CHESAPEAKE ENERGY CORP

Results of Operations

Natural Gas, Oil and NGL Production and Average Sales Prices

Natural Gas, Oil and NGL Sales

Natural gas, oil and NGL sales during the Current Quarter decreased $271 million compared to the Prior Quarter. Lower average prices, which were consistent with the downward trend in index prices for all products, drove a $33 million decrease during the Current Quarter. The Eagle Ford divestitures resulted in a $143 million decrease. Additionally, planned curtailments and activity deferrals during the Current Quarter led to lower sales volumes in Marcellus and Haynesville, resulting in an aggregate decrease of $95 million.

Natural gas, oil and NGL sales during the Current Period decreased $1,135 million compared to the Prior Period. Lower average prices, which were consistent with the downward trend in index prices for all products, drove a $402 million decrease during the Current Period. The Eagle Ford divestitures resulted in a $577 million decrease. Additionally, planned curtailments and activity deferrals led to lower sales volumes in Marcellus and Haynesville, resulting in an aggregate decrease of $156 million.

Production Expenses

Production expenses during the Current Quarter decreased $40 million compared to the Prior Quarter. The decrease was due to a $22 million decrease in Haynesville primarily related to decreased workover activity and lower saltwater disposal expenses, as well as an $18 million decrease due to the Eagle Ford divestitures.

Production expenses during the Current Period decreased $112 million compared to the Prior Period. The decrease was primarily due to a $78 million decrease due to the Eagle Ford divestitures, as well as a $31 million decrease in Haynesville as a result of decreased workover activity and lower saltwater disposal expenses.

Gathering, Processing and Transportation Expenses

Gathering, processing and transportation expenses during the Current Quarter decreased $53 million compared to the Prior Quarter. The decrease was primarily related to a $34 million decrease due to the Eagle Ford divestitures. Additionally, decreased volumes resulted in a $13 million decrease in Haynesville.

Gathering, processing and transportation expenses during the Current Period decreased $144 million compared to the Prior Period. The decrease was primarily related to a $119 million decrease due to the Eagle Ford divestitures. Additionally, decreased volumes resulted in a $17 million decrease in Haynesville.

Severance and Ad Valorem Taxes

Severance and ad valorem taxes during the Current Quarter decreased $22 million compared to the Prior Quarter. The decrease was primarily related to a $10 million decrease due to ad valorem taxable value decreasing based on lower commodity prices and a $9 million decrease due to the Eagle Ford divestitures. Additionally, Haynesville severance taxes decreased as a result of decreased volumes.

Severance and ad valorem taxes during the Current Period decreased $62 million compared to the Prior Period. The decrease was primarily related to a $39 million decrease due to the Eagle Ford divestitures and a $15 million decrease due to ad valorem taxable value decreasing based on lower commodity prices. Additionally, Haynesville severance taxes decreased as a result of decreased volumes.

Natural Gas and Oil Derivatives

See Note 11 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of our derivative activity.

General and Administrative Expenses

The absolute and per unit increase in total general and administrative expenses, net during the Current Quarter and Current Period is primarily due to a decrease in our producing well count following the Eagle Ford divestitures, which reduced our allocations and reimbursements of G&A.

Separation and Other Termination Costs

During the Current Period, we recognized $23 million of separation and other termination costs related to one-time termination benefits for certain employees.

Depreciation, Depletion and Amortization

The per unit increase in depreciation, depletion and amortization for the Current Quarter and Current Period compared to the Prior Quarter and Prior Period, respectively, is primarily the result of a higher depletion rate. The increase in our depletion rate is due to a decrease in prices used in the evaluation of our reserves. The decrease in absolute depreciation, depletion and amortization for the Current Quarter and Current Period compared to the Prior Quarter and Prior Period is due to decreased volumes.

Other Operating Expense, Net

During the Current Quarter and Current Period, we recognized approximately $15 million and $26 million, respectively, of costs related to the pending Southwestern Merger, which included legal fees, consulting fees and financial advisory fees.

Interest Expense

The decrease in total interest expense during the Current Quarter and Current Period compared to the Prior Quarter and Prior Period was due to lower average debt outstanding between periods as well as increased capitalized interest, primarily related to our investment in Momentum Sustainable Ventures LLC.

Other Income

Other income during the time periods presented above primarily consists of interest income and deferred consideration amortization. The increase during the Current Period was primarily due to increased interest income related to our higher average cash balance compared to the Prior Period.

Income Taxes

An income tax benefit of $61 million was recorded for the Current Period. This amount was entirely related to projections of deferred federal and state income taxes. Income tax expense was $531 million for the Prior Period. Of this amount, $132 million was the result of projecting current federal and state income taxes, predominately as a result of taxable gains on closed divestitures, and the remainder was related to projections of deferred federal and state income taxes. Our effective income tax rate was 23.3% and 23.0% during the Current Period and the Prior Period, respectively. Our effective tax rate can fluctuate due to the impact of discrete items, state income taxes and permanent differences. See Note 8 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of income taxes.

Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include our current expectations or forecasts of future events, including matters relating to the pending Southwestern Merger, armed conflict and instability in Europe and the Middle East, along with the effects of the current global economic environment, and the impact of each on our business, financial condition, results of operations and cash flows, the potential effects of the Plan on our operations, management, and employees, actions by, or disputes among or between, members of OPEC+ and other foreign oil-exporting countries, market factors, market prices, our ability to meet debt service requirements, our ability to continue to pay cash dividends, the amount and timing of any cash dividends, and our ESG initiatives. Forward-looking and other statements in this Form 10-Q regarding our environmental, social and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. Forward-looking statements often address our expected future business, financial performance and financial condition, and often contain words such as "expect," “could,” “may,” "anticipate," "intend," "plan," “ability,” "believe," "seek," "see," "will," "would," “estimate,” “forecast,” "target," “guidance,” “outlook,” “opportunity” or “strategy.”

Although we believe the expectations and forecasts reflected in our forward-looking statements are reasonable, they are inherently subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. No assurance can be given that such forward-looking statements will be correct or achieved or that the assumptions are accurate or will not change over time. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:

•conservation measures and technological advances could reduce demand for natural gas and oil;

•negative public perceptions of our industry;

•competition in the natural gas and oil exploration and production industry;

•the volatility of natural gas, oil and NGL prices, which are affected by general economic and business conditions, as well as increased demand for (and availability of) alternative fuels and electric vehicles;

•risks from regional epidemics or pandemics and related economic turmoil, including supply chain constraints;

•write-downs of our natural gas and oil asset carrying values due to low commodity prices;

•significant capital expenditures are required to replace our reserves and conduct our business;

•our ability to replace reserves and sustain production;

•uncertainties inherent in estimating quantities of natural gas, oil and NGL reserves and projecting future rates of production and the amount and timing of development expenditures;

•drilling and operating risks and resulting liabilities;

•our ability to generate profits or achieve targeted results in drilling and well operations;

•leasehold terms expiring before production can be established;

•risks from our commodity price risk management activities;

•uncertainties, risks and costs associated with natural gas and oil operations;

•our need to secure adequate supplies of water for our drilling operations and to dispose of or recycle the water used;

•pipeline and gathering system capacity constraints and transportation interruptions;

•our plans to participate in the LNG export industry;

•terrorist activities and/or cyber-attacks adversely impacting our operations;

•risks from failure to protect personal information and data and compliance with data privacy and security laws and regulations;

•disruption of our business by natural or human causes beyond our control;

•a deterioration in general economic, business or industry conditions;

•the impact of inflation and commodity price volatility, including as a result of armed conflict and instability in Europe and the Middle East, along with the effects of the current global economic environment, on our business, financial condition, employees, contractors, vendors and the global demand for natural gas and oil and on U.S. and global financial markets;

•our inability to access the capital markets on favorable terms;

•the limitations on our financial flexibility due to our level of indebtedness and restrictive covenants from our indebtedness;

•our actual financial results after emergence from bankruptcy may not be comparable to our historical financial information;

•risks related to acquisitions or dispositions, or potential acquisitions or dispositions, including risks related to the pending Southwestern Merger, such as the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement for the Southwestern Merger; the risk that we or Southwestern may be unable to obtain governmental and regulatory approvals required for the proposed transaction, or required governmental and regulatory approvals may delay the Southwestern Merger or result in the imposition of conditions that could cause the parties to abandon the Southwestern Merger; the risk that the parties may not be able to satisfy the conditions to the proposed transaction in a timely manner or at all; risks related to limitation on our ability to pursue alternatives to the Southwestern Merger; risks related to change in control or other provisions in certain agreements that may be triggered upon completion of the Southwestern Merger; risks related to the merger agreement’s restrictions on business activities prior to the effective time of the Southwestern Merger; risks related to loss of management personnel, other key employees, customers, suppliers, vendors, landlords, joint venture partners and other business partners following the Southwestern Merger; risks related to disruption of management time from ongoing business operations due to the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of our common stock or Southwestern’s common stock; the risk of any unexpected costs or expenses resulting from the proposed transaction; the risk of any litigation relating to the proposed transaction; the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected; and the risk that the combined company may be unable to achieve synergies or other anticipated benefits of the proposed transaction or it may take longer than expected to achieve those synergies or benefits;

•our ability to achieve and maintain ESG certifications, goals and commitments;

•legislative, regulatory and ESG initiatives, addressing environmental concerns, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring or water disposal;

•federal and state tax proposals affecting our industry;

•risks related to an annual limitation on the utilization of our tax attributes, which is expected to be triggered upon the completion of the Southwestern Merger, as well as trading in our common stock, additional issuance of common stock, and certain other stock transactions, which could lead to an additional, potentially more restrictive, annual limitation; and

•other factors that are described under Risk Factors in Item 1A of our 2023 Form 10-K.

We caution you not to place undue reliance on the forward-looking statements contained in this report, which speak only as of the filing date, and we undertake no obligation to update this information. We urge you to carefully review and consider the disclosures in this report and our other filings with the SEC that attempt to advise interested parties of the risks and factors that may affect our business.

Information About Us

Investors should note that we make available, free of charge on our website at chk.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post announcements, updates, events, investor information and presentations on our website in addition to copies of all recent news releases. We may use the Investors section of our website to communicate with investors. It is possible that the financial and other information posted on the Investors section of our website could be deemed to be material information. Documents and information on our website are not incorporated by reference herein.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including Chesapeake, that file electronically with the SEC.