← Back to CHK filing summaryOriginal filing text · Part I
Item 2 — Management's Discussion and Analysis
Chesapeake Energy Corporation · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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Introduction
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, liquidity, results of operations and certain other factors that may affect our future results. The following discussion should be read together with the condensed consolidated financial statements included in Item 1 of Part I of this report and the consolidated financial statements included in Item 8 of our 2025 Form 10-K.
Expand Energy is the largest independent natural gas producer in the U.S., based on net daily production, and is focused on responsibly developing an abundant supply of natural gas, oil and NGL to expand energy access for all. Our operations are located in Louisiana and Texas in the Haynesville and Bossier Shales (“Haynesville”), in Pennsylvania in the Marcellus Shale (“Northeast Appalachia”) and in West Virginia and Ohio in the Marcellus and Utica Shales (“Southwest Appalachia”).
Our strategy is to create resilient shareholder value through the responsible development of our significant resource plays while continuing to be a leading provider of natural gas to growing markets. We continue to focus on improving margins through operating efficiencies, marketing and commercial efforts and financial discipline and improving our safety and sustainability performance. To accomplish these goals, we plan 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 invest in projects designed to reduce the environmental impact of our production activities.
Additionally, we aim to be conscientious in our efforts and how they will shape our approach to sustainability for the future and have established the following goals:
•Net zero (Scope 1 and 2) greenhouse gas emissions by 2035.
•Maintain 100% responsibly sourced gas (RSG) certification across our portfolio.
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Recent Developments
Twin Eagle Acquisition
On July 24, 2026, we entered into an agreement and plan of merger with Twin Eagle, a provider of natural gas marketing and logistics services, and one of our wholly owned subsidiaries whereby we will acquire Twin Eagle. The transaction is subject to customary closing conditions, including certain regulatory approvals, and is expected to close in the third quarter of 2026. The purchase price is approximately $1.25 billion, subject to typical purchase price adjustments, including for working capital. The Company expects to fund the transaction through a combination of cash on hand and borrowings under our Credit Facility.
Senior Notes Repayment
During the Current Period, the 6.75% Senior Notes due 2029 were repaid and terminated for approximately $875 million, including accrued interest. Additionally, the 5.875% Senior Notes due 2029 were repaid and terminated for approximately $446 million, including accrued interest. These series of senior notes were repaid using cash on hand. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
Shareholder Returns
In October 2024, our Board of Directors authorized the Company to repurchase up to $1.0 billion, in aggregate, of the Company’s common stock and/or warrants. On July 24, 2026, our Board of Directors authorized an expansion of the share repurchase program by $1.0 billion, bringing the total authorized share repurchase amount to $2.0 billion for our common stock. In 2025, we prioritized paying the base dividend of $2.30 per share and $1.0 billion of annual net debt reduction, with 75% of the remaining free cash flow distributed, as market conditions warranted, through share repurchases and additional dividend payments. In 2026, the Company plans to continue to effectively return cash to shareholders and preserve balance sheet strength. During the Current Period, we repurchased 6.4 million shares for an aggregate price of $601 million, which includes the impact of the 1% excise tax on share repurchases. Additionally, following the end of the Current Period, we repurchased approximately 2.8 million shares for an aggregate price of $254 million through July 24, 2026.
LNG Agreement
On April 22, 2026, we executed a Sales and Purchase Agreement (“SPA”) for long-term liquefaction offtake with Delfin FLNG 1 LLC. Under the SPA, we will purchase approximately 1.15 MTPA of LNG from Delfin FLNG 1 LLC at a Henry Hub price with a contract targeted start date in 2031. The previously announced SPAs with Delfin and Gunvor Group Ltd have been terminated.
Economic and Market Conditions
Elevated geopolitical tensions and episodic supply disruptions have continued to amplify price volatility across energy commodity markets, with attendant risks to the broader global economic outlook. During the first half of 2026, for example, renewed military conflict and instability in the Middle East raised concerns over potential disruptions to oil, natural gas, and LNG production and to regional shipping routes; issues that may continue to feed price volatility for an indeterminate period, particularly as the growth of LNG trade increasingly links previously regional gas markets.
Domestically, a confluence of mild weather and robust production has negatively impacted natural gas prices during the first half of 2026. However, structural demand drivers, led by the commissioning of new LNG export capacity, accelerating industrial onshoring, and the rapid expansion of AI-powered data centers, are expected to tighten market conditions, reinforcing upward pressure on future supply requirements and increasing volatility in price. Our future estimated cash flow is partially protected from commodity price movements through our current hedge positions that provide a floor price on over 65% of our projected gas volumes through the end of 2026 with significant upside participation via costless collars and three-way collars. For the foreseeable future, we believe our operational flexibility, cost structure and liquidity position will enable us to successfully navigate continued price volatility.
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We continue to monitor factors impacting commodity supply and demand situations, including tariffs on steel and oil related cost inputs such as diesel fuel, to assess their impact on our business, business partners and customers. For additional discussion regarding risk associated with price volatility and economic uncertainty, see Part I, Item 1A “Risk Factors” in our 2025 Form 10-K.
Management Changes
On February 6, 2026, the Board of Directors of the Company appointed Michael Wichterich, Chairman of the Board, as Interim President and Chief Executive Officer, replacing Domenic J. Dell’Osso, Jr., effective immediately. In connection with his separation, Mr. Dell’Osso also resigned from the Board of Directors, effective immediately.
On April 6, 2026, the Board of Directors of the Company appointed Marcel Teunissen, as Executive Vice President and Chief Financial Officer, effective immediately.
Liquidity and Capital Resources
Liquidity Overview
Our primary sources of capital resources and liquidity are internally generated cash flows from operations and borrowings under our Credit Facility, and our primary uses of cash are for the development of our natural gas and oil properties, acquisitions of additional natural gas and oil properties, repayments of debt and return of value to stockholders through dividends and equity repurchases. If needed, we also have the ability to issue equity or debt securities through public offerings or private placements. We believe our cash flow from operations, cash on hand and unused borrowing capacity under the Credit Facility, as discussed below, will provide sufficient liquidity during the next 12 months and the foreseeable future. As of June 30, 2026, we had $4.2 billion of liquidity available, including $0.7 billion of cash on hand and $3.5 billion of aggregate unused borrowing capacity available under the Credit Facility. As of June 30, 2026, we had no outstanding borrowings under our Credit Facility.
Further, we may from time to time seek to retire, refinance or amend some or all of our outstanding debt or debt agreements through exchanges, open market purchases, privately negotiated transactions, tender offers or otherwise. Such transactions, if any, and the terms thereof, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in such financing transactions may be material. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of our debt obligations, including principal and carrying amounts of our senior notes.
Investment Grade Ratings
We have investment grade ratings with S&P Global Ratings (“S&P”), Fitch Ratings (“Fitch”) and Moody’s Ratings (“Moody’s”). S&P has an issuer-level rating of ‘BBB-’ on our unsecured debt and an issuer credit rating of ‘BBB-’, with a stable outlook. Moody’s has a rating of Baa3 on our senior unsecured notes, with a stable outlook. On May 6, 2026, Fitch upgraded the credit rating on our revolver credit rating as well as our senior notes from ‘BBB-’, to ‘BBB’ and maintains a stable outlook.
Dividends
On July 28, 2026, we declared a base quarterly dividend payable of $0.575 per share, which will be paid on September 3, 2026 to stockholders of record at the close of business on August 13, 2026.
The declaration and payment of any future dividend, whether fixed or variable, will remain at the full discretion of the Board of Directors 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 the Credit Agreement and (iv) the terms and provisions of the various indentures governing our senior notes. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of our debt obligations.
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Derivative and Hedging Activities
Our results of operations and cash flows are impacted by changes in market prices for natural gas, oil 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 natural gas, oil and NGL derivative activities, when combined with our sales of natural gas, oil and NGL, allow us to better predict the total revenue we expect to receive. See Item 3. Quantitative and Qualitative Disclosures About Market Risk included in Part I of this report for further discussion on the impact of commodity price risk on our financial position.
Shelf Registration
We have a universal shelf registration statement on file with the SEC, as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”), under which we have the ability to issue and sell an indeterminate amount of various types of debt and equity securities. The specific terms of any securities to be sold will be described in supplemental filings with the SEC. There were no sales of such securities during the Current Period or Prior Period. Our current shelf registration statement will expire in November 2027.
Contractual Obligations and Off-Balance Sheet Arrangements
As of June 30, 2026, our material contractual obligations include repayment of senior notes, derivative obligations, asset retirement obligations, lease obligations, sales and purchase agreements, 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 natural gas to move certain of our production to market. The estimated gross undiscounted future commitments under these gathering, processing and transportation agreements were approximately $9.0 billion as of June 30, 2026. As discussed above, we believe our existing sources of liquidity will be sufficient to fund our near and long-term contractual obligations. See Notes 4, 5 and 11 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
Credit Facility
On September 30, 2025, we entered into the Credit Agreement, which matures in September 2030. The Credit Facility provides for aggregate commitments of $3.5 billion, with a $1.0 billion sublimit available for the issuance of letters of credit and a $100 million sublimit available for swingline loans. Borrowings under the Credit Agreement may be alternate base rate loans or term SOFR loans, at the Company’s election. As of June 30, 2026, we had approximately $3.5 billion available for borrowings under the Credit Facility. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
Capital Expenditures
For the year ending December 31, 2026, we currently expect to complete and turn in line 205 to 235 gross wells utilizing approximately 11 to 12 rigs and plan to invest between approximately $2.75 – $2.95 billion in capital expenditures. We currently plan to fund our 2026 capital program through cash on hand, expected cash flow from our operations and borrowings under our 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.
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Sources and (Uses) of Cash and Cash Equivalents
The following table presents the sources and uses of our cash and cash equivalents for the periods presented:
Six Months Ended June 30,
2026 2025
Cash provided by operating activities $ 3,498 $ 2,418
Proceeds from divestitures of property and equipment 43 15
Receipts of deferred consideration 116 116
Proceeds from warrant exercise 15 22
Distributions from investments 10 —
Capital expenditures (1,460) (1,220)
Property acquisitions (7) —
Contributions to investments (1) (9)
Cash paid to purchase debt (1,287) (553)
Cash paid to repurchase and retire common stock (580) (99)
Cash paid for common stock dividends (279) (279)
Net increase in cash, cash equivalents and restricted cash $ 68 $ 411
Cash Flow from Operating Activities
Cash provided by operating activities was $3,498 million and $2,418 million during the Current Period and Prior Period, respectively. The increase during the Current Period is primarily due to higher prices for the natural gas we sold as well as increased sales volumes. Cash flows from operations are largely affected by the same factors that affect our net income (loss), excluding various non-cash items, such as depreciation, depletion and amortization, certain impairments, gains or losses on sales of assets, deferred income taxes and mark-to-market changes in our open derivative instruments. See further discussion below under Results of Operations.
Proceeds from Divestitures of Property and Equipment
During the Current Period, we sold a portion of our Oklahoma City campus as well as certain minor leasehold positions.
Receipts of Deferred Consideration
During both the Current Period and Prior Period, we received deferred consideration associated with our Eagle Ford divestiture transactions. See Note 2 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
Capital Expenditures
Our capital expenditures increased during the Current Period compared to the Prior Period, as a result of increased drilling and completion activity within our Northeast Appalachia and Southwest Appalachia operating areas as well as increased leasehold capital expenditure activity.
Cash Paid to Purchase Debt
During the Current Period, we redeemed the $440 million aggregate principal of the 5.875% Senior Notes due 2029 as well as the $847 million aggregate principal of the 6.75% Senior Notes due 2029. These series of senior notes were repaid using cash on hand.
During the Prior Period, the $389 million aggregate principal of the 2025 Notes was repaid and terminated upon maturity with cash on hand and borrowings under the prior credit facility, of which the prior credit facility borrowings were subsequently repaid. Additionally, we redeemed the remaining $47 million aggregate principal of the 2026 Notes using cash on hand. During the Prior Period, we also redeemed approximately $84 million of our 6.75% Senior Notes due 2029 and approximately $31 million of our 5.875% Senior Notes due 2029 through open market repurchases using cash on hand. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
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Cash Paid to Repurchase and Retire Common Stock
During the Current Period, we repurchased 6.4 million shares for an aggregate price of $601 million. During the Prior Period, we repurchased 0.9 million shares for an aggregate price of $100 million. The shares of common stock repurchased during the Current Period and Prior Period were inclusive of shares for which cash settlement occurred in early July. The shares of common stock repurchased were retired and recorded as a reduction to common stock and retained earnings. See Note 9 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
Cash Paid for Common Stock Dividends
As part of our dividend program, we paid common stock dividends of $279 million and $279 million during the Current Period and Prior Period, respectively. See Note 9 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion.
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Results of Operations
Natural Gas, Oil and NGL Production and Average Sales Prices
Three Months Ended June 30, 2026
Natural Gas Oil NGL Total
MMcf per day $/Mcf MBbl per day $/Bbl MBbl per day $/Bbl MMcfe per day $/Mcfe
Haynesville 3,187 2.62 — — — — 3,187 2.62
Northeast Appalachia 2,625 2.15 — — — — 2,625 2.15
Southwest Appalachia 1,084 2.47 14 84.71 83 26.26 1,670 3.64
Total 6,896 2.42 14 84.71 83 26.26 7,482 2.69
Average NYMEX Price 2.90 92.79
Average Realized Price (including realized derivatives) 2.90 81.37 25.82 3.12
Three Months Ended June 30, 2025
Natural Gas Oil NGL Total
MMcf per day $/Mcf MBbl per day $/Bbl MBbl per day $/Bbl MMcfe per day $/Mcfe
Haynesville 2,978 3.12 — — — — 2,978 3.12
Northeast Appalachia 2,662 2.65 — — — — 2,662 2.65
Southwest Appalachia 956 3.11 18 54.47 83 23.19 1,562 3.75
Total 6,596 2.93 18 54.47 83 23.19 7,202 3.08
Average NYMEX Price 3.44 63.74
Average Realized Price (including realized derivatives) 2.98 55.89 23.08 3.14
Six Months Ended June 30, 2026
Natural Gas Oil NGL Total
MMcf per day $/Mcf MBbl per day $/Bbl MBbl per day $/Bbl MMcfe per day $/Mcfe
Haynesville 3,167 3.50 — — — — 3,167 3.50
Northeast Appalachia 2,705 3.96 — — — — 2,705 3.96
Southwest Appalachia 1,033 3.39 15 74.47 78 25.90 1,587 4.16
Total 6,905 3.67 15 74.47 78 25.90 7,459 3.81
Average NYMEX Price 3.97 82.36
Average Realized Price (including realized derivatives) 3.59 73.01 25.67 3.73
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Six Months Ended June 30, 2025
Natural Gas Oil NGL Total
MMcf per day $/Mcf MBbl per day $/Bbl MBbl per day $/Bbl MMcfe per day $/Mcfe
Haynesville 2,798 3.29 — — — — 2,798 3.29
Northeast Appalachia 2,665 3.20 — — — — 2,665 3.20
Southwest Appalachia 963 3.24 16 58.34 79 26.66 1,533 4.01
Total 6,426 3.24 16 58.34 79 26.66 6,996 3.41
Average NYMEX Price 3.55 67.58
Average Realized Price (including realized derivatives) 3.24 59.30 26.04 3.40
Natural Gas, Oil and NGL Sales
Three Months Ended June 30, 2026
Natural Gas Oil NGL Total
Haynesville $ 762 $ — $ — $ 762
Northeast Appalachia 513 — — 513
Southwest Appalachia 244 112 199 555
Total natural gas, oil and NGL sales $ 1,519 $ 112 $ 199 $ 1,830
Three Months Ended June 30, 2025
Natural Gas Oil NGL Total
Haynesville $ 845 $ — $ — $ 845
Northeast Appalachia 643 — — 643
Southwest Appalachia 271 86 176 533
Total natural gas, oil and NGL sales $ 1,759 $ 86 $ 176 $ 2,021
Six Months Ended June 30, 2026
Natural Gas Oil NGL Total
Haynesville $ 2,007 $ — $ — $ 2,007
Northeast Appalachia 1,941 — — 1,941
Southwest Appalachia 633 199 365 1,197
Total natural gas, oil and NGL sales $ 4,581 $ 199 $ 365 $ 5,145
Six Months Ended June 30, 2025
Natural Gas Oil NGL Total
Haynesville $ 1,666 $ — $ — $ 1,666
Northeast Appalachia 1,543 — — 1,543
Southwest Appalachia 565 164 383 1,112
Total natural gas, oil and NGL sales $ 3,774 $ 164 $ 383 $ 4,321
Natural gas, oil and NGL sales during the Current Quarter decreased $191 million compared to the Prior Quarter. Lower average gas prices, partially offset by higher oil and NGL prices, resulted in a $262 million decrease during the Current Quarter. Additionally, increased volumes primarily driven by new well production, resulted in a $71 million increase.
Natural gas, oil and NGL sales during the Current Period increased $824 million compared to the Prior Period. Higher average gas prices, primarily driven by Winter Storm Fern, resulted in a $557 million increase during the Current Period. Additionally, increased volumes across all of our operating areas, driven by new well production, resulted in a $267 million increase.
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Production Expenses
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
$/Mcfe $/Mcfe $/Mcfe $/Mcfe
Haynesville $ 86 0.30 $ 67 0.25 $ 179 0.31 $ 137 0.27
Northeast Appalachia 41 0.17 37 0.15 88 0.18 75 0.15
Southwest Appalachia 41 0.26 47 0.33 86 0.30 86 0.31
Total production expenses $ 168 0.25 $ 151 0.23 $ 353 0.26 $ 298 0.24
Production expenses during the Current Quarter and Current Period increased $17 million and $55 million compared to the Prior Quarter and Prior Period, respectively. These increases were primarily driven by increased salt water disposal expenses and workover expenses in Haynesville as a result of increased production activity.
Gathering, Processing and Transportation Expenses
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
$/Mcfe $/Mcfe $/Mcfe $/Mcfe
Haynesville $ 224 0.77 $ 180 0.66 $ 463 0.81 $ 357 0.70
Northeast Appalachia 204 0.85 203 0.84 467 0.95 429 0.89
Southwest Appalachia 206 1.36 180 1.27 394 1.37 340 1.23
Total GP&T $ 634 0.93 $ 563 0.86 $ 1,324 0.98 $ 1,126 0.89
Gathering, processing and transportation expenses during the Current Quarter and Current Period increased $71 million and $198 million compared to the Prior Quarter and Prior Period, respectively. These increases were primarily related to increased volumes and rates across all of our operating areas due to new well production, annual fee escalations and the NG3 pipeline going into service.
Severance and Ad Valorem Taxes
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
$/Mcfe $/Mcfe $/Mcfe $/Mcfe
Haynesville $ 29 0.10 $ 17 0.06 $ 56 0.10 $ 31 0.06
Northeast Appalachia 8 0.03 8 0.03 15 0.03 16 0.03
Southwest Appalachia 23 0.15 24 0.17 49 0.17 50 0.18
Total severance and ad valorem taxes $ 60 0.09 $ 49 0.08 $ 120 0.09 $ 97 0.08
Severance and ad valorem taxes during the Current Quarter and Current Period increased $11 million and $23 million compared to the Prior Quarter and Prior Period, respectively. These increases were primarily related to higher production volumes and effective severance tax rates in Haynesville.
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Gains (Losses) on Derivatives
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Natural gas derivatives - realized gains (losses) $ 304 $ 34 $ (97) $ (3)
Natural gas derivatives - unrealized gains (losses) 122 825 423 (137)
Total gains (losses) on natural gas derivatives $ 426 $ 859 $ 326 $ (140)
Oil derivatives - realized gains (losses) $ (5) $ 2 $ (4) $ 2
Oil derivatives - unrealized gains 11 1 7 1
Total gains on oil derivatives $ 6 $ 3 $ 3 $ 3
NGL derivatives - realized losses $ (3) $ (1) $ (3) $ (9)
NGL derivatives - unrealized gains 20 16 2 9
Total gains (losses) on NGL derivatives $ 17 $ 15 $ (1) $ —
Other derivatives - realized losses $ — $ — $ (8) $ —
Total losses on other derivatives $ — $ — $ (8) $ —
Total gains (losses) on derivatives $ 449 $ 877 $ 320 $ (137)
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.
Marketing Revenues and Expenses
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Marketing revenues $ 681 $ 788 $ 1,893 $ 1,698
Marketing expenses 649 791 1,770 1,710
Marketing revenues and expenses, net $ 32 $ (3) $ 123 $ (12)
Marketing revenues and expenses decreased in the Current Quarter compared to the Prior Quarter primarily as a result of lower natural gas prices. Optimization efforts and increases in marketed volumes led to an increase in marketing revenues and expenses, net.
Marketing revenues and expenses increased in the Current Period compared to the Prior Period primarily as a result of increased marketed volumes, higher prices amid natural gas price volatility and optimization efforts.
General and Administrative Expenses
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Total G&A, net $ 50 $ 40 $ 113 $ 87
G&A, net per Mcfe $ 0.07 $ 0.06 $ 0.08 $ 0.07
Total general and administrative expenses, net during the Current Quarter and Current Period increased compared to the Prior Quarter and Prior Period due to an increase in employee compensation and benefits as well as other corporate expenses.
Separation and Other Termination Costs
During the Current Period, we recognized $9 million of separation and other termination costs related to one-time termination benefits for certain employees.
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Depreciation, Depletion and Amortization
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
DD&A $ 722 $ 769 $ 1,433 $ 1,480
DD&A per Mcfe $ 1.06 $ 1.17 $ 1.06 $ 1.17
The absolute and per unit decrease in depreciation, depletion and amortization for the Current Quarter and Current Period compared to the Prior Quarter and Prior Period is related to lower depletion rates in the Current Quarter and Current Period due to an increase in prices used in the evaluation of our reserves.
Other Operating Expense, Net
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Other operating expense, net $ — $ 38 $ 13 $ 60
During the Prior Quarter and Prior Period, we recognized approximately $25 million and $52 million, respectively, of costs related to the Southwestern Merger, which included employee expenses, legal fees, consulting fees and financial advisory fees.
Interest Expense
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Interest expense on debt $ 55 $ 74 $ 126 $ 151
Amortization of premium, discount, issuance costs and other 2 2 3 2
Capitalized interest (14) (16) (27) (34)
Total interest expense $ 43 $ 60 $ 102 $ 119
The decrease in interest expense on debt during the Current Quarter and Current Period compared to the Prior Quarter and Prior Period was primarily due to lower average debt outstanding during the Current Quarter and Current Period. Capitalized interest decreased during the Current Quarter and Current Period compared to the Prior Quarter and Prior Period, as we ceased capitalizing interest on our investment in the NG3 pipeline once operations commenced on October 1, 2025.
See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for additional discussion.
Income Taxes
The projected full year current and deferred taxes are allocated to the Current Period based on the proportion of year-to-date pre-tax book income to the projected full year pre-tax book income. As a result, an income tax expense of $480 million was recorded for the Current Period. Of this amount, $15 million was related to current taxes and $465 million was related to deferred taxes. An income tax expense of $190 million was recorded for the Prior Period. Of this amount, $56 million was related to current taxes and $134 million was related to deferred taxes. Our effective income tax rate was 22.2% and 20.9% 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. The OBBBA and its provisions contributed to a reduction in the Company’s expected current tax expense with an offsetting increase to the Company’s deferred tax expense. 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.
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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 armed conflict between Russia and Ukraine, instability in the Middle East and Venezuela and changes in China-Taiwan relations, 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, 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 sustainability 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 “aim,” “predict,” “should,” "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:
•reduced demand for natural gas, oil and natural gas liquids;
•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;
•risks related to our plans to participate in the global LNG value chain;
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•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 decisions made by OPEC+ and armed conflict between Russia and Ukraine, instability in the Middle East and Venezuela, and changes in China-Taiwan relations, 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;
•challenges with employee recruitment and retention and an increasingly competitive labor market;
•risks related to acquisitions or dispositions, or potential acquisitions or dispositions;
•security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, or from breaches of information technology systems of third parties with whom we transact business;
•our ability to achieve and maintain sustainability certifications, goals and commitments;
•environmental and sustainability legislation and regulatory initiatives, including those addressing the impact of climate change or further regulating hydraulic fracturing, greenhouse gas 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 was 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;
•the actual consummation of the Twin Eagle Acquisition and the expected timetable for completion thereof, the results, effects and benefits of the Twin Eagle Acquisition, future opportunities for the Company, other plans with respect to the Twin Eagle Acquisition, and the anticipated impact of the Twin Eagle Acquisition on the Company’s results of operations, financial position, growth opportunities and competitive position;
•the integration of acquisitions, including the Twin Eagle Acquisition; and
•other factors that are described under Risk Factors in Item 1A of our 2025 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 and have no intention to update this information, except as required by law. 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.
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.
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Information About Us
Investors should note that we make available, free of charge on our website at expandenergy.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 Expand Energy, that file electronically with the SEC.
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