in the Gulf Coast, one rig in the South Texas Eagle Ford Shale and one rig in the Powder River Basin.

ESG Program Update

Chesapeake intends to invest over $30 million on ESG initiatives by year end 2022. As part of this effort, the company anticipates retrofitting more than 19,000 pneumatic devices, primarily focused on its oil assets. The program was initiated in the 2021 third quarter, initially focusing on its Brazos Valley business unit, and once complete, is expected to reduce reported GHG emissions by approximately 40% and methane emissions by approximately 80% enterprise wide.

Chesapeake continues to make progress towards certifying 100% of its Gulf Coast and Appalachia operations as Responsibly Sourced Gas primarily through the EO 100/MiQ certification process. All continuous methane emissions monitoring devices have been placed in the field in Chesapeake's legacy Louisiana asset and efforts are underway to install these or similar devices under Project Canary's TrustWell certification process in the newly acquired Vine acreage. Certification of both areas is expected to be completed by year-end. In Pennsylvania, Chesapeake anticipates completing installation of the methane monitoring devices in the 2021 fourth quarter with certification achieved by the end of the 2022 second quarter. At this point, Chesapeake expects to ultimately market approximately 3 billion cubic feet (bcf) per day of certified Responsibly Sourced Gas.

Chesapeake's commitment to its ESG program includes a rigorous corporate governance model that drives accountability. Recent enhancements to Chesapeake's compensation program is evidence of this accountability as the program directly limits payout, regardless of performance in other areas, should the company fail to meet critical environmental and safety metrics, including GHG intensity factors.