# EXPAND ENERGY Corp (EXE) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from EXPAND ENERGY Corp's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/895126/000089512622000029/chk-20211231.htm
Accession: 0000895126-22-000029
Filing date: 2022-02-24
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EXE/
All MD&A years: /company/EXE/mda/
Next year: /company/EXE/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents management’s perspective of our business, financial condition and overall performance. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future and should be read in conjunction with Item 8 of Part II of this report.

Introduction

We are an independent exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and NGL from underground reservoirs. We own a large and geographically diverse portfolio of onshore U.S. unconventional natural gas and liquids assets, including interests in approximately 8,200 oil and natural gas wells. Upon closing of the Chief Acquisition and divestiture of our assets in the Powder River Basin in Wyoming, our portfolio will be focused on three operating areas including the natural gas resource plays in the Marcellus Shale in the northern Appalachian Basin in Pennsylvania (“Marcellus”) and the Haynesville/Bossier Shales in northwestern Louisiana (“Haynesville”) and the liquids-rich resource play in the Eagle Ford Shale in South Texas (“Eagle Ford”).

Our strategy is to create shareholder value by generating sustainable Free Cash Flow from our oil and natural gas development and production activities. We continue to focus on improving margins through operating efficiencies and financial discipline and improving our Environmental, Social, and Governance (“ESG”) performance. To accomplish these goals, we intend to allocate our human resources and capital expenditures to projects we believe offer the highest cash return on capital invested, to deploy leading drilling and completion technology throughout our portfolio, and to take advantage of acquisition and divestiture opportunities to strengthen our portfolio. We also intend to continue to dedicate capital to projects that reduce the environmental impact of our oil and natural gas producing activities. We continue to seek opportunities to reduce cash costs (production, gathering, processing and transportation and general and administrative) per barrel of oil equivalent production through operational efficiencies by, among other things, improving our production volumes from existing wells.

Leading a responsible energy future is foundational to Chesapeake's success. Our core values and culture demand we continuously evaluate the environmental impact of our operations and work diligently to improve our ESG performance across all facets of our Company. Our path to leading a responsible energy future begins with our initiative to achieve net-zero direct greenhouse gas emissions by 2035, which we announced in February 2021. To meet this challenge, we have set meaningful initial goals including:

•Eliminate routine flaring from all new wells completed from 2021 forward, and enterprise-wide by 2025;

•Reduce our methane intensity to 0.09% by 2025 (achieved 0.08% in 2021); and

•Reduce our GHG intensity to 5.5 by 2025 (achieved 5.0 in 2021).

In July 2021, we announced our plan to receive independent certification of our natural gas production under the MiQ methane standard and EO100 Standard for Responsible Energy Development. Certified natural gas was available in our Haynesville assets as of the end of 2021, and we expect it to be available in our legacy Marcellus assets by the end of the second quarter of 2022. The MiQ certification will provide a verified approach to tracking our commitment to reduce our methane intensity to 0.09% by 2025, as well as support our overall objective of achieving net-zero direct greenhouse gas emissions by 2035.

50

TABLE OF CONTENTS

Our results of operations as reported in our consolidated financial statements for the 2021 Successor Period, 2021 Predecessor Period, 2020 Predecessor Period and 2019 Predecessor Period are in accordance with GAAP. Although GAAP requires that we report on our results for the periods January 1, 2021 through February 9, 2021 and February 10, 2021 through December 31, 2021 separately, management views our operating results for the year ended December 31, 2021 by combining the results of the 2021 Predecessor Period and the 2021 Successor Period because management believes such presentation provides the most meaningful comparison of our results to prior periods. We are not able to compare the 40 days from January 1, 2021 through February 9, 2021 operating results to any of the previous periods reported in the consolidated financial statements and do not believe reviewing this period in isolation would be useful in identifying any trends in, or reaching any conclusions regarding, our overall operating performance. We believe the key performance indicators such as operating revenues and expenses for the 2021 Successor Period combined with the 2021 Predecessor Period provide more meaningful comparisons to other periods and are useful in understanding operational trends. Additionally, there were no changes in policies between the periods, and any material impacts as a result of fresh start accounting were included within the discussion of these changes. These combined results do not comply with GAAP and have not been prepared as pro forma results under applicable regulations, but are presented because we believe they provide the most meaningful comparison of our results to prior periods.

Recent Developments

Vine Acquisition

On November 1, 2021, we completed our acquisition of Vine pursuant to a definitive agreement with Vine dated August 10, 2021. The transaction strengthens Chesapeake’s competitive position, meaningfully increasing our Free Cash Flow outlook and deepening our inventory of premium natural gas locations, while preserving the strength of our balance sheet.

Chief Acquisition and Powder River Basin Divestiture

On January 25, 2022, we announced our planned Chief Acquisition and the planned divestiture of our Powder River Basin assets. These transactions, which are subject to certain customary closing conditions, including certain regulatory approvals, are expected to close in the first quarter of 2022. In conjunction with the Vine Acquisition, these transactions simplify and refocus our asset portfolio, concentrating on three operating areas and advancing our highest-return assets in the Marcellus and Haynesville gas basins.

Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer

On April 27, 2021, we announced the departure of Doug Lawler from his positions as Chief Executive Officer and Director of Chesapeake, effective April 30, 2021. Michael A. Wichterich, the Chairman of our Board of Directors, served as Interim Chief Executive Officer while the Board of Directors conducted a search for a new Chief Executive Officer.

On October 11, 2021, we announced that the Board of Directors appointed Domenic “Nick” Dell’Osso Jr. as President and Chief Executive Officer and as member of the Board of Directors, effective October 11, 2021. Additionally, on October 11, 2021, the Board of Directors appointed Michael A. Wichterich, who resigned as Interim Chief Executive Officer upon the appointment of Mr. Dell’Osso, as Executive Chairman of the Company.

On November 30, 2021, we announced that the Board of Directors appointed Mohit Singh as Executive Vice President and Chief Financial Officer, effective December 6, 2021.

On January 25, 2022, we announced that the Board of Directors appointed Josh Viets as Executive Vice President and Chief Operating Officer, effective February 1, 2022.

51

TABLE OF CONTENTS

Emergence from Bankruptcy

On the Petition Date, the Debtors filed the Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On June 29, 2020, the Bankruptcy Court entered an order authorizing the joint administration of the Chapter 11 Cases under the caption In re Chesapeake Energy Corporation, Case No. 20-33233. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries (collectively, the “Non-Filing Entities”) were not part of the bankruptcy filing. The Non-Filing Entities continued to operate in the ordinary course of business.

The Bankruptcy Court confirmed the Plan and the Debtors entered the Confirmation Order on January 16, 2021. The Debtors emerged from bankruptcy on the Effective Date. In connection with our exit from bankruptcy, we filed a registration statement with the SEC to facilitate future sales of our equity by certain holders of our New Common Stock and warrants. See Item 1 Business, Item 3 Legal Proceedings, Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities and Note 2 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for a complete discussion of our Chapter 11 proceedings.

COVID-19 Pandemic and Impact on Global Demand for Oil and Natural Gas

The global spread of COVID-19, created, and continues to create, significant volatility, uncertainty, and economic disruption during 2020 through 2021. The pandemic has reached more than 200 countries and territories and has resulted in widespread adverse impacts on the global economy and on our customers and other parties with whom we have business relations. To date, we have experienced limited operational impacts as a result of COVID-19 or related governmental restrictions. While we cannot predict the full impact that COVID-19 or the related significant disruption and volatility in the oil and natural gas markets will have on our business, cash flows, liquidity, financial condition and results of operations, we believe demand is recovering and prices will continue to be positively impacted in the near term. For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A Risk Factors in this report.

Liquidity and Capital Resources

Liquidity Overview

For the 2021 Successor Period, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations, and our primary uses of cash have been for the development of our oil and natural gas properties, acquisitions of additional oil and natural gas properties and return of value to shareholders through dividends. Historically, our primary sources of capital resources and liquidity have consisted of internally generated cash flows from operations, borrowings under certain credit agreements and dispositions of non-core assets. Our ability to issue additional indebtedness, dispose of assets or access the capital markets was substantially limited during the Chapter 11 Cases and required court approval in most instances. Accordingly, our liquidity in the 2021 and 2020 Predecessor Periods depended mainly on cash generated from operations and available funds under certain credit agreements including the DIP Facility in the 2021 Predecessor Period and revolving credit facility in the 2020 Predecessor Period.

We believe we have emerged from the Chapter 11 Cases as a fundamentally stronger company, built to generate sustainable Free Cash Flow with a strengthened balance sheet, geographically diverse asset base and continuously improving ESG performance. As a result of the Chapter 11 Cases, we reduced our total indebtedness by $9.4 billion by issuing equity in a reorganized entity to the holders of our FLLO Term Loan, Second Lien Notes, unsecured notes and allowed general unsecured claimants.

We believe our cash flow from operations, cash on hand and borrowing capacity under the Exit Credit Facility, as discussed below, will provide sufficient liquidity during the next 12 months and the foreseeable future. As of December 31, 2021, we had $2.625 billion of liquidity available, including $905 million of cash on hand and $1.720 billion of aggregate unused borrowing capacity available under the Exit Credit Facility. As of December 31, 2021, we had no outstanding borrowings under our Exit Credit Facility – Tranche A Loans, and $221 million in borrowings under our Exit Credit Facility – Tranche B Loans. See Note 6 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion of our debt obligations, including principal and carrying amounts of our senior notes.

52

TABLE OF CONTENTS

Dividend

With our strong liquidity position, we initiated a new dividend strategy in 2021. We paid dividends of $119 million on our New Common Stock in the 2021 Successor Period. See Note 12 for further discussion.

On August 10, 2021, we announced a variable return program that will result in the payment of an additional dividend, payable beginning in March 2022, equal to the sum of Adjusted Free Cash Flow from the prior quarter less the base dividend, multiplied by 50%. On February 23, 2022, we declared a quarterly dividend payable of $1.7675 per share, which will be paid on March 22, 2022 to stockholders of record at the close of business on March 7, 2022. The dividend consists of a base quarterly dividend in the amount of $0.4375 per share and a variable quarterly dividend in the amount of $1.33 per share. In January 2022, we announced our intent to increase the base quarterly dividend to $0.50 per share beginning in the second quarter of 2022.

The declaration and payment of any future dividend, whether fixed or variable, will remain at the full discretion of the Board and will depend on the Company’s financial results, cash requirements, future prospects and other relevant factors. The Company’s ability to pay dividends to its stockholders is restricted by (i) Oklahoma corporate law, (ii) its Certificate of Incorporation, (iii) the terms and provisions of its Credit Agreement and (iv) the terms and provisions of the indentures governing its 5.50% Senior Notes due 2026, 5.875% Senior Notes due 2029 and 6.75% senior notes due 2029.

Derivative and Hedging Activities

Our results of operations and cash flows are impacted by changes in market prices for oil, natural gas and NGL. We enter into various derivative instruments to mitigate a portion of our exposure to commodity price declines, but these transactions may also limit our cash flows in periods of rising commodity prices. Our oil, natural gas and NGL derivative activities, when combined with our sales of oil, natural gas and NGL, allow us to better predict the total revenue we expect to receive. See Item 7A Quantitative and Qualitative Disclosures About Market Risk included in Part II of this report for further discussion on the impact of commodity price risk on our financial position.

Contractual Obligations and Off-Balance Sheet Arrangements

As of December 31, 2021, our material contractual obligations include repayment of senior notes, outstanding borrowings and interest payment obligations under the Exit Credit Facility, derivative obligations, asset retirement obligations, lease obligations, undrawn letters of credit and various other commitments we enter into in the ordinary course of business that could result in future cash obligations. In addition, we have contractual commitments with midstream companies and pipeline carriers for future gathering, processing and transportation of oil, natural gas and NGL to move certain of our production to market. The estimated gross undiscounted future commitments under these agreements were approximately $3.83 billion as of December 31, 2021. As discussed above, we believe our existing sources of liquidity will be sufficient to fund our near and long-term contractual obligations. See Notes 6, 7, 9, 15 and 23 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

Post-Emergence Debt

On the Effective Date, pursuant to the terms of the Plan, the Company, as borrower, entered into a reserve-based credit agreement (the “Credit Agreement”) providing for the Exit Credit Facility which features an initial borrowing base of $2.5 billion. The borrowing base will be redetermined semiannually on or around May 1 and November 1 of each year. Our borrowing base was reaffirmed in October 2021, and the next scheduled redetermination will be on or about May 1, 2022. The aggregate initial elected commitments of the lenders under the Exit Credit Facility were $1.75 billion of revolving Tranche A Loans and $221 million of fully funded Tranche B Loans.

The Exit Credit Facility provides for a $200 million sublimit of the aggregate commitments that are available for the issuance of letters of credit. The Exit Credit Facility bears interest at the ABR (alternate base rate) or LIBOR, at our election, plus an applicable margin (ranging from 2.25–3.25% per annum for ABR loans and 3.25–4.25% per annum for LIBOR loans, subject to a 1.00% LIBOR floor), depending on the percentage of the borrowing base then being utilized. The Tranche A Loans mature 3 years after the Effective Date and the Tranche B Loans mature 4 years after the Effective Date. The Tranche B Loans can be repaid if no Tranche A Loans are outstanding.

53

TABLE OF CONTENTS

On February 2, 2021, the Company issued $500 million aggregate principal amount of its 5.50% Senior Notes due 2026 (the “2026 Notes”) and $500 million aggregate principal amount of its 5.875% Senior Notes due 2029 (the “2029 Notes and, together with the 2026 Notes, the “Notes”). The offering of the Notes was part of a series of exit financing transactions undertaken in connection with the Debtors’ Chapter 11 Cases and meant to provide the exit financing originally intended to be provided by the Exit Term Loan Facility pursuant to the Commitment Letter.

Assumption and Repayment of Vine Debt

In conjunction with the Vine Acquisition, Vine’s Second Lien Term Loan was repaid and terminated for $163 million inclusive of a $13 million make whole premium with cash on hand, due to the agreement containing a change in control provision making the term loan callable upon closing. Vine’s reserve based loan facility, which had no borrowings as of November 1, 2021, was terminated at the time of the completion of the Vine Acquisition. Additionally, Vine’s 6.75% Senior Notes with a principal amount of $950 million, were assumed by the Company at the time of the completion of the Vine Acquisition.

Pending Acquisition and Divestiture

On January 24, 2022, we entered into a definitive agreement to acquire Chief and associated non-operated interests held by affiliates of Tug Hill, for $2.0 billion in cash and approximately 9.44 million common shares. On January 24, 2022, we also entered into an agreement to sell our Powder River Basin assets to Continental Resources, Inc. for approximately $450 million in cash. We currently expect to fund the Chief Acquisition with cash on hand, borrowings under our Exit Credit Facility and the proceeds from the planned Powder River Basin divestiture.

Capital Expenditures

For the year ending December 31, 2022, we currently expect to bring or have online approximately 190 to 220 gross wells across 11 to 14 rigs and plan to invest between approximately $1.5 – $1.8 billion in capital expenditures, approximately $150 – $200 million of which is contingent upon the closing of the proposed Chief Acquisition. We expect that approximately 75% of our 2022 capital expenditures will be directed toward our natural gas assets. We currently plan to fund our 2022 capital program through cash on hand, expected cash flow from our operations and borrowings under our Exit Credit Facility. We may alter or change our plans with respect to our capital program and expected capital expenditures based on developments in our business, our financial position, our industry or any of the markets in which we operate.

Sources of Funds

The following table presents the sources of our cash and cash equivalents for the Successor and Predecessor Periods:

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020","","Year Ended December 31, 2019"],["Net cash provided by (used in) operating activities","","$","1,809","","","","$","(21)","","","$","1,164","","","$","1,623"],["Proceeds from issuances of debt, net","","\u2014","","","","1,000","","","\u2014","","","1,563"],["Proceeds from issuance of common stock","","\u2014","","","","600","","","\u2014","","","\u2014"],["Proceeds from warrant exercise","","2","","","","\u2014","","","\u2014","","","\u2014"],["Proceeds from divestitures of property and equipment","","13","","","","\u2014","","","150","","","136"],["Proceeds from pre-petition revolving credit facility borrowings, net","","\u2014","","","","\u2014","","","339","","","496"],["Total sources of cash and cash equivalents","","$","1,824","","","","$","1,579","","","$","1,653","","","$","3,818"]]
[[/GREPCENT_TABLE]]

54

TABLE OF CONTENTS

Cash Flow from Operating Activities

Cash provided by operating activities was $1.809 billion, $1.164 billion and $1.623 billion in the 2021 Successor Period, 2020 Predecessor Period and 2019 Predecessor Period, respectively. Cash used in operating activities was $21 million for the 2021 Predecessor Period. The increase in the 2021 Successor Period is primarily the result of higher prices for the oil, natural gas and NGL we sold coupled with a decrease in cash interest and GP&T costs following our emergence from bankruptcy. The cash used in the 2021 Predecessor Period was primarily in connection with the payment of professional fees related to the Chapter 11 Cases. The decrease in the 2020 Predecessor Period is primarily the result of lower prices for the oil, natural gas and NGL we sold. Changes in cash flow from operations are largely due to the same factors that affect our net income, excluding various non-cash items, such as depreciation, depletion and amortization, certain impairments, gains or losses on sales of fixed assets, deferred income taxes and mark-to-market changes in our derivative instruments. See further discussion below under Results of Operations.

Proceeds from Issuance of Common Stock and Senior Notes

In the 2021 Predecessor Period, we issued $500 million aggregate principal amount of 5.50% 2026 Notes and $500 million aggregate principal amount of 5.875% 2029 Notes for total proceeds of $1.0 billion. Additionally, upon emergence from Chapter 11, we issued 62,927,320 shares of New Common Stock in exchange for $600 million of cash, as agreed upon in the Plan. In the 2019 Predecessor Period we obtained a $1.5 billion term loan and issued $120 million of senior secured second lien notes for net proceeds of $1.563 billion See Note 6 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

Divestitures of Property and Equipment

In the 2021 Successor Period we divested certain non-core assets for approximately $13 million. In the 2020 Predecessor Period, we divested our Mid-Continent asset for $130 million and certain non-core assets for approximately $6 million. In the 2019 Predecessor Period, we divested certain non-core assets for approximately $130 million. See Note 4 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

55

TABLE OF CONTENTS

Uses of Funds

The following table presents the uses of our cash and cash equivalents for the Successor and Predecessor Periods:

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020","","Year Ended December 31, 2019"],["Oil and Natural Gas Expenditures:"],["Capital expenditures","","$","669","","","","$","66","","","$","1,142","","","$","2,263"],["Other Uses of Cash and Cash Equivalents:"],["Business combination, net","","194","","","","\u2014","","","\u2014","","","353"],["Payments on Exit Credit Facility - Tranche A Loans, net","","50","","","","479","","","\u2014","","","\u2014"],["Payments on DIP Facility borrowings, net","","\u2014","","","","1,179","","","\u2014","","","\u2014"],["Debt issuance and other financing costs","","3","","","","8","","","109","","","\u2014"],["Cash paid to purchase debt","","\u2014","","","","\u2014","","","94","","","1,073"],["Cash paid for common stock dividends","","119","","","","\u2014","","","\u2014","","","\u2014"],["Cash paid for preferred stock dividends","","\u2014","","","","\u2014","","","22","","","91"],["Other","","1","","","","\u2014","","","13","","","36"],["Total other uses of cash and cash equivalents","","367","","","","1,666","","","238","","","1,553"],["Total uses of cash and cash equivalents","","$","1,036","","","","$","1,732","","","$","1,380","","","$","3,816"]]
[[/GREPCENT_TABLE]]

Capital Expenditures

Our drilling and completion costs decreased in the combined 2021 Successor and Predecessor Periods compared to the 2020 Predecessor Period primarily as a result of decreased drilling and completion activity mainly in our liquids-rich plays. Our drilling and completion costs decreased in the 2020 Predecessor Period compared to the 2019 Predecessor Period primarily as a result of decreased drilling and completion activity mainly in our liquids-rich plays. In the combined 2021 Successor and Predecessor Periods, our average operated rig count was 7 rigs and 121 spud wells, compared to an average operated rig count of 8 rigs and 167 spud wells in the 2020 Predecessor Period and 18 rigs and 333 spud wells in the 2019 Predecessor Period. We completed 127 operated wells in the combined 2021 Successor and Predecessor Periods compared to 188 in the 2020 Predecessor Period and 370 in the 2019 Predecessor Period.

Business Combination

In the 2021 Successor Period, we acquired Vine for approximately 18.7 million shares of our New Common Stock and $253 million cash, less $59 million of cash held by Vine as of the acquisition date. In the 2019 Predecessor Period, we acquired WildHorse for approximately 3.6 million reverse stock split adjusted shares of our Predecessor common stock and $381 million cash, less $28 million of cash held by WildHorse as of the acquisition date. See Note 4 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion of these acquisitions.

Payments on DIP Facility Borrowings

On the Effective Date, the DIP Facility was terminated, and the holders of obligations under the DIP Facility received payment in full in cash; provided that to the extend such lender under the DIP Facility was also a lender under the Exit Credit Facility, such lender’s allowed DIP claims were first reduced dollar-for-dollar and satisfied by the amount of its Exit RBL Loans provided as of the Effective Date.

56

TABLE OF CONTENTS

Debt Issuance and Other Financing Costs

In the 2020 Predecessor Period, we paid $109 million of one-time fees to lenders to establish our DIP Credit Facility and Exit Credit Facility.

Cash Paid to Purchase Debt

In the 2020 Predecessor Period, we repurchased approximately $160 million aggregate principal amount of our senior notes for $94 million. In the 2019 Predecessor Period, we repurchased $698 million aggregate principal amount of our BVL Senior Notes for $693 million and retired our BVL revolving credit facility for $1.028 billion. We also repaid upon maturity $380 million principal amount of our Floating Rate Senior Notes due April 2019.

Cash Paid for Common Stock Dividends

As part of our dividend program, we paid dividends of $119 million on our New Common Stock in the 2021 Successor Period. See Note 12 for further discussion.

Cash Paid for Preferred Stock Dividends

We paid dividends of $22 million and $91 million on our Predecessor preferred stock during the 2020 and 2019 Predecessor Periods, respectively. On April 17, 2020, we announced that we were suspending payment of dividends on each series of our outstanding convertible preferred stock. On the Effective Date of the Chapter 11 Cases, each holder of an equity interest in Chesapeake had such interest canceled, released, and extinguished without any distribution. See Note 2 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for additional information about the Chapter 11 Cases.

57

TABLE OF CONTENTS

Results of Operations

Year ended December 31, 2021 compared to the year ended December 31, 2020

Below is a discussion of changes in our results of operations for the combined 2021 Successor and Predecessor Periods compared to the 2020 Predecessor Period. A discussion of changes in our results of operations for the 2020 Predecessor Period compared to the 2019 Predecessor Period has been omitted from this Form 10-K, but may be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 1, 2021.

Oil, Natural Gas and NGL Production and Average Sales Prices

[[GREPCENT_TABLE]]
[["","","Successor"],["","","Period from February 10, 2021 through December 31, 2021"],["","","Oil","","Natural Gas","","NGL","","Total"],["","","mbblper day","","$/bbl","","mmcf per day","","$/mcf","","mbblper day","","$/bbl","","mboeper day","","$/boe"],["Marcellus","","\u2014","","","\u2014","","","1,296","","","3.25","","","\u2014","","","\u2014","","","216","","","19.52"],["Haynesville","","\u2014","","","\u2014","","","750","","","4.10","","","\u2014","","","\u2014","","","125","","","24.57"],["Eagle Ford","","60","","","69.25","","","137","","","4.02","","","19","","","29.76","","","101","","","51.91"],["Powder River Basin","","9","","","67.90","","","53","","","4.33","","","3","","","40.00","","","21","","","46.09"],["Total","","69","","","69.07","","","2,236","","","3.61","","","22","","","31.37","","","463","","","29.19"],["","","Predecessor"],["","","Period from January 1, 2021 through February 9, 2021"],["","","Oil","","Natural Gas","","NGL","","Total"],["","","mbblper day","","$/bbl","","mmcf per day","","$/mcf","","mbblper day","","$/bbl","","mboeper day","","$/boe"],["Marcellus","","\u2014","","","\u2014","","","1,233","","","2.42","","","\u2014","","","\u2014","","","206","","","14.49"],["Haynesville","","\u2014","","","\u2014","","","543","","","2.44","","","\u2014","","","\u2014","","","90","","","14.62"],["Eagle Ford","","74","","","53.37","","","165","","","2.57","","","18","","","23.94","","","120","","","40.27"],["Powder River Basin","","10","","","51.96","","","61","","","2.92","","","4","","","34.31","","","24","","","34.25"],["Total","","84","","","53.21","","","2,002","","","2.45","","","22","","","25.92","","","440","","","22.63"],["","","Predecessor"],["","","Year Ended December 31, 2020"],["","","Oil","","Natural Gas","","NGL","","Total"],["","","mbblper day","","$/bbl","","mmcf per day","","$/mcf","","mbblper day","","$/bbl","","mboeper day","","$/boe"],["Marcellus","","\u2014","","","\u2014","","","1,052","","","1.64","","","\u2014","","","\u2014","","","175","","","9.82"],["Haynesville","","\u2014","","","\u2014","","","543","","","1.83","","","\u2014","","","\u2014","","","90","","","10.99"],["Eagle Ford","","86","","","38.38","","","185","","","1.90","","","24","","","10.93","","","141","","","27.72"],["Powder River Basin","","13","","","36.64","","","58","","","1.92","","","4","","","14.94","","","26","","","24.22"],["Mid-Continent","","4","","","38.17","","","34","","","1.98","","","3","","","12.36","","","13","","","20.18"],["Total","","103","","","38.16","","","1,872","","","1.73","","","31","","","11.55","","","445","","","16.84"]]
[[/GREPCENT_TABLE]]

58

TABLE OF CONTENTS

Oil, Natural Gas and NGL Sales

[[GREPCENT_TABLE]]
[["","","Successor"],["","","Period from February 10, 2021 through December 31, 2021"],["","","Oil","","Natural Gas","","NGL","","Total"],["Marcellus","","$","\u2014","","","$","1,370","","","$","\u2014","","","$","1,370"],["Haynesville","","\u2014","","","998","","","\u2014","","","998"],["Eagle Ford","","1,354","","","179","","","179","","","1,712"],["Powder River Basin","","202","","","75","","","44","","","321"],["Total oil, natural gas and NGL sales","","$","1,556","","","$","2,622","","","$","223","","","$","4,401"],["","","Predecessor"],["","","Period from January 1, 2021 through February 9, 2021"],["","","Oil","","Natural Gas","","NGL","","Total"],["Marcellus","","$","\u2014","","","$","119","","","$","\u2014","","","$","119"],["Haynesville","","\u2014","","","53","","","\u2014","","","53"],["Eagle Ford","","159","","","17","","","17","","","193"],["Powder River Basin","","20","","","7","","","6","","","33"],["Total oil, natural gas and NGL sales","","$","179","","","$","196","","","$","23","","","$","398"],["","","Non-GAAP Combined"],["","","Year Ended December 31, 2021"],["","","Oil","","Natural Gas","","NGL","","Total"],["Marcellus","","$","\u2014","","","$","1,489","","","$","\u2014","","","$","1,489"],["Haynesville","","\u2014","","","1,051","","","\u2014","","","1,051"],["Eagle Ford","","1,513","","","196","","","196","","","1,905"],["Powder River Basin","","222","","","82","","","50","","","354"],["Total oil, natural gas and NGL sales","","$","1,735","","","$","2,818","","","$","246","","","$","4,799"],["","","Predecessor"],["","","Year Ended December 31, 2020"],["","","Oil","","Natural Gas","","NGL","","Total"],["Marcellus","","$","\u2014","","","$","631","","","$","\u2014","","","$","631"],["Haynesville","","\u2014","","","362","","","\u2014","","","362"],["Eagle Ford","","1,202","","","129","","","97","","","1,428"],["Powder River Basin","","170","","","41","","","20","","","231"],["Mid-Continent","","55","","","25","","","13","","","93"],["Total oil, natural gas and NGL sales","","$","1,427","","","$","1,188","","","$","130","","","$","2,745"]]
[[/GREPCENT_TABLE]]

Oil, natural gas and NGL sales in the combined 2021 Successor and Predecessor Periods increased $2.054 billion compared to the 2020 Predecessor Period. The increase was primarily attributable to a $1.901 billion increase in revenues from higher average prices received. Additionally, increased volumes in Marcellus and Haynesville, partially offset by decreased volumes in Eagle Ford, Powder River Basin and Mid-Continent, following the divestiture of our Mid-Continent assets in 2020, resulted in a $153 million increase in revenues. See Note 10 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for a complete discussion of oil, natural gas and NGL sales.

59

TABLE OF CONTENTS

Production Expenses

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor","","Non-GAAP Combined","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","","","","$/Boe","","","","","$/Boe","","","","$/Boe","","","","$/Boe"],["Marcellus","","$","34","","","0.49","","","","$","4","","","0.50","","","$","38","","","0.49","","","$","32","","","0.50"],["Haynesville","","59","","","1.44","","","","4","","","1.12","","","63","","","1.42","","","41","","","1.28"],["Eagle Ford","","173","","","5.25","","","","21","","","4.24","","","194","","","5.13","","","201","","","3.89"],["Powder River Basin","","31","","","4.45","","","","3","","","3.37","","","34","","","4.32","","","42","","","4.41"],["Mid-Continent","","\u2014","","","\u2014","","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","57","","","12.56"],["Total production expenses","","$","297","","","1.97","","","","$","32","","","1.80","","","$","329","","","1.95","","","$","373","","","2.29"]]
[[/GREPCENT_TABLE]]

Production expenses in the combined 2021 Successor and Predecessor Periods decreased $44 million as compared to the 2020 Predecessor Period. The decrease was primarily due to a $57 million reduction from the sale of Mid-Continent properties in the 2020 Predecessor Period, in combination with the effects of workforce reductions in late 2020 and early 2021. The decrease was partially offset by a $12 million increase related to the Vine Acquisition in the Haynesville operating area.

Gathering, Processing and Transportation Expenses

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor","","Non-GAAP Combined","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","","","","$/Boe","","","","","$/Boe","","","","$/Boe","","","","$/Boe"],["Marcellus","","$","287","","","4.09","","","","$","34","","","4.17","","","$","321","","","4.10","","","$","292","","","4.55"],["Haynesville","","118","","","2.91","","","","11","","","2.93","","","129","","","2.91","","","188","","","5.69"],["Eagle Ford","","290","","","8.79","","","","45","","","9.32","","","335","","","8.85","","","475","","","9.23"],["Powder River Basin","","85","","","12.20","","","","12","","","12.53","","","97","","","12.24","","","100","","","10.52"],["Mid-Continent","","\u2014","","","\u2014","","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","27","","","5.76"],["Total gathering, processing and transportation expenses","","$","780","","","5.17","","","","$","102","","","5.78","","","$","882","","","5.24","","","$","1,082","","","6.64"]]
[[/GREPCENT_TABLE]]

Gathering, processing and transportation expenses in the combined 2021 Successor and Predecessor Periods decreased $200 million as compared to the 2020 Predecessor Period. Haynesville decreased $84 million as a result of contract negotiations in the Chapter 11 Cases, partially offset by a $25 million increase associated with Vine acquired wells. Eagle Ford decreased $140 million primarily as a result of reduced production as well as contract negotiations in the Chapter 11 Cases. Additionally, the sale of Mid-Continent properties in 2020 resulted in a $27 million reduction. These decreases were partially offset by a $29 million increase in Marcellus primarily due to increased production.

60

TABLE OF CONTENTS

Severance and Ad Valorem Taxes

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor","","Non-GAAP Combined","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","","","","$/Boe","","","","","$/Boe","","","","$/Boe","","","","$/Boe"],["Marcellus","","$","9","","","0.12","","","","$","1","","","0.07","","","$","10","","","0.12","","","$","6","","","0.09"],["Haynesville","","22","","","0.55","","","","2","","","0.54","","","24","","","0.55","","","23","","","0.69"],["Eagle Ford","","96","","","2.91","","","","13","","","2.69","","","109","","","2.88","","","92","","","1.79"],["Powder River Basin","","31","","","4.48","","","","2","","","2.88","","","33","","","4.29","","","23","","","2.41"],["Mid-Continent","","\u2014","","","\u2014","","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","5","","","1.16"],["Total severance and ad valorem taxes","","$","158","","","1.05","","","","$","18","","","1.03","","","$","176","","","1.05","","","$","149","","","0.91"]]
[[/GREPCENT_TABLE]]

Severance and ad valorem taxes in the combined 2021 Successor and Predecessor Periods increased $27 million as compared to the 2020 Predecessor Period. The severance tax increase of $23 million was primarily driven by increased revenue as a result of improved pricing.

Gross Margin by Operating Area

The table below presents the gross margin for each of our operating areas. Gross margin by operating area is defined as oil, natural gas and NGL sales less production expenses, gathering, processing and transportation expenses, and severance and ad valorem taxes.

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor","","Non-GAAP Combined","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2021","","Year Ended December 31, 2020"],["","","","","$/Boe","","","","","$/Boe","","","","$/Boe","","","","$/Boe"],["Marcellus","","$","1,040","","","14.82","","","","$","80","","","9.75","","","$","1,120","","","14.28","","","$","301","","","4.68"],["Haynesville","","799","","","19.67","","","","36","","","10.03","","","835","","","18.88","","","110","","","3.33"],["Eagle Ford","","1,153","","","34.96","","","","114","","","24.02","","","1,267","","","33.56","","","660","","","12.81"],["Powder River Basin","","174","","","24.96","","","","16","","","15.47","","","190","","","23.81","","","66","","","6.88"],["Mid-Continent","","\u2014","","","\u2014","","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","4","","","0.70"],["Gross margin by operating area","","$","3,166","","","21.00","","","","$","246","","","14.02","","","$","3,412","","","20.27","","","$","1,141","","","7.00"]]
[[/GREPCENT_TABLE]]

61

TABLE OF CONTENTS

Oil and Natural Gas Derivatives

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Oil derivatives \u2013 realized gains (losses)","","$","(453)","","","","$","(19)","","","$","694"],["Oil derivatives \u2013 unrealized losses","","(29)","","","","(190)","","","(140)"],["Total gains (losses) on oil derivatives","","(482)","","","","(209)","","","554"],["Natural gas derivatives \u2013 realized gains (losses)","","(715)","","","","6","","","161"],["Natural gas derivatives \u2013 unrealized gains (losses)","","70","","","","(179)","","","(119)"],["Total gains (losses) on natural gas derivatives","","(645)","","","","(173)","","","42"],["Total gains (losses) on oil and natural gas derivatives","","$","(1,127)","","","","$","(382)","","","$","596"]]
[[/GREPCENT_TABLE]]

See Note 15 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for a complete discussion of our derivative activity.

Marketing Revenues and Expenses

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Marketing revenues","","$","2,263","","","","$","239","","","$","1,869"],["Marketing expenses","","2,257","","","","237","","","1,889"],["Marketing margin","","$","6","","","","$","2","","","$","(20)"]]
[[/GREPCENT_TABLE]]

Marketing revenues and expenses increased in the 2021 Successor Period as a result of increased oil, natural gas and NGL prices received in our marketing operations.

Exploration Expense

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Impairments of unproved properties","","$","1","","","","$","2","","","$","411"],["Dry hole expense","","1","","","","\u2014","","","7"],["Geological and geophysical expense and other","","5","","","","\u2014","","","9"],["Total exploration expense","","$","7","","","","$","2","","","$","427"]]
[[/GREPCENT_TABLE]]

The 2020 Predecessor Period exploration expense is the result of non-cash impairment charges in unproved properties, primarily in our Eagle Ford, Haynesville, Powder River Basin and Mid-Continent operating areas. See Note 20 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

62

TABLE OF CONTENTS

General and Administrative Expenses

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Gross compensation and benefits","","$","231","","","","$","32","","","$","383"],["Non-labor","","86","","","","12","","","195"],["Allocations and reimbursements","","(220)","","","","(23)","","","(311)"],["Total general and administrative expenses, net","","$","97","","","","$","21","","","$","267"],["General and administrative expenses, net per Boe","","$","0.64","","","","$","1.19","","","$","1.63"]]
[[/GREPCENT_TABLE]]

Compensation and benefits before reimbursements and allocations during the combined 2021 Successor and Predecessor Periods decreased $120 million compared to the 2020 Predecessor Period due to reductions in workforce in the 2020 and 2021 Predecessor Periods. Non-labor before reimbursements and allocations during the combined 2021 Successor and Predecessor Periods decreased $97 million compared to the 2020 Predecessor Period due to cost reduction initiatives for professional services as well as $43 million in fees for legal, financial and restructuring advisors incurred in preparation for the Chapter 11 Cases in the 2020 Predecessor Period. The decrease in allocations and reimbursements during the combined 2021 Successor and Predecessor Periods compared to the 2020 Predecessor Period was the result of reduced drilling, staffing reductions and the sale of Mid-Continent properties in 2020.

Separation and Other Termination Costs

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Separation and other termination costs","","$","11","","","","$","22","","","$","44"]]
[[/GREPCENT_TABLE]]

Separation and other termination costs relate to one-time termination benefits for certain employees.

Depreciation, Depletion and Amortization

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Depreciation, depletion and amortization","","$","919","","","","$","72","","","$","1,097"],["Depreciation, depletion and amortization per Boe","","$","6.10","","","","$","4.11","","","$","6.72"]]
[[/GREPCENT_TABLE]]

The absolute and per unit decrease in depreciation, depletion and amortization for the 2021 Successor Period compared to the 2020 Predecessor Period was primarily the result of the revaluation of the depletable asset base occurring in connection with our emergence from bankruptcy. Fresh start accounting requires that new fair values be established for our assets as of the Effective Date. See Note 3 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

63

TABLE OF CONTENTS

Impairments

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Impairments of proved oil and natural gas properties","","$","\u2014","","","","$","\u2014","","","$","8,446"],["Impairments of other fixed assets and other","","1","","","","\u2014","","","89"],["Total impairments","","$","1","","","","$","\u2014","","","$","8,535"]]
[[/GREPCENT_TABLE]]

In the 2020 Predecessor Period, we recorded impairments of proved oil and natural gas properties related to Eagle Ford, Powder River Basin, Mid-Continent and other non-core assets, all of which were due to lower forecasted commodity prices. Additionally, in the 2020 Predecessor Period, we recorded a $76 million impairment of our sand mine assets that support our Eagle Ford operating area for the difference between fair value and the carrying value of the assets as well as a $13 million impairment of compressor inventory due to a lack of a current market for compressors. See Note 19 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

Other Operating Expense (Income), Net

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Other operating expense (income), net","","$","84","","","","$","(12)","","","$","80"]]
[[/GREPCENT_TABLE]]

In the 2021 Successor Period we recognized approximately $59 million of costs related to our acquisition of Vine, which included consulting fees, financial advisory fees and legal fees. Additionally, we recognized approximately $36 million of severance expense as a result of the Vine Acquisition, which included $15 million of cash severance and $21 million of non-cash severance, primarily related to the issuance of New Common Stock for the acceleration of certain Vine restricted stock unit awards. A majority of Vine executives and employees were terminated on the date the Vine Acquisition was completed. These executives and employees were entitled to severance benefits in accordance with existing employment agreements. In the 2020 Predecessor Period, we terminated certain gathering, processing and transportation contracts and recognized a non-recurring $80 million expense related to the contract terminations, $9 million expense related to the impairment of sand mine inventory and $42 million of other operating expense primarily related to royalty settlements and other legal matters, partially offset by $51 million of income from the amortization of VPP deferred revenue. In the 2020 Predecessor Period, we sold the assets related to our remaining volumetric production payment and extinguished the liability related to the production volume delivery obligation.

64

TABLE OF CONTENTS

Interest Expense

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Interest expense on debt","","$","79","","","","$","11","","","$","402"],["Amortization of premium, discount, issuance costs and other","","5","","","","\u2014","","","(56)"],["Capitalized interest","","(11)","","","","\u2014","","","(15)"],["Total interest expense","","$","73","","","","$","11","","","$","331"]]
[[/GREPCENT_TABLE]]

The decrease in total interest expense in the 2021 Successor Period compared to the 2020 Predecessor Period resulted from the decrease in outstanding debt obligations between periods. Upon emergence from the Chapter 11 Cases, all outstanding obligations under our Predecessor senior notes and term loan were canceled in exchange for shares of New Common Stock and Warrants. See Note 6 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for further discussion.

Other Income (Expense)

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Other income (expense)","","$","31","","","","$","2","","","$","(4)"]]
[[/GREPCENT_TABLE]]

In the 2021 Successor Period, we recorded a gain of $22 million for a refund from a midstream provider.

Reorganization Items, Net

[[GREPCENT_TABLE]]
[["","","Successor","","","Predecessor"],["","","Period from February 10, 2021 through December 31, 2021","","","Period from January 1, 2021 through February 9, 2021","","Year Ended December 31, 2020"],["Gains on the settlement of liabilities subject to compromise","","$","\u2014","","","","$","6,443","","","$","12"],["Accrual for allowed claims","","\u2014","","","","(1,002)","","","(879)"],["Write off of unamortized debt premiums (discounts) on Predecessor debt","","\u2014","","","","\u2014","","","518"],["Write off of unamortized debt issuance costs on Predecessor debt","","\u2014","","","","\u2014","","","(61)"],["Gain on fresh start adjustments","","\u2014","","","","201","","","\u2014"],["Gain from release of commitment liabilities","","\u2014","","","","55","","","\u2014"],["Debt and equity financing fees","","\u2014","","","","\u2014","","","(145)"],["Loss on divested assets","","\u2014","","","","\u2014","","","(128)"],["Professional service provider fees and other","","\u2014","","","","(60)","","","(113)"],["Success fees for professional service providers","","\u2014","","","","(38)","","","\u2014"],["Surrender of other receivable","","\u2014","","","","(18)","","","\u2014"],["FLLO alternative transaction fee","","\u2014","","","","(12)","","","\u2014"],["Total reorganization items, net","","$","\u2014","","","","$","5,569","","","$","(796)"]]
[[/GREPCENT_TABLE]]

65

TABLE OF CONTENTS

In the 2021 and 2020 Predecessor Periods, we recorded a net gain of $5.569 billion and a net loss of $796 million, respectively, in reorganization items, net, related to the Chapter 11 Cases. See Note 2 and Note 3 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for a discussion of the Chapter 11 Cases and for discussion of adoption of fresh start accounting.

Income Tax Expense (Benefit). We recorded an income tax benefit of $49 million in the 2021 Successor Period. In the 2021 and 2020 Predecessor Periods, we recorded an income tax benefit of $57 million and $19 million, respectively. The income tax benefit recorded in the 2021 Successor Period is related to a $49 million partial release of the valuation allowance maintained against our net deferred tax asset position. The partial release was a consequence of recording a net deferred tax liability of $49 million resulting from the business combination accounting for Vine. The $57 million income tax benefit for the 2021 Predecessor Period consists of the removal of the income tax effects in other comprehensive income related to hedging settlements due to the fair value adjustments made upon emergence from bankruptcy. The income tax benefit for the 2020 Predecessor Period consists of a reversal of the income tax expense recorded in 2019 of $10 million relating to Texas no longer being in a net deferred tax asset position for the period ended December 31, 2019. Texas reverted back to being in a net deferred tax asset position which was offset by a valuation allowance for the period ended December 31, 2020, which resulted in the reversal. The $19 million also includes a current state income tax benefit of $6 million and a $3 million benefit for amounts which were previously sequestered or anticipated to be sequestered by the Internal Revenue Service (IRS) against certain refunds of alternative minimum tax (AMT) credits. The IRS announced on January 16, 2020, that refunds of AMT credits should not have been subject to sequestration. All previously sequestered funds have been received. See Note 11 of the notes to our consolidated financial statements included in Item 8 of Part II of this report for a discussion of income tax expense (benefit).

66

TABLE OF CONTENTS

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States require us to make estimates and assumptions. The accounting estimates and assumptions that involve a significant level of estimation uncertainty and have or are reasonably likely to have a material impact on our financial condition or results of operations are discussed below. Our management has discussed each critical accounting estimate with the Audit Committee of our Board of Directors.

Reorganization and Fresh Start Accounting. Effective June 28, 2020, as a result of the filing of the Chapter 11 Cases we began accounting and reporting according to FASB ASC Topic 852 – Reorganizations (“ASC 852”), which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. These requirements include distinguishing and presenting transactions associated with the reorganization and implementation of the plan of reorganization separately from activities related to ongoing operations of the business. Additionally, upon emergence from the Chapter 11 Cases, ASC 852 required us to allocate our reorganization value to our individual assets based on their estimated fair values, resulting in a new entity for financial reporting purposes. After the Effective Date, the accounting and reporting requirements of ASC 852 are no longer applicable and have no impact on the Successor periods.

Oil and Natural Gas Reserves. Estimates of oil and natural gas reserves and their values, future production rates, future development costs and commodity pricing differentials are the most significant of our estimates. The accuracy of any reserve estimate is a function of the quality of data available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be revised based on actual production, results of subsequent exploration and development activities, recent commodity prices, operating costs and other factors. These revisions could materially affect our financial statements. The volatility of commodity prices results in increased uncertainty inherent in these estimates and assumptions. Changes in oil, natural gas or NGL prices could result in actual results differing significantly from our estimates. See Supplemental Disclosures About Oil, Natural Gas, and NGL Producing Activities included in Item 8 of Part II of this report for further information.

Accounting for Business Combinations. We account for business combinations using the acquisition method, which is the only method permitted under FASB ASC Topic 805 – Business Combinations, and involves the use of significant judgment. Under the acquisition method of accounting, a business combination is accounted for at a purchase price based on the fair value of the consideration given. The assets and liabilities acquired are measured at their fair values, and the purchase price is allocated to the assets and liabilities based upon these fair values. The excess, if any, of the consideration given to acquire an entity over the net amounts assigned to its assets acquired and liabilities assumed is recognized as goodwill. The excess, if any, of the fair value of assets acquired and liabilities assumed over the cost of an acquired entity is recognized immediately to earnings as a gain from bargain purchase.

The Company’s principal assets are its oil and natural gas properties, which are accounted for under the successful efforts accounting method. The Company determines the fair value of acquired oil and natural gas properties based on the discounted future net cash flows expected to be generated from these assets. Discounted cash flow models by operating area are prepared using the estimated future revenues and operating costs for all proved developed properties and undeveloped properties comprising the proved and unproved reserves. Significant inputs associated with the calculation of discounted future net cash flows include estimates of (i) recoverable reserves, (ii) production rates, (iii) future operating and development costs, (iv) future commodity prices escalated by an inflationary rate after five years, adjusted for differentials, and (v) a market-based weighted average cost of capital by operating area. The Company utilizes NYMEX strip pricing, adjusted for differentials, to value the reserves. The NYMEX strip pricing inputs used are classified as Level 1 fair value assumptions and all other inputs are classified as Level 3 fair value assumptions. The discount rates utilized are derived using a weighted average cost of capital computation, which includes an estimated cost of debt and equity for market participants with similar geographies and asset development type by operating area.

Impairments. Long-lived assets used in operations, including proved oil and gas properties, are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future cash flows expected to be generated by an asset group. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. If there is an indication the carrying amount of an asset may not be

67

TABLE OF CONTENTS

recovered, the asset is assessed by management through an established process in which changes to significant assumptions such as prices, volumes, and future development plans are reviewed. If, upon review, the sum of the undiscounted pre-tax cash flows is less than the carrying value of the asset group, the carrying value is written down to estimated fair value by discounting using a weighted average cost of capital. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is assessed by management using the income approach. Level 3 inputs associated with the calculation of discounted cash flows used in the impairment analysis include our estimate of future crude oil and natural gas prices, production costs, development expenditures, anticipated production of proved reserves and other relevant data. Additionally, we utilize NYMEX strip pricing, adjusted for differentials, to value the reserves.

Income Taxes. Income taxes are accounted for using the asset and liability method as required by GAAP. Deferred tax assets and liabilities arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets for tax attributes such as NOL carryforwards and disallowed business interest carryforwards are also recognized. Deferred tax assets represent potential future tax benefits, and are reduced by a valuation allowance if it is more likely than not that such benefits will not be realized.

In assessing the need for a valuation allowance or adjustments to existing valuation allowances, we consider the weight of all available evidence, both positive and negative, concerning the realization of the deferred tax asset. Among the more significant types of evidence that we consider are:

•taxable income projections in future years;

•reversal of existing deferred tax liabilities against deferred tax assets and whether the carryforward period is so brief that it would limit realization of the tax benefit;

•future sales and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures; and

•our earnings history exclusive of any loss that creates a future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition.

Our judgement regarding the realizability of deferred tax assets is thus significantly informed by our assessment of forecasted financial information.

In interim quarters our tax provision is based upon an estimated annual effective tax rate, which is determined through the usage of full year estimates. Thus, our quarterly income tax expense or benefit can fluctuate throughout the year as a result of changing financial forecasts.

We also routinely assess potential uncertain tax positions and, if required, establish accruals for such positions. Accounting guidance for recognizing and measuring uncertain tax positions requires that a more likely than not threshold condition be met on a tax position, based solely on its technical merits of being sustained, before any benefit of the uncertain tax position can be recognized in the financial statements. If it is more likely than not a tax position will be sustained, we measure and recognize the position following a cumulative probability estimate.

Contingencies. We are subject to various legal proceedings, claims, and liabilities that arise in the ordinary course of business. Except for contingencies acquired in a business combination, which are recorded at fair value at the time of acquisition, we accrue losses when such losses are probable and reasonably estimable. If we determine that a loss is probable and cannot estimate a specific amount for that loss, but can estimate a range of loss, the best estimate within the range is accrued. If no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. Our in-house legal personnel regularly assess contingent liabilities and, in certain circumstances, consult with third-party legal counsel or consultants to assist in the evaluation of our liability for these contingencies.

We make judgments and estimates when we establish liabilities for litigation and other contingent matters. Estimates of litigation-related liabilities are based on the facts and circumstances of the individual case and on information currently available to us. The extent of information available varies based on the status of the litigation and our evaluation of the claim and legal arguments. In future periods, a number of factors could significantly change our estimate of litigation-related liabilities, including discovery activities; briefings filed with the relevant court; rulings from the court made pre-trial, during trial, or at the conclusion of any trial; and similar cases involving other plaintiffs and defendants that may set or change legal precedent. As events unfold throughout the litigation

68

TABLE OF CONTENTS

process, we evaluate the available information and may consult with third-party legal counsel to determine whether liability accruals should be established or adjusted.

69

TABLE OF CONTENTS