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Chesapeake Energy Corporation Reports Financial and Operational Results for the 2013 Second Quarter



  Chesapeake Energy Corporation Reports Financial and Operational Results for
  the 2013 Second Quarter

Business Wire

OKLAHOMA CITY -- August 1, 2013

Chesapeake Energy Corporation (NYSE:CHK) today reported financial and
operational results for the 2013 second quarter. Key information related to
the quarter is as follows:

  * Adjusted net income per fully diluted share of $0.51, compared to $0.06 in
    the 2012 second quarter
  * Adjusted ebitda of $1.424 billion increases 77% year over year
  * Daily oil production rises 44% year over year to 116,000 bbls per day
  * Full-year 2013 oil production outlook increases by 1 million barrels to 38
    – 40 million barrels, a 22 to 28% increase year over year
  * Total daily production increases 7% year over year to 4.1 bcfe per day
  * Conference call at 9:00 am EDT today; dial-in 913-312-0968, passcode
    3533928

Chesapeake reported net income available to common stockholders of $457
million, or $0.66 per fully diluted share. These results include the effects
of the following after-tax items:

  * noncash unrealized mark-to-market gains of $325 million from the company’s
    derivative instruments;
  * a noncash charge of $143 million for the impairment of certain of the
    company’s property and equipment, consisting primarily of noncore real
    estate;
  * a net gain of $68 million on sales of certain of the company’s property
    and equipment, consisting primarily of midstream assets;
  * a charge of $44 million on the repurchase of $1.894 billion aggregate
    principal amount of the company’s senior notes; and
  * a $69 million premium paid over the carrying value on the purchase of
    preferred shares of a company subsidiary.

Adjusting for these and other items not typically included in earnings
estimates by securities analysts, Chesapeake reported adjusted net income
available to common stockholders of $334 million, or $0.51 per fully diluted
share, which compares to adjusted net income available to common stockholders
of $3 million, or $0.06 per fully diluted share, in the 2012 second quarter.

The company reported adjusted ebitda of $1.424 billion, an increase of 77%
year over year. Operating cash flow, which is cash flow provided by operating
activities before changes in assets and liabilities, was $1.370  billion, an
increase of 53% year over year. Additional definitions and reconciliations to
comparable financial measures calculated in accordance with generally accepted
accounting principles of adjusted net income available to common stockholders,
operating cash flow, ebitda and adjusted ebitda are provided on pages 12 - 16
of this release.

Doug Lawler, Chesapeake’s Chief Executive Officer, said, “Chesapeake reported
a strong quarter operationally and financially. I am very excited and
energized by what I have seen during my first six weeks with the company.
Chesapeake has an exceptionally broad and deep asset base, which offers
tremendous opportunity for value creation. A comprehensive companywide review
of our capital allocation and other processes is underway and I believe these
initiatives will result in substantial further improvement in both near-term
and long-term capital efficiency and returns.”

2013 Second Quarter Total Production Increases 7% Year over Year to 4.1 Bcfe
per Day; Oil Production Increases 44% Year over Year to 116,000 Bbls per Day

Chesapeake’s daily production for the 2013 second quarter averaged
approximately 4.1 billion cubic feet of natural gas equivalent (bcfe), an
increase of 7% from the 2012 second quarter and an increase of 2% from the
2013 first quarter. The company’s average daily production consisted of
approximately 3.1 billion cubic feet (bcf) of natural gas and approximately
168,000 barrels (bbls) of liquids, comprised of approximately 116,000 bbls of
oil and approximately 52,000 bbls of natural gas liquids (NGL).

During the 2013 second quarter, average daily oil production increased 44%
year over year and 12% sequentially, and average daily NGL production
increased 5% year over year and decreased 4% sequentially. The sequential NGL
volume decrease was primarily the result of increased ethane rejection during
the second quarter. Liquids accounted for 25% of total production during the
2013 second quarter, up from 21% during the 2012 second quarter.

Steve Dixon, Chesapeake’s Chief Operating Officer, commented, “We are raising
our full-year 2013 oil production guidance by 1 million barrels (mmbbls) to 38
– 40 mmbbls, representing a growth rate of 22 to 28% year over year, due to
good well performance, an accelerated pace of well completions in the Eagle
Ford Shale and timing of asset sales. We are also reducing our 2013 NGL
production guidance by 2 mmbbls to 21 – 23 mmbbls to reflect ethane rejection
that occurred during the second quarter and thus far in the third quarter as
well as anticipated delays associated with third-party gathering, compression
and processing in the Utica Shale.”

Capital Spending and Cost Overview

During the 2013 second quarter, Chesapeake operated an average of 76 rigs, a
decrease of seven rigs compared to the 2013 first quarter, and invested
approximately $1.6 billion in drilling and completion costs. This brings
drilling and completion costs for the first half of 2013 to approximately $3.1
billion. Chesapeake spud a total of 312 wells and completed 410 wells during
the 2013 second quarter, compared to 294 wells spud and 352 wells completed
during the 2013 first quarter.

During the second half of 2013, Chesapeake plans to operate an average of 64
rigs compared to an average of 81 rigs during the first half of the year. The
company also plans to complete approximately 20% fewer wells in the second
half of 2013 compared to the first half of the year. Based on these planned
activity levels, the company is reducing its 2013 full-year guidance for
drilling and completion costs from a range of $5.75 – $6.25 billion to $5.7 – 
$6.0 billion.

Net expenditures for the acquisition of unproved properties were approximately
$55 million during the 2013 second quarter, bringing 2013 first-half net
expenditures for the acquisition of unproved properties to approximately $100
million. The company continues to track below its budgeted leasehold
expenditures for the year and is lowering its 2013 full-year leasehold
expenditure guidance from $400 million to $300 – $350 million. Other capital
expenditures were approximately $190 million during the 2013 second quarter
and $535 million during the first half of 2013.

Average production expenses during the 2013 second quarter were $0.78 per
thousand cubic feet of natural gas equivalent (mcfe), a decrease of 20% year
over year. General and administrative (G&A) expenses (excluding stock-based
compensation) were $0.25 per mcfe, a decrease of 36% year over year. To
reflect improvements in cost control, Chesapeake is reducing its 2013 per unit
G&A expense guidance range by $0.05 to $0.25 – $0.30 per mcfe.

A complete summary of the company’s guidance for 2013 is provided in the
Outlook dated August 1, 2013 which is attached to this release as Schedule “A”
beginning on Page 17. This updates information previously provided in the
Outlook dated May 1, 2013.

Asset Sales Update

Chesapeake continues to make significant progress in selling noncore assets.
During the first half of 2013, the company received proceeds of approximately
$2.4 billion from asset sales. During the 2013 third quarter to date, the
company has completed the sales of additional assets in the Haynesville Shale
and Eagle Ford Shale to subsidiaries of EXCO Resources, Inc. (NYSE:XCO) for
total consideration of approximately $1 billion (inclusive of approximately
$100 million that is subject to customary post-closing contingencies) and
expects to complete today the sale of midstream assets in the Mississippi Lime
play to SemGroup Corporation (NYSE:SEMG) for total consideration of
approximately $300 million. Chesapeake is also pursuing several other
transactions of varying sizes that may reach completion before the end of
2013.

Operational Update

The company continues to achieve strong operational results in its most active
plays, as highlighted below.

Eagle Ford Shale (South Texas): In the Eagle Ford Shale play, Chesapeake
connected 140 wells to sales during the 2013 second quarter, which was
substantially more than the 111 wells connected during the 2013 first quarter.
Net production during the 2013 second quarter averaged approximately 85,000
barrels of oil equivalent (boe) per day (190,000 gross operated boe per day).
This represents an increase of 135% year over year and 14% sequentially. The
average peak daily production rate of the 140 wells that commenced first
production during the 2013 second quarter was approximately 900 boe per day.
Approximately 66% of the company’s Eagle Ford production during the 2013
second quarter was oil, 14% was NGL and 20% was natural gas.

Chesapeake is currently operating 15 rigs in the Eagle Ford and, due to
reduced cycle times and the sale discussed above, plans to reduce its operated
rig count to 10 by the end of 2013. Average spud-to-spud cycle time during the
quarter was 16 days, down from 21 days year over year. As of June 30, 2013,
Chesapeake had drilled a total of 963 wells in the Eagle Ford, which included
795 producing wells, 24 additional wells waiting on pipeline connection and
144 wells in various stages of completion.

Utica Shale (eastern Ohio, Pennsylvania, West Virginia): Net production from
the Utica Shale play averaged approximately 85 million cubic feet of natural
gas equivalent (mmcfe) per day during the 2013 second quarter, an increase of
48% sequentially from the 2013 first quarter. The average peak daily
production rate of the 42 wells that commenced first production in the Utica
during the 2013 second quarter was approximately 6.6 mmcfe per day.

Chesapeake is currently operating 11 rigs in the Utica, which it plans to
reduce to 10 rigs by year end. Average spud-to-spud cycle time during the
quarter was 18 days, down from 26 days a year ago. As of June 30, 2013,
Chesapeake had drilled a total of 321 wells in the Utica, which included 106
producing wells, 93 additional wells waiting on pipeline connection and 122
wells in various stages of completion.

Greater Anadarko Basin (Oklahoma, Texas Panhandle, southern Kansas):
Chesapeake continues to generate steady liquids production growth in the
Greater Anadarko Basin primarily from five plays: the Mississippi Lime,
Granite Wash, Cleveland, Tonkawa and Hogshooter. Aggregate net production from
these plays during the 2013 second quarter averaged 126,000 boe per day
(192,000 gross operated boe per day), an increase of 43% year over year and
11% sequentially. The average peak daily production rate of the 123 wells that
commenced first production in the Greater Anadarko Basin during the 2013
second quarter was approximately 800 boe per day. Approximately 38% of the
company’s Greater Anadarko Basin production during the 2013 second quarter was
oil, 18% was NGL and 44% was natural gas.

Chesapeake is currently operating 26 rigs across these plays, which it plans
to reduce to 19 rigs by year end. As of June 30, 2013, the company had an
inventory of 58 drilled but uncompleted and/or unconnected wells in the
Greater Anadarko Basin.

Marcellus Shale (Pennsylvania, West Virginia): The company’s production from
the Marcellus Shale continued to grow during the 2013 second quarter,
benefiting from the availability of downstream takeaway capacity and the
completion of wells in backlog. Chesapeake connected 131 wells to sales during
the 2013 second quarter, which was substantially more than the 52 wells
connected during the 2013 first quarter. Approximately 2% of the company’s
Marcellus production during the 2013 second quarter was oil, 3% was NGL and
95% was natural gas.

During the 2013 second quarter, Chesapeake’s average daily net production in
the northern dry- gas portion of the Marcellus was approximately 780 mmcfe per
day (1,810 gross operated mmcfe per day), an increase of 58% year over year
and 11% sequentially. The average peak daily production rate of the 79 wells
that commenced first production during the 2013 second quarter in the northern
Marcellus was approximately 9 mmcfe per day.

Chesapeake is currently operating five rigs in the northern dry-gas portion of
the play and anticipates maintaining this activity level for the remainder of
2013. Average spud-to-spud cycle time during the 2013 second quarter was 29
days, down from 31 days a year ago. As of June 30, 2013, Chesapeake had an
inventory of 144 drilled but uncompleted and/or unconnected wells in the
northern Marcellus.

During the 2013 second quarter, Chesapeake’s average daily net production in
the southern wet-gas portion of the Marcellus was approximately 208 mmcfe per
day (355 gross operated mmcfe per day), an increase of 56% year over year and
23% sequentially. The average peak daily production rate of the 52 wells that
commenced first production during the 2013 second quarter in the southern
Marcellus was approximately 6.5 mmcfe per day.

Chesapeake is currently operating three rigs in the southern wet-gas portion
of the play, which it plans to reduce to two rigs by year end. Average
spud-to-spud cycle time during the 2013 second quarter was 21 days, down from
33 days a year ago. As of June 30, 2013, Chesapeake had an inventory of 76
drilled but uncompleted and/or unconnected wells in the southern Marcellus.

Key Financial and Operational Results

The table below summarizes Chesapeake’s key financial and operational results
during the 2013 second quarter and compares them to results during the 2013
first quarter and the 2012 second quarter.

                                 
                                    Three Months Ended
                                    6/30/13         3/31/13        6/30/12
Natural gas equivalent              369             358            347
production (in bcfe)
Natural gas equivalent
realized price                      4.96            4.46           3.77
($/mcfe)^(a)
Oil production (in mbbls)           10,539          9,283          7,325
Average realized oil                93.81           94.85          91.58
price ($/bbl)^(a)
Oil as % of total                   17              16             13
production
NGL production (in mbbls)           4,751           4,882          4,525
Average realized NGL                24.22           28.25          25.94
price ($/bbl)^(a)
NGL as % of total                   8               8              8
production
Liquids as % of realized            60              64             60
revenue^(b)
Liquids as % of unhedged            58              64             70
revenue^(b)
Natural gas production              278             273            275
(in bcf)
Average realized natural            2.62            2.13           1.88
gas price ($/mcf)^(a)
Natural gas as % of total           75              76             79
production
Natural gas as % of                 40              36             40
realized revenue
Natural gas as % of                 42              36             30
unhedged revenue
Production expenses                 (0.78     )     (0.86    )     (0.97    )
($/mcfe)
Production taxes ($/mcfe)           (0.16     )     (0.15    )     (0.12    )
General and
administrative costs                (0.25     )     (0.25    )     (0.39    )
($/mcfe)^(c)
Stock-based compensation            (0.04     )     (0.06    )     (0.06    )
($/mcfe)
DD&A of natural gas and
liquids properties                  (1.75     )     (1.81    )     (1.70    )
($/mcfe)
D&A of other assets                 (0.21     )     (0.22    )     (0.24    )
($/mcfe)
Interest expense                    (0.14     )     (0.04    )     (0.06    )
($/mcfe)^(a)
Marketing, gathering and
compression net margin ($           29              36             17
in millions) ^(d)
Oilfield services net
margin ($ in millions)              35              35             50
^(d)
Operating cash flow ($ in           1,370           1,176          895
millions)^(e)
Operating cash flow                 3.71            3.28           2.58
($/mcfe)
Adjusted ebitda ($ in               1,424           1,134          803
millions)^(f)
Adjusted ebitda ($/mcfe)            3.86            3.17           2.32
Net income available to
common stockholders ($ in           457             15             929
millions)
Earnings per share –                0.66            0.02           1.29
diluted ($)
Adjusted net income
available to common                 334             183            3
stockholders ($ in
millions)^(g)
Adjusted earnings per               0.51            0.30           0.06
share – diluted ($)
                                                                             
^(a) Includes the effects of realized gains (losses) from hedging, but
excludes the effects of unrealized gains (losses) from hedging.
^(b) “Liquids” includes both oil and NGL.
^(c) Excludes expenses associated with noncash stock-based compensation.
^(d) Includes revenue and operating costs and excludes depreciation and
amortization of other assets.
^(e) Defined as cash flow provided by operating activities before changes in
assets and liabilities.
^(f) Defined as net income before interest expense, income taxes and
depreciation, depletion and amortization expense, as adjusted to remove the
effects of certain items detailed on Page 16.
^(g) Defined as net income available to common stockholders, as adjusted to
remove the effects of certain items detailed on Page 12.
                                                                             

2013 Second Quarter Financial and Operational Results Conference Call
Information

A conference call to discuss this release has been scheduled for Thursday,
August 1, 2013, at 9:00 am EDT. The telephone number to access the conference
call is 913-312-0968 or toll-free 888-215-6895. The passcode for the call is
3533928. We encourage those who would like to participate in the call to place
calls between 8:50 and 9:00 am EDT. For those unable to participate in the
conference call, a replay will be available for audio playback at 2:00 pm EDT
on Thursday, August 1, 2013, and will run through 2:00 pm EDT on Thursday,
August 15, 2013. The number to access the conference call replay is
719-457-0820 or toll-free 888-203-1112. The passcode for the replay is
3533928. The conference call will also be webcast live on Chesapeake’s website
at www.chk.com in the “Events” subsection of the “Investors” section of the
company’s website. The webcast of the conference will be available on the
company’s website for one year.

Chesapeake Energy Corporation (NYSE:CHK) is the second-largest producer of
natural gas, a Top 11 producer of oil and natural gas liquids and the most
active driller of new wells in the U.S. Headquartered in Oklahoma City, the
company's operations are focused on discovering and developing unconventional
natural gas and oil fields onshore in the U.S. Chesapeake owns leading
positions in the Eagle Ford, Utica, Granite Wash/Hogshooter, Cleveland,
Tonkawa, Mississippi Lime and Niobrara unconventional liquids plays and in the
Marcellus, Haynesville/Bossier and Barnett unconventional natural gas shale
plays. The company also owns substantial marketing and oilfield services
businesses through its subsidiaries Chesapeake Energy Marketing, Inc. and
Chesapeake Oilfield Operating, L.L.C. Further information is available at
www.chk.com where Chesapeake routinely posts announcements, updates, events,
investor information, presentations and news releases.

This news release and the accompanying Outlooks include “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. Forward-looking
statements are statements other than statements of historical fact that give
our current expectations or forecasts of future events. They include
production forecasts, estimates of operating costs, planned development
drilling, expected capital expenditures, anticipated asset sales, projected
cash flow and liquidity, business strategy and other plans and objectives for
future operations. Although we believe the expectations and forecasts
reflected in the forward-looking statements are reasonable, we can give no
assurance they will prove to have been correct. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties.

Factors that could cause actual results to differ materially from expected
results are described under “Risk Factors” in Item 1A of our 2012 annual
report on Form 10-K filed with the U.S. Securities and Exchange Commission on
March 1, 2013. These risk factors include the volatility of natural gas, oil
and NGL prices; the limitations our level of indebtedness may have on our
financial flexibility; declines in the prices of natural gas and oil
potentially resulting in a write-down of our asset carrying values; the
availability of capital on an economic basis, including through planned asset
sales, to fund reserve replacement costs; 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; our ability to generate profits
or achieve targeted results in drilling and well operations; leasehold terms
expiring before production can be established; hedging activities resulting in
lower prices realized on natural gas, oil and NGL sales; the need to secure
hedging liabilities and the inability of hedging counterparties to satisfy
their obligations; drilling and operating risks, including potential
environmental liabilities; legislative and regulatory changes adversely
affecting our industry and our business, including initiatives related to
hydraulic fracturing, air emissions and endangered species; current worldwide
economic uncertainty which may have a material adverse effect on our results
of operations, liquidity and financial condition; oilfield services shortages,
gathering system and transportation capacity constraints and various
transportation interruptions that could adversely affect our revenues and cash
flow; losses possible from pending or future litigation and regulatory
investigations; cyber attacks adversely impacting our operations; and the loss
of key operational personnel or inability to maintain our corporate culture.
In addition, disclosures concerning the estimated contribution of derivative
contracts to our future results of operations are based upon market
information as of a specific date. These market prices are subject to
significant volatility. Our production forecasts are also dependent upon many
assumptions, including estimates of production decline rates from existing
wells and the outcome of future drilling activity. We do not have binding
agreements for all of our planned 2013 asset sales. Our ability to consummate
each of these transactions is subject to changes in market conditions and
other factors. We caution you not to place undue reliance on our
forward-looking statements, which speak only as of the date of this news
release, and we undertake no obligation to update this information.

                                                        
CHESAPEAKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share and unit data)

(unaudited)
                                                          
                                 June 30,                June 30,
THREE MONTHS ENDED:              2013                    2012
                                 $           $/mcfe      $           $/mcfe
REVENUES:                                                             
Natural gas, oil and NGL           2,406       6.51        2,117       6.11
Marketing, gathering and           2,057       5.57        1,113       3.21
compression
Oilfield services                  212         0.58        159         0.46
Total Revenues                     4,675       12.66       3,389       9.78
                                                                              
OPERATING EXPENSES:
Natural gas, oil and NGL           288         0.78        335         0.97
production
Production taxes                   59          0.16        41          0.12
Marketing, gathering and           2,028       5.49        1,096       3.16
compression
Oilfield services                  177         0.48        109         0.31
General and administrative         106         0.29        155         0.45
Employee retirement and other      7           0.02        1           0.00
termination benefits
Natural gas, oil and NGL
depreciation, depletion and        645         1.75        588         1.70
amortization
Depreciation and amortization      76          0.21        83          0.24
of other assets
Impairments of fixed assets        231         0.62        243         0.70
and other
Net gains on sales of fixed        (109  )     (0.30 )     —           —
assets
Total Operating Expenses           3,508       9.50        2,651       7.65
                                                                              
INCOME FROM OPERATIONS             1,167       3.16        738         2.13
                                                                              
OTHER INCOME (EXPENSE):
Interest expense                   (104  )     (0.28 )     (14   )     (0.04 )
Earnings (losses) on               23          0.06        (59   )     (0.17 )
investments
Gains (losses) on sales of         (10   )     (0.03 )     1,030       2.97
investments
Losses on purchases of debt        (70   )     (0.19 )     —           —
Other income                       3           0.01        5           0.01
Total Other Income (Expense)       (158  )     (0.43 )     962         2.77
                                                                              
INCOME BEFORE INCOME TAXES         1,009       2.73        1,700       4.90
                                                                              
INCOME TAX EXPENSE:
Current income taxes               2           0.01        2           —
Deferred income taxes              382         1.03        661         1.91
Total Income Tax Expense           384         1.04        663         1.91
                                                                              
NET INCOME                         625         1.69        1,037       2.99
                                                                              
Net income attributable to         (45   )     (0.12 )     (65   )     (0.19 )
noncontrolling interests
                                                                              
NET INCOME ATTRIBUTABLE TO         580         1.57        972         2.80
CHESAPEAKE
                                                                              
Preferred stock dividends          (43   )     (0.11 )     (43   )     (0.12 )
Earnings allocated to                                      —
participating securities           (11   )     (0.03 )                 —
                                                            
Premium on purchase of
preferred shares of a              (69   )     (0.19 )     —           —
subsidiary
                                                                              
NET INCOME AVAILABLE TO COMMON
                                   457         1.24        929         2.68
STOCKHOLDERS
                                                                              
EARNINGS PER COMMON SHARE:
Basic                            $ 0.70                  $ 1.45
                                                                              
Diluted                          $ 0.66                  $ 1.29
                                                                              
WEIGHTED AVERAGE COMMON AND
COMMON

EQUIVALENT SHARES OUTSTANDING
(in millions):
Basic                              653                     642
                                                                              
Diluted                            760                     751

                                                       
CHESAPEAKE ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share and unit data)

(unaudited)
                                                         
                                June 30,                June 30,
SIX MONTHS ENDED:               2013                    2012
                                $           $/mcfe      $             $/mcfe
REVENUES:                                                          
Natural gas, oil and NGL          3,858       5.30        3,185       4.69
Marketing, gathering and          3,838       5.28        2,328       3.43
compression
Oilfield services                 402         0.55        294         0.43
Total Revenues                    8,098       11.13       5,807       8.55
                                                                              
OPERATING EXPENSES:
Natural gas, oil and NGL          595         0.82        685         1.01
production
Production taxes                  112         0.15        89          0.13
Marketing, gathering and          3,772       5.19        2,292       3.37
compression
Oilfield services                 332         0.46        205         0.30
General and administrative        216         0.30        291         0.43
Employee retirement and other     140         0.19        1           —
termination benefits
Natural gas, oil and NGL
depreciation, depletion and       1,293       1.78        1,094       1.61
amortization
Depreciation and amortization     154         0.21        166         0.25
of other assets
Impairments of fixed assets       258         0.35        243         0.36
and other
Net gains on sales of fixed       (158  )     (0.22 )     (2    )     —
assets
Total Operating Expenses          6,714       9.23        5,064       7.46
                                                                              
INCOME FROM OPERATIONS            1,384       1.90        743         1.09
                                                                              
OTHER INCOME (EXPENSE):
Interest expense                  (124  )     (0.17 )     (26   )     (0.04  )
Losses on investments             (4    )     (0.01 )     (64   )     (0.09  )
Impairment of investment          (10   )     (0.01 )     —           —
Gains (losses) on sales of        (10   )     (0.01 )     1,030       1.51
investments
Losses on purchases of debt       (70   )     (0.10 )     —           —
Other income                      8           0.01        11          0.02
Total Other Income (Expense)      (210  )     (0.29 )     951         1.40
                                                                              
INCOME BEFORE INCOME TAXES        1,174       1.61        1,694       2.49
                                                                              
INCOME TAX EXPENSE:
Current income taxes              3           —           2           —
Deferred income taxes             443         0.61        659         0.97
Total Income Tax Expense          446         0.61        661         0.97
                                                                              
NET INCOME                        728         1.00        1,033       1.52
                                                                              
Net income attributable to        (89   )     (0.12 )     (89   )     (0.13  )
noncontrolling interests
                                                                              
NET INCOME ATTRIBUTABLE TO        639         0.88        944         1.39
CHESAPEAKE
                                                                              
Preferred stock dividends         (86   )     (0.12 )     (86   )     (0.13  )
Earnings allocated to             (11   )     (0.02 )     —           —
participating securities
Premium on purchase of
preferred shares of a             (69   )     (0.09 )     —           —
subsidiary
                                                                              
NET INCOME AVAILABLE TO
COMMON                            473         0.65        858         1.26

STOCKHOLDERS
                                                                              
EARNINGS PER COMMON SHARE:
Basic                           $ 0.72                  $ 1.34
                                                                              
Diluted                         $ 0.72                  $ 1.25
                                                                              
WEIGHTED AVERAGE COMMON AND
COMMON

EQUIVALENT SHARES OUTSTANDING
(in millions):
Basic                             653                     642
                                                                              
Diluted                           653                     752

                                                          
CHESAPEAKE ENERGY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions)

(unaudited)
                                                            
                                              June 30,     December 31,
                                              2013         2012
                                                                
Cash and cash equivalents                     $ 677        $   287
Other current assets                            2,915          2,661
Total Current Assets                            3,592          2,948
                                                                
Property and equipment (net)                    37,349         37,167
Other assets                                    1,204          1,496
Total Assets                                  $ 42,145     $   41,611
                                                                
Current liabilities                           $ 5,620      $   6,266
Long-term debt, net of discounts                13,057         12,157
Other long-term liabilities                     2,004          2,485
Deferred income tax liabilities                 3,260          2,807
Total Liabilities                               23,941         23,715
                                                                
Preferred stock                                 3,062          3,062
Noncontrolling interests                        2,169          2,327
Common stock and other stockholders’ equity     12,973         12,507
Total Equity                                    18,204         17,896
                                                                
Total Liabilities and Equity                  $ 42,145     $   41,611
                                                                
Common Shares Outstanding (in millions)         667            664

                                                             
CHESAPEAKE ENERGY CORPORATION

CAPITALIZATION

($ in millions)

(unaudited)
                                                               
                                                 June 30,     December 31,
                                                 2013         2012
                                                                   
Total debt, net of unrestricted cash             $ 12,380     $   12,333
Preferred stock                                    3,062          3,062
Noncontrolling interests^(a)                       2,169          2,327
Common stock and other stockholders’ equity        12,973         12,507
Total                                            $ 30,584     $   30,229
Total debt to capitalization ratio                 40%            41%
                                                                   
(a) Includes third-party ownership as follows:
CHK Cleveland Tonkawa, L.L.C.                    $ 1,015      $   1,015
CHK Utica, L.L.C.                                  807            950
Chesapeake Granite Wash Trust                      338            356
Other                                              9              6
Total                                            $ 2,169      $   2,327

                      
CHESAPEAKE ENERGY CORPORATION

SUPPLEMENTAL DATA - NATURAL GAS, OIL AND NGL PRODUCTION, SALES AND INTEREST
EXPENSE

(unaudited)
                                                    
                       Three Months Ended          Six Months Ended
                         June 30,       June 30,       June 30,       June
                                                                      30,
                         2013           2012           2013           2012
                                                                              
Net Production:
Natural gas (bcf)        277.6          275.4          550.8          546.3
Oil (mmbbl)              10.5           7.3            19.8           13.3
NGL (mmbbl)              4.8            4.5            9.6            8.9
Natural gas              369.4          346.5          727.5          679.4
equivalents (bcfe)
                                                                              
Natural Gas, Oil and
NGL Sales ($ in
millions):
Natural gas sales      $ 779          $ 336            1,352        $ 815
Natural gas
derivatives –            (53      )     182            (45      )     339
realized gains
(losses)
Natural gas
derivatives –            347            (164     )     68             (311   )
unrealized gains
(losses)
                                      .
Total Natural Gas        1,073          354            1,375          843
Sales
                                                                              
Oil sales                975            656            1,859          1,247
Oil derivatives –
realized gains           14             15             10             (19    )
(losses)
Oil derivatives –
unrealized gains         229            955            361            817
(losses)
                                                                              
Total Oil Sales          1,218          1,626          2,230          2,045
                                                                              
NGL sales                115            120            253            272
NGL derivatives –
realized gains           —              (2       )     —              (9     )
(losses)
NGL derivatives –
unrealized gains         —              19             —              34
(losses)
                                                                              
Total NGL Sales          115            137            253            297
                                                                              
Total Natural Gas,     $ 2,406        $ 2,117      $   3,858        $ 3,185
Oil and NGL Sales
                                                                              
Average Sales Price
–

excluding gains
(losses) on
derivatives:
Natural gas ($ per     $ 2.81         $ 1.22       $   2.45         $ 1.49
mcf)
Oil ($ per bbl)        $ 92.53        $ 89.49      $   93.79        $ 93.49
NGL ($ per bbl)        $ 24.22        $ 26.40      $   26.26        $ 30.68
Natural gas
equivalent ($ per      $ 5.06         $ 3.21       $   4.76         $ 3.43
mcfe)
                                                                              
Average Sales Price
–

excluding unrealized
gains (losses) on
derivatives:
Natural gas ($ per     $ 2.62         $ 1.88       $   2.37         $ 2.11
mcf)
Oil ($ per bbl)        $ 93.81        $ 91.58      $   94.29        $ 92.06
NGL ($ per bbl)        $ 24.22        $ 25.94      $   26.26        $ 29.68
Natural gas
equivalent ($ per      $ 4.96         $ 3.77       $   4.71         $ 3.89
mcfe)
                                                                              
Interest Expense
(Income) ($ in
millions):
Interest^(a)           $ 54           $ 21         $   70           $ 28
Derivatives –
realized (gains)         (1       )     (1       )     (3       )     —
losses
Derivatives –
unrealized (gains)       51             (6       )     57             (2     )
losses
Total Interest         $ 104          $ 14         $   124          $ 26
Expense
                                                                              
(a) Net of amounts
capitalized.

                                                          
CHESAPEAKE ENERGY CORPORATION

CONDENSED CONSOLIDATED CASH FLOW DATA

($ in millions)

(unaudited)
                                                               
THREE MONTHS ENDED:                  June 30,                 June 30,
                                     2013                     2012
                                                                              
Beginning cash                       $    33                  $    438
                                                                              
Cash provided by operating                1,298                    755
activities
                                                                              
Cash flows from investing
activities:
Drilling and completion costs
on proved and unproved                    (1,565    )              (2,516    )
properties^(a)
Acquisition of proved and                 (242      )              (529      )
unproved properties^(b)
Sale of proved and unproved               1,674                    615
properties
Geological and geophysical                (15       )              (42       )
costs
Additions to other property and           (176      )              (621      )
equipment
Proceeds from sales of other              258                      31
assets
Investments, net                          101                      1,945
Other                                     118                      (154      )
Total cash provided by (used              153                      (1,271    )
in) investing activities
                                                                              
Cash provided by (used in)                (807      )              1,109
financing activities
                                                                              
Change in cash and cash
equivalents classified as                 —                        (7        )
current assets held for sale
                                                                              
Change in cash and cash                   644                      586
equivalents
                                                                              
Ending cash                          $    677                 $    1,024
                                                                              
(a) Includes capitalized interest of $31 million and $12 million for the three
months ended June 30, 2013 and 2012, respectively.
 
(b) Includes capitalized interest of $159 million and $152 million for the
three months ended June 30, 2013 and 2012, respectively.
 
 
SIX MONTHS ENDED:                    June 30,                 June 30,
                                     2013                     2012
                                                                              
Beginning cash                       $    287                 $    351
                                                                              
Cash provided by operating                2,222                    1,029
activities
                                                                              
Cash flows from investing
activities:
Drilling and completion costs
on proved and unproved                    (3,131    )              (5,019    )
properties^(c)
Acquisition of proved and                 (497      )              (1,646    )
unproved properties^(d)
Sale of proved and unproved               1,839                    1,418
properties
Geological and geophysical                (28       )              (113      )
costs
Additions to other property and           (506      )              (1,311    )
equipment
Proceeds from sales of other              459                      79
assets
Investments, net                          98                       1,872
Other                                     174                      (201      )
Total cash provided by (used              (1,592    )              (4,921    )
in) investing activities
                                                                              
Cash provided by (used in)                (240      )              4,572
financing activities
                                                                              
Change in cash and cash
equivalents classified as                 —                        (7        )
current assets held for sale
                                                                              
Change in cash and cash                   390                      673
equivalents
                                                                              
Ending cash                          $    677                 $    1,024
                                                                              
(c) Includes capitalized interest of $46 million and $12 million for the six
months ended June 30, 2013 and 2012, respectively.                            
                                                                              
(d) Includes capitalized interest of $366 million and $314 million for the
six months ended June 30, 2013 and 2012, respectively.                        
                                                                              

                                                                
CHESAPEAKE ENERGY CORPORATION

RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

($ in millions, except per share data)

(unaudited)
                                                                   
                             June 30,            March 31,        June 30,
THREE MONTHS ENDED:          2013                2013             2012
                                                                             
Net income available to      $     457           $   15           $  929
common stockholders
                                                                             
Adjustments, net of
tax:
Unrealized (gains)                 (325   )          94              (490   )
losses on derivatives
Net gains on sales of              (68    )          (30    )        —
fixed assets
Impairments of fixed               143               16              148
assets and other
Impairment of                      —                 6               —
investment
Employee retirement and
other termination                  5                 83              —
benefits
(Gains) losses on sales            6                 —               (584)
of investments
Losses on purchases of             44                —               —
debt
Premium on purchase of
preferred shares of a              69                —               —
subsidiary
Other                              3                 (1     )        —
                                                                             
Adjusted net income
available to common                334               183             3
stockholders^(a)
Preferred stock                    43                43              43
dividends
Earnings allocated to
participating                      11                —               —
securities
Total adjusted net           $     388           $   226          $  46
income
                                                                             
Weighted average fully
diluted shares                     763               758             751
outstanding (in
millions)^(b)
                                                                             
Adjusted earnings per
share assuming               $     0.51          $   0.30         $  0.06
dilution^(a)
                                                                             
(a) Adjusted net income available to common stockholders and adjusted earnings
per share assuming dilution exclude certain items that management believes
affect the comparability of operating results. The company believes these
adjusted financial measures are a useful adjunct to earnings under accounting
principles generally accepted in the United States (GAAP) because:
 
(i) Management uses adjusted net income available to common stockholders to
evaluate the company's operational trends and performance relative to other
natural gas and oil producing companies.
 
(ii) Adjusted net income available to common stockholders is more comparable
to earnings estimates provided by securities analysts.
 
(iii) Items excluded generally are one-time items or items whose timing or
amount cannot be reasonably estimated. Accordingly, any guidance provided by
the company generally excludes information regarding these types of items.
 
(b) Weighted average fully diluted shares outstanding include shares that were
considered antidilutive for calculating earnings per share in accordance with
GAAP.
                                                                             

                                                          
 

CHESAPEAKE ENERGY CORPORATION

RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

($ in millions, except per share data)

(unaudited)
                                                               
                                   June 30,                   June 30,
SIX MONTHS ENDED:                  2013                       2012
                                                                             
Net income available to            $      473                 $     858
common stockholders
                                                                             
Adjustments, net of tax:
Unrealized gains on                       (230     )                (331    )
derivatives
Net gains on sales of fixed               (98      )                (1      )
assets
Impairments of fixed assets               160                       148
and other
Impairment of investment                  6                         —
Employee retirement and                   87                        —
other termination benefits
(Gains) losses on sales of                6                         (584    )
investments
Losses on purchases of debt               44                        —
Premium on purchase of
preferred shares of a                     69                        —
subsidiary
Other                                     —                         7
                                                                             
Adjusted net income
available to common                       517                       97
stockholders^(a)
Preferred stock dividends                 86                        86
Earnings allocated to                     11                        —
participating securities
Total adjusted net income          $      614                 $     183
                                                                             
Weighted average fully
diluted shares outstanding                764                       752
(in millions)^(b)
                                                                             
Adjusted earnings per share        $      0.80                $     0.24
assuming dilution^(a)
                                                                             
(a) Adjusted net income available to common stockholders and adjusted earnings
per share assuming dilution exclude certain items that management believes
affect the comparability of operating results. The company believes these
adjusted financial measures are a useful adjunct to GAAP earnings because:
 
(i) Management uses adjusted net income available to common stockholders to
evaluate the company's operational trends and performance relative to other
natural gas and oil producing companies.
 
(ii) Adjusted net income available to common stockholders is more comparable
to earnings estimates provided by securities analysts.
 
(iii) Items excluded generally are one-time items or items whose timing or
amount cannot be reasonably estimated. Accordingly, any guidance provided by
the company generally excludes information regarding these types of items.
 
(b) Weighted average fully diluted shares outstanding include shares that were
considered antidilutive for calculating earnings per share in accordance with
GAAP.
                                                                             

                                                              
CHESAPEAKE ENERGY CORPORATION

RECONCILIATION OF OPERATING CASH FLOW AND EBITDA

($ in millions)

(unaudited)
                                                                  
                        June 30,            March 31,            June 30,
THREE MONTHS ENDED:     2013                2013                 2012
                                                                             
CASH PROVIDED BY
OPERATING               $   1,298           $    924             $   755
ACTIVITIES
                                                                             
Changes in assets           72                   252                 140
and liabilities
                                                                             
OPERATING CASH          $   1,370           $    1,176           $   895
FLOW^(a)
                                                                      
                        June 30,            March 31,            June 30,
THREE MONTHS ENDED:     2013                2013                 2012
                                                                             
NET INCOME              $   625             $    102             $   1,037
                                                                             
Interest expense            104                  21                  14
Income tax expense          384                  63                  663
Depreciation and
amortization of             76                   78                  83
other assets
Natural gas, oil
and NGL
depreciation,               645                  648                 588
depletion and
amortization
                                                                             
EBITDA^(b)              $   1,834           $    912             $   2,385
                                                                      
                        June 30,            March 31,            June 30,
THREE MONTHS ENDED:     2013                2013                 2012
                                                                             
CASH PROVIDED BY
OPERATING               $   1,298           $    924             $   755
ACTIVITIES
                                                                             
Changes in assets           72                   252                 140
and liabilities
Interest expense,
net of unrealized
gains (losses) on
derderivatives              53                   15                  21
derivatives
Unrealized gains
(losses) on natural         576                  (146    )           810
gas, oil and NGL
derivatives
Net gains on sales          109                  49                  —
of fixed assets
Impairments of
fixed assets and            (231    )            (27     )           (243   )
other
Employee retirement
and other                   1                    (105    )           —
termination
benefits
Gains (losses) on
sales of                    (10     )            —                   1,030
investments
Earnings (losses)           22                   (29     )           (87    )
on investments
Impairment of               —                    (10     )           —
investment
Stock-based                 (24     )            (32     )           (26    )
compensation
Losses on purchases         (17     )            —                   —
of debt
Other items                 (15     )            21                  (15    )
                                                                             
EBITDA^(b)              $   1,834           $    912             $   2,385
                                                                             
(a) Operating cash flow represents net cash provided by operating activities
before changes in assets and liabilities. Operating cash flow is presented
because management believes it is a useful adjunct to net cash provided by
operating activities under GAAP. Operating cash flow is widely accepted as a
financial indicator of a natural gas and oil company's ability to generate
cash which is used to internally fund exploration and development activities
and to service debt. This measure is widely used by investors and rating
agencies in the valuation, comparison, rating and investment recommendations
of companies within the natural gas and oil exploration and production
industry. Operating cash flow is not a measure of financial performance under
GAAP and should not be considered as an alternative to cash flows from
operating, investing or financing activities as an indicator of cash flows, or
as a measure of liquidity.
 
(b) Ebitda represents net income (loss) before interest expense, income taxes,
and depreciation, depletion and amortization expense. Ebitda is presented as a
supplemental financial measurement in the evaluation of our business. We
believe that it provides additional information regarding our ability to meet
our future debt service, capital expenditures and working capital
requirements. This measure is widely used by investors and rating agencies in
the valuation, comparison, rating and investment recommendations of companies.
Ebitda is also a financial measurement that, with certain negotiated
adjustments, is reported to our lenders pursuant to our bank credit agreements
and is used in the financial covenants in our bank credit agreements. Ebitda
is not a measure of financial performance under GAAP. Accordingly, it should
not be considered as a substitute for net income, income from operations or
cash flow provided by operating activities prepared in accordance with GAAP.
                                                                             

                                                    
CHESAPEAKE ENERGY CORPORATION

RECONCILIATION OF OPERATING CASH FLOW AND EBITDA

($ in millions)

(unaudited)
                                                          
                             June 30,                    June 30,
SIX MONTHS ENDED:            2013                        2012
                                                                          
CASH PROVIDED BY             $     2,222                 $     1,029
OPERATING ACTIVITIES
                                                                          
Changes in assets and              324                         776
liabilities
                                                                          
OPERATING CASH               $     2,546                 $     1,805
FLOW^(a)
                                                                          
                                                                
                             June 30,                    June 30,
SIX MONTHS ENDED:            2013                        2012
                                                                          
NET INCOME                   $     728                   $     1,033
                                                                          
Interest expense, net              124                         26
of unrealized gains
Income tax expense                 446                         661
Depreciation and
amortization of other              154                         166
assets
Natural gas, oil and
NGL depreciation,
depletion                          1,293                       1,094

and amortization
                                                                          
EBITDA^(b)                   $     2,745                 $     2,980
                                                                          
                                                                
                             June 30,                    June 30,
SIX MONTHS ENDED:            2013                        2012
                                                                          
CASH PROVIDED BY             $     2,222                 $     1,029
OPERATING ACTIVITIES
                                                                          
Changes in assets and              324                         776
liabilities
Interest expense, net
of unrealized gains on             67                          28
derivatives
Unrealized gains on
natural gas, oil and               429                         540
NGL derivatives
Net gains on sales of              158                         2
fixed assets
Impairments of fixed               (258      )                 (243      )
assets and other
Employee retirement
and other termination              (104      )                 —
benefits
Gains (losses) on                  (10       )                 1,030
sales of investments
Losses on investments              (7        )                 (120      )
Impairment of                      (10       )                 —
investment
Stock-based                        (56       )                 (63       )
compensation
Losses on purchases of             (17       )                 —
debt
Other items                        7                           1
                                                                          
EBITDA^(b)                   $     2,745                 $     2,980
                                                                          
(a) Operating cash flow represents net cash provided by operating activities
before changes in assets and liabilities. Operating cash flow is presented
because management believes it is a useful adjunct to net cash provided by
operating activities under GAAP. Operating cash flow is widely accepted as a
financial indicator of a natural gas and oil company's ability to generate
cash which is used to internally fund exploration and development activities
and to service debt. This measure is widely used by investors and rating
agencies in the valuation, comparison, rating and investment recommendations
of companies within the natural gas and oil exploration and production
industry. Operating cash flow is not a measure of financial performance under
GAAP and should not be considered as an alternative to cash flows from
operating, investing or financing activities as an indicator of cash flows, or
as a measure of liquidity.
 
(b) Ebitda represents net income (loss) before interest expense, income taxes,
and depreciation, depletion and amortization expense. Ebitda is presented as a
supplemental financial measurement in the evaluation of our business. We
believe that it provides additional information regarding our ability to meet
our future debt service, capital expenditures and working capital
requirements. This measure is widely used by investors and rating agencies in
the valuation, comparison, rating and investment recommendations of companies.
Ebitda is also a financial measurement that, with certain negotiated
adjustments, is reported to our lenders pursuant to our bank credit agreements
and is used in the financial covenants in our bank credit agreements. Ebitda
is not a measure of financial performance under GAAP. Accordingly, it should
not be considered as a substitute for net income, income from operations or
cash flow provided by operating activities prepared in accordance with GAAP.

                                               
 

CHESAPEAKE ENERGY CORPORATION

RECONCILIATION OF ADJUSTED EBITDA

($ in millions)

(unaudited)
                                                                   
                             June 30,            March 31,        June 30,
THREE MONTHS ENDED:          2013                2013             2012
                                                                             
EBITDA                       $    1,834          $   912          $  2,385
                                                                             
Adjustments:
Unrealized (gains)
losses on natural gas,            (576     )         146             (810   )
oil and NGL
derivatives
Impairment of                     —                  10              —
investment
Net gains on sales of             (109     )         (49    )        —
fixed assets
Impairments of fixed              231                27              243
assets and other
Net income
attributable to                   (45      )         (44    )        (65    )
noncontrolling
interests
(Gains) losses on                 10                 —               (957   )
sales of investments
Losses on purchases of            70                 —               —
debt
Employee retirement
and other termination             7                  133             1
benefits
Other                             2                  (1     )        6
                                                                             
Adjusted EBITDA^(a)          $    1,424          $   1,134        $  803
                                                                             
                                                                      
                                        June 30,               June 30,
SIX MONTHS ENDED:                       2013                   2012
                                                                             
EBITDA                                  $  2,745               $  2,980
                                                                             
Adjustments:
Unrealized (gains) losses on
natural gas, oil and NGL                   (429         )         (540      )
derivatives
Impairment of investment                   10                     —
Net gains on sales of fixed assets         (158         )         (2        )
Impairments of fixed assets and            258                    243
other
Net income attributable to                 (89          )         (89       )
noncontrolling interests
(Gains) losses on sales of                 10                     (957      )
investments
Losses on purchases of debt                70                     —
Employee retirement and other              140                    1
termination benefits
Other                                      1                      5
                                                                             
Adjusted EBITDA^(a)                     $  2,558               $  1,641
                                                                             
(a) Adjusted ebitda excludes certain items that management believes affect the
comparability of operating results. The company believes these non-GAAP
financial measures are a useful adjunct to ebitda because:
 
(i) Management uses adjusted ebitda to evaluate the company's operational
trends and performance relative to other natural gas and oil producing
companies.
 
(ii) Adjusted ebitda is more comparable to estimates provided by securities
analysts.
 
(iii) Items excluded generally are one-time items or items whose timing or
amount cannot be reasonably estimated. Accordingly, any guidance provided by
the company generally excludes information regarding these types of items.

                                 SCHEDULE “A”

                  MANAGEMENT’S OUTLOOK AS OF AUGUST 1, 2013

Chesapeake periodically provides management guidance on certain factors that
affect its future financial performance. The primary changes from the
company’s May 1, 2013 Outlook are in italicized bold below. The production
guidance provided below assumes that Chesapeake closes asset sales of
approximately $4 billion during 2013. Estimated production decreases of
approximately 37 bcfe in 2013 are associated with these assets sales and are
reflected in the production guidance set forth below. To the extent the
company completes asset sales in excess of $4 billion during 2013, production
guidance may need to be reduced to reflect such incremental sales.

                                                            
Chesapeake Energy Corporation Consolidated Projections
                                                                 
                                                                Year Ending

                                                                12/31/13
Estimated Production:
Natural gas – bcf                                               1,080 – 1,100
Oil – mbbls                                                     38,000 –
                                                                40,000
NGL – mbbls^(a)                                                 21,000 –
                                                                23,000
Natural gas equivalent – bcfe                                   1,434 – 1,478
                                                                 
Daily natural gas equivalent midpoint –                         3,990
mmcfe
                                                                 
YOY estimated production increase (adjusted                     3%
for planned asset sales)
                                                                 
NYMEX Price^(b) (for calculation of
realized hedging effects only):
Natural gas - $/mcf                                             $3.73
Oil - $/bbl                                                     $97.15
                                                                 
Estimated Realized Hedging Effects (based
on assumed NYMEX prices above): above):
Natural gas - $/mcf                                             ($0.05)
Oil - $/bbl                                                     ($1.70)
                                                                 
Estimated
Gathering/Marketing/Transportation
Differentials to NYMEX Prices:
Natural gas - $/mcf                                             $1.25 – 1.40
Oil - $/bbl                                                     $1.00 – 3.00
NGL - $/bbl                                                     $69.00 – 73.00
                                                                 
Operating Costs per Mcfe of Projected
Production:
Production expense                                              $0.85 – 0.90
Production taxes                                                $0.15 – 0.20
General and administrative^(c)                                  $0.25 – 0.30
Stock-based compensation (noncash)                              $0.04 – 0.06
DD&A of natural gas and liquids assets                          $1.65 – 1.85
Depreciation of other assets                                    $0.20 – 0.25
Interest expense^(d)                                            $0.10 – 0.15
                                                                 
Other ($ millions):
Marketing, gathering and compression net                        $100 – 125
margin^(e)
Oilfield services net margin^(e)                                $125 – 175
Net income attributable to noncontrolling                       ($160 – 200)
interests and other^(f)
                                                                 
Book Tax Rate                                                   38%
 
Weighted average shares outstanding (in
millions):
Basic                                                           650 – 655
Diluted                                                         760 – 765
                                                                 
Operating cash flow before changes in                           $5,050 – 5,100
assets and liabilities^(g)(h)
Drilling and completion costs on proved and                     ($5,700 –
unproved properties                                             6,000)
Acquisition of unproved properties, net                         ($300 – 350)
                                                                 
a) Reflects actual and assumed ethane rejection in the 2013 second quarter and
2013 third quarter, respectively.
b) NYMEX natural gas and oil prices have been updated for actual contract
prices through July and June, respectively.
c) Excludes expenses associated with noncash stock-based compensation.
d) Does not include unrealized gains or losses on interest rate derivatives.
e) Includes revenue and operating costs and excludes depreciation and
amortization of other assets.
f) Net income attributable to noncontrolling interests of Chesapeake Granite
Wash Trust, CHK Utica, L.L.C. and CHK Cleveland Tonkawa, L.L.C.
g) A non-GAAP financial measure. We are unable to provide reconciliation to
projected cash provided by operating activities, the most comparable GAAP
measure, because of uncertainties associated with projecting future changes in
assets and liabilities.
h) Assumes NYMEX prices on open contracts of $3.75 to $4.00 per mcf and
$100.00 per bbl in 2013.
 

Natural Gas, Oil and NGL Hedging Activities

Chesapeake enters into natural gas, oil and NGL derivative transactions in
order to mitigate a portion of its exposure to adverse changes in market
prices. Please see the quarterly reports on Form 10-Q and annual reports on
Form 10-K filed by Chesapeake with the SEC for detailed information about
derivative instruments the company uses, its quarter-end and year-end
derivative positions and the accounting for natural gas, oil and NGL
derivatives.

The company’s natural gas hedging positions as of July 31, 2013 were as
follows:

                                                                          
Open Natural Gas Swaps; Gains (Losses) from Closed

Natural Gas Trades and Call Option Premiums
                                                                            
                                                                           Total
                                                                           Gains

                                                             Total         (Losses)
                                                             Gains         from
                                              Open Swap
                                                             (Losses)      Closed
                                              Positions      from          Trades
                    Avg.       Forecasted     as
          Open      NYMEX                                    Closed        and
                               Natural        a % of         Trades        Premiums
          Swaps     Price      Gas                                         for
                    of                        Forecasted     and
          (bcf)                Production                    Premiums      Call
                    Open                      Natural                      Options
                    Swaps      (bcf)          Gas            for Call      per
                                                             Options
                                              Production                   mcf of
                                                             ($ in         Forecasted
                                                             millions)
                                                                           Natural
                                                                           Gas

                                                                           Production
Q3        197       $ 3.73                                   $  7
2013
Q4        190         3.71                                      (3)         
2013
Total
Q3-Q4     387       $ 3.72     539            72%            $  4          $   0.01
2013
Total     133       $ 4.39                                   $  (74)        
2014
Total     0           -                                      $  (131)       
2015
Total
2016      0           -                                      $  (187)       
–
2022

                                                                           
Purchased Natural Gas Three-Way Collars
                                                                             
                                                                            Open
                                                             Forecasted     Collars as
          Open        Avg.         Avg.         Avg.                        a % of
                      NYMEX        NYMEX        NYMEX        Natural
          Collars                                            Gas            Forecasted
                      Sold Put     Bought       Ceiling
          (bcf)       Price        Put          Price        Production     Natural
                                   Price                                    Gas
                                                             (bcf)
                                                                            Production
                                                                                   
Q3        18          $ 3.03       $ 3.55       $ 4.03
2013
Q4        18            3.03         3.55         4.03                             
2013
Total
Q3-Q4     36          $ 3.03       $ 3.55       $ 4.03       539            7     %
2013
Total     18          $ 3.50       $ 4.00       $ 4.70                             
2014

                                                           
Natural Gas Swaptions
                                                             
                                                            Swaptions
                                              Forecasted
                                                            as a % of
                   Swaptions   Avg. NYMEX     Natural Gas
                                                            Forecasted Natural
                   (bcf)       Strike Price   Production
                                                            Gas
                                              (bcf)
                                                            Production
                                                                       
Total Q3-Q4 2013   0           $   -          539           0         %
Total 2014         12          $   4.80                                

                                                           
Natural Gas Written Call Options
                                                             
                                                            Call Options
                                              Forecasted
                                                            as a % of
                Call Options   Avg. NYMEX     Natural Gas
                                                            Forecasted Natural
                (bcf)          Strike Price   Production
                                                            Gas
                                              (bcf)
                                                            Production
                                                                       
Total Q3-Q4     0              $   -          539           0         %
2013
Total 2016 –    193            $   9.92                                
2020

                   
Natural Gas Basis Protection Swaps
                     
                     
                    Volume (bcf)   Avg. NYMEX less
                                  
Q3 2013             11             $      0.21
Q4 2013             11                    0.21
Total Q3-Q4 2013    22             $      0.21
Total 2014          28             $      0.32
Total 2015          31             $      0.34
Total 2016 - 2022   8              $      1.02
                                           

The company’s crude oil hedging positions as of July 31, 2013 were as follows:

Open Crude Oil Swaps; Gains (Losses) from Closed

Crude Oil Trades and Call Option Premiums
                                                                    
                                                                     Total
                                                                     Gains

                                                         Total       (Losses)
                                                         Gains       from
                                            Open Swap
                                                         (Losses)    Closed
                                            Positions    from        Trades
                   Avg.        Forecasted   as
        Open       NYMEX                                 Closed      and
                               Oil          a % of       Trades      Premiums
        Swaps      Price of                                          for
                               Production   Forecasted   and
        (mbbls)    Open                                  Premiums    Call
                   Swaps       (mbbls)      Oil                      Options
                                                         for Call    per
                                            Production   Options
                                                                     bbl of
                                                         ($ in       Forecasted
                                                         millions)
                                                                     Oil

                                                                     Production
                                                                          
Q3      8,834      $ 95.68                               $  2
2013
Q4      9,181        95.59                                  2             
2013
Total
Q3-Q4   18,015     $ 95.64     19,178       94    %      $  4        $   $0.18
2013
Total   21,358     $ 93.76                               $  (151 )        
2014
Total   693        $ 89.48                               $  265           
2015
Total
2016    0          $ -                                   $  117           
–
2022

                                                           
Crude Oil Swaptions
                                                             
                                                            Swaptions
                                              Forecasted
                                                            as a % of
                   Swaptions   Avg. NYMEX     Natural Gas
                                                            Forecasted Natural
                   (mbbls)     Strike Price   Production
                                                            Gas
                                              (mbbls)
                                                            Production
                                                                       
Total Q3-Q4 2013   0           $  -           19,178        0         %
Total 2014         2,920       $  106.69                               
Total 2015         2,368       $  106.61                               

                                                              
Crude Oil Written Call Options
                                                                
                                                  Forecasted   Call Options

                    Call Options   Avg. NYMEX     Oil          as a % of
                                                              
                    (mbbls)        Strike Price   Production   Forecasted Oil

                                                  (mbbls)      Production
                                                                        
Q3 2013             1,975          $  97.90
Q4 2013             1,975             97.90                             
Total Q3-Q4 2013    3,950          $  97.90       19,178       21      %
Total 2014          14,692         $  97.22                             
Total 2015          24,680         $  100.45                            
Total 2016 – 2017   24,220         $  100.07                            

                                   
Crude Oil Basis Protection Swaps
                                     
                   Volume (mbbls)   Avg. NYMEX plus
                                           
Q3 2013            736              $     10.07
Q4 2013            0                      -
Total Q3-Q4 2013   736              $     10.07

Contact:

Chesapeake Energy Corporation
Jeffrey L. Mobley, CFA, 405-767-4763
jeff.mobley@chk.com
or
Gary T. Clark, CFA, 405-935-6741
gary.clark@chk.com
or
Media Contact:
Jim Gipson, 405-935-1310
jim.gipson@chk.com
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