Condensed Consolidating Financial Information

Chesapeake Energy Corporation is a holding company and owns no operating assets, and has no significant operations independent of its subsidiaries. Our obligations under our outstanding senior notes and contingent convertible senior notes listed in Note 3 are fully and unconditionally guaranteed, jointly and severally, by certain of our wholly owned subsidiaries on a senior unsecured basis. Our oilfield services subsidiary, COS, and its subsidiaries are not guarantors of our senior notes, contingent convertible senior notes or corporate credit facility but are subject to the covenants and guarantees in their revolving bank credit facility agreement referred to in Note 3 that limit their ability to pay dividends or distributions or make loans to Chesapeake. COS and its subsidiaries were released as guarantors of our senior notes and corporate credit facility in October 2011 when they were formally reorganized and capitalized. Our midstream subsidiary, CMD, and its certain of its subsidiaries were added as guarantors of our senior notes and corporate credit facility in June 2012 upon the termination of the midstream credit facility. All prior year information has been restated to reflect COS and its subsidiaries as non-guarantor subsidiaries and CMD and its subsidiaries as guarantor subsidiaries. Certain of our oilfield services subsidiaries, subsidiaries with noncontrolling interests, subsidiaries qualified as variable interest entities, and certain midstream and de minimis subsidiaries are not guarantors.

Set forth below are condensed consolidating financial statements for Chesapeake Energy Corporation (parent) on a stand-alone, unconsolidated basis, and its combined guarantor and combined non-guarantor subsidiaries as of September 30, 2012 and December 31, 2011 and for three and nine months ended September 30, 2012 and 2011. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the subsidiaries operated as independent entities.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2012

($ in millions)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	54	$	88	$	—		$	142
Restricted cash	—			—		156		—			156
Other	1			3,087		520		(406		)	3,202
Current assets held for sale	—			111		—		—			111
Total Current Assets	1			3,252		764		(406		)	3,611
PROPERTY AND EQUIPMENT:
Natural gas and oil properties, at cost based on full cost accounting, net	—			30,995		2,901		8			33,904
Other property and equipment at cost, net	—			2,774		1,618		—			4,392
Property and equipment held for sale, net	—			2,283		24		—			2,307
Total Property and Equipment, Net	—			36,052		4,543		8			40,603
LONG-TERM ASSETS:
Other assets	288			1,099		319		(372		)	1,334
Long-term assets held for sale	—			123		—		—			123
Investments in subsidiaries and intercompany advances	2,199			580		—		(2,779		)	—
TOTAL ASSETS	$	2,488		$	41,106	$	5,626	$	(3,549	)	$	45,671
CURRENT LIABILITIES:
Current liabilities	$	762		$	5,431	$	444	$	(357	)	$	6,280
Current liabilities held for sale	—			176		—		—			176
Intercompany payable to (receivable from) parent	(26,695		)	26,531		202		(38		)	—
Total Current Liabilities	(25,933		)	32,138		646		(395		)	6,456
LONG-TERM LIABILITIES:
Long-term debt, net	12,983			1,785		987		—			15,755
Deferred income tax liabilities	73			3,142		206		(3		)	3,418
Other liabilities	38			1,840		843		(372		)	2,349
Long-term liabilities held for sale	—			2		—		—			2
Total Long-Term Liabilities	13,094			6,769		2,036		(375		)	21,524
EQUITY:
Chesapeake stockholders’ equity	15,327			2,199		2,944		(5,143		)	15,327
Noncontrolling interests	—			—		—		2,364			2,364
Total Equity	15,327			2,199		2,944		(2,779		)	17,691
TOTAL LIABILITIES AND EQUITY	$	2,488		$	41,106	$	5,626	$	(3,549	)	$	45,671

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2011

($ in millions)



	Parent^(a)			Guarantor Subsidiaries^(a)		Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	—		$	1	$	350	$	—		$	351
Restricted cash	—			—		44		—			44
Other	1			2,734		259		(212		)	2,782
Total Current Assets	1			2,735		653		(212		)	3,177
PROPERTY AND EQUIPMENT:
Natural gas and oil properties, at cost, based on full cost accounting, net	—			29,659		2,017		(476		)	31,200
Other property and equipment at cost, net	—			4,287		1,252		—			5,539
Total Property and Equipment, Net	—			33,946		3,269		(476		)	36,739
LONG-TERM ASSETS:
Other assets	161			2,015		120		(377		)	1,919
Investments in subsidiaries and intercompany advances	3,501			177		—		(3,678		)	—
TOTAL ASSETS	$	3,663		$	38,873	$	4,042	$	(4,743	)	$	41,835
CURRENT LIABILITIES:
Current liabilities	$	288		$	6,709	$	299	$	(214	)	$	7,082
Intercompany payable to (receivable from) parent	(21,903		)	21,489		651		(237		)	—
Total Current Liabilities	(21,615		)	28,198		950		(451		)	7,082
LONG-TERM LIABILITIES:
Long-term debt, net	8,226			1,720		680		—			10,626
Deferred income tax liabilities	390			3,135		196		(237		)	3,484
Other liabilities	38			2,319		702		(377		)	2,682
Total Long-Term Liabilities	8,654			7,174		1,578		(614		)	16,792
EQUITY:
Chesapeake stockholders’ equity	16,624			3,501		1,514		(5,015		)	16,624
Noncontrolling interests	—			—		—		1,337			1,337
Total Equity	16,624			3,501		1,514		(3,678		)	17,961
TOTAL LIABILITIES AND EQUITY	$	3,663		$	38,873	$	4,042	$	(4,743	)	$	41,835

____________________________________________


(a)	We have revised the amounts presented as long-term debt in the Guarantor Subsidiaries and Parent columns to properly reflect the long-term debt issued by the Parent of $8.2 billion, which was incorrectly presented as long-term debt attributable to the Guarantor Subsidiaries as of December 31, 2011. The impact of this error was not material to our December 31, 2011 financial statements.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2012

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES
Natural gas, oil and NGL	$	—		$	1,357		$	79		$	1		$	1,437
Marketing, gathering and compression	—			1,381			—			—			1,381
Oilfield services	—			—			487			(335		)	152
Total Revenues	—			2,738			566			(334		)	2,970
OPERATING EXPENSES
Natural gas, oil and NGL production	—			312			8			—			320
Production taxes	—			51			2			—			53
Marketing, gathering and compression	—			1,338			1			—			1,339
Oilfield services	—			1			363			(248		)	116
General and administrative	—			120			28			—			148
Natural gas, oil and NGL depreciation, depletion and amortization	—			717			45			—			762
Depreciation and amortization of other assets	—			43			59			(36		)	66
Impairment of natural gas and oil properties	—			3,377			115			(177		)	3,315
Losses on sales and impairments of fixed assets and other	—			4			41			—			45
Total Operating Expenses	—			5,963			662			(461		)	6,164
INCOME (LOSS) FROM OPERATIONS	—			(3,225		)	(96		)	127			(3,194		)
OTHER INCOME (EXPENSE)
Interest expense	(289		)	(18		)	(20		)	291			(36		)
Earnings (losses) on investments	—			(24		)	1			—			(23		)
Gains on sales of investments	—			31			—			—			31
Other income (expense)	285			5			4			(303		)	(9		)
Equity in net earnings of subsidiary	(2,010		)	(147		)	—			2,157			—
Total Other Income (Expense)	(2,014		)	(153		)	(15		)	2,145			(37		)
INCOME (LOSS) BEFORE INCOME TAXES	(2,014		)	(3,378		)	(111		)	2,272			(3,231		)
INCOME TAX EXPENSE (BENEFIT)	(2		)	(1,260		)	(43		)	45			(1,260		)
NET INCOME (LOSS)	(2,012		)	(2,118		)	(68		)	2,227			(1,971		)
Net income attributable to noncontrolling interests	—			—			—			(41		)	(41		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(2,012		)	(2,118		)	(68		)	2,186			(2,012		)
Other comprehensive income (loss)	3			(9		)	—			—			(6		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	(2,009	)	$	(2,127	)	$	(68	)	$	2,186		$	(2,018	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2011

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	2,402		$	—		$	—		$	2,402
Marketing, gathering and compression	—			1,422			—			—			1,422
Oilfield services	—			—			344			(191		)	153
Total Revenues	—			3,824			344			(191		)	3,977
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			282			—			—			282
Production taxes	—			50			—			—			50
Marketing, gathering and compression	—			1,392			—			—			1,392
Oilfield services	—			1			254			(137		)	118
General and administrative	—			137			14			—			151
Natural gas, oil and NGL depreciation, depletion and amortization	—			423			—			—			423
Depreciation and amortization of other assets	—			56			41			(22		)	75
Losses on sales and impairments of fixed assets and other	—			3			—			—			3
Total Operating Expenses	—			2,344			309			(159		)	2,494
INCOME (LOSS) FROM OPERATIONS	—			1,480			35			(32		)	1,483
OTHER INCOME (EXPENSE):
Interest expense	(138		)	—			(15		)	149			(4		)
Earnings (losses) on investments	—			28			—			—			28
Losses on purchases or exchanges of debt	—			—			—			—			—
Other income	151			2			6			(155		)	4
Equity in net earnings of subsidiary	914			(7		)	—			(907		)	—
Total Other Income (Expense)	927			23			(9		)	(913		)	28
INCOME (LOSS) BEFORE INCOME TAXES	927			1,503			26			(945		)	1,511
INCOME TAX EXPENSE (BENEFIT)	5			589			10			(15		)	589
NET INCOME (LOSS)	922			914			16			(930		)	922
Net income attributable to noncontrolling interests	—			—			—			—			—
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	922			914			16			(930		)	922
Other comprehensive income (loss)	—			(6		)	—			—			(6		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	922		$	908		$	16		$	(930	)	$	916

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2012

($ in millions)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	4,410		$	209		$	3		$	4,622
Marketing, gathering and compression	—			3,709			1			—			3,710
Oilfield services	—			—			1,440			(994		)	446
Total Revenues	—			8,119			1,650			(991		)	8,778
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			990			15			—			1,005
Production taxes	—			137			4			—			141
Marketing, gathering and compression	—			3,629			2			—			3,631
Oilfield services	—			2			1,028			(709		)	321
General and administrative	—			370			70			—			440
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,762			94			—			1,856
Depreciation and amortization of other assets	—			168			170			(105		)	233
Impairment of natural gas and oil properties	—			3,377			133			(195		)	3,315
Losses on sales and impairments of fixed assets and other	—			221			65			—			286
Total Operating Expenses	—			10,656			1,581			(1,009		)	11,228
INCOME (LOSS) FROM OPERATIONS	—			(2,537		)	69			18			(2,450		)
OTHER INCOME (EXPENSE):
Interest expense	(682		)	(10		)	(57		)	686			(63		)
Earnings (losses) on investments	—			(93		)	6			—			(87		)
Gains on sales of investments	—			1,061			—			—			1,061
Losses on purchases or exchanges of debt	—			—			—			—			—
Other income	667			28			11			(704		)	2
Equity in net earnings of subsidiary	(1,059		)	(232		)	—			1,291			—
Total Other Income (Expense)	(1,074		)	754			(40		)	1,273			913
INCOME (LOSS) BEFORE INCOME TAXES	(1,074		)	(1,783		)	29			1,291			(1,537		)
INCOME TAX EXPENSE (BENEFIT)	(5		)	(605		)	11			—			(599		)
NET INCOME (LOSS)	(1,069		)	(1,178		)	18			1,291			(938		)
Net income attributable to noncontrolling interests	—			—			—			(131		)	(131		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(1,069		)	(1,178		)	18			1,160			(1,069		)
Other comprehensive income (loss)	2			(24		)	—			—			(22		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	(1,067	)	$	(1,202	)	$	18		$	1,160		$	(1,091	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2011

($ in millions)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	4,688		$	—		$	—		$	4,688
Marketing, gathering and compression	—			3,844			—			—			3,844
Oilfield services	—			—			867			(491		)	376
Total Revenues	—			8,532			867			(491		)	8,908
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			782			—			—			782
Production taxes	—			140			—			—			140
Marketing, gathering and compression	—			3,744			—			—			3,744
Oilfield services	—			1			641			(355		)	287
General and administrative	—			382			28			—			410
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,147			—			—			1,147
Depreciation and amortization of other assets	—			158			106			(58		)	206
Losses on sales and impairments of fixed assets and other	—			7			—			—			7
Total Operating Expenses	—			6,361			775			(413		)	6,723
INCOME (LOSS) FROM OPERATIONS	—			2,171			92			(78		)	2,185
OTHER INCOME (EXPENSE):
Interest expense	(488		)	(10		)	(33		)	494			(37		)
Earnings on investments	—			100			—			—			100
Losses on purchases or exchanges of debt	(176		)	—			—			—			(176		)
Other income	494			10			8			(503		)	9
Equity in net earnings of subsidiary	1,373			(12		)	—			(1,361		)	—
Total Other Income (Expense)	1,203			88			(25		)	(1,370		)	(104		)
INCOME (LOSS) BEFORE INCOME TAXES	1,203			2,259			67			(1,448		)	2,081
INCOME TAX EXPENSE (BENEFIT)	(66		)	886			26			(34		)	812
NET INCOME (LOSS)	1,269			1,373			41			(1,414		)	1,269
Net income attributable to noncontrolling interests	—			—			—			—			—
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	1,269			1,373			41			(1,414		)	1,269
Other comprehensive income (loss)	3			59			—			—			62
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	1,272		$	1,432		$	41		$	(1,414	)	$	1,331

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2012

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	1,814		$	164		$	—		$	1,978
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to proved and unproved properties	—			(9,891		)	(447		)	—			(10,338		)
Proceeds from divestitures of proved and unproved properties	—			2,204			241			—			2,445
Additions to other property and equipment	—			(1,323		)	(593		)	—			(1,916		)
Other investing activities	—			2,715			(246		)	(814		)	1,655
Cash used in investing activities	—			(6,295		)	(1,045		)	(814		)	(8,154		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			12,926			1,060			—			13,986
Payments on credit facilities borrowings	—			(12,862		)	(752		)	—			(13,614		)
Proceeds from issuance of term loans, net of discount and offering costs	3,789			—			—			—			3,789
Proceeds from issuance of senior notes, net of discount and offering costs	1,263			—			—			—			1,263
Cash paid to purchase debt	—			—			—			—			—
Proceeds from sales of noncontrolling interests	—			—			1,056			—			1,056
Other financing activities	(367		)	(178		)	(768		)	814			(499		)
Intercompany advances, net	(4,685		)	4,648			37			—			—
Cash provided by financing activities	—			4,534			633			814			5,981
Change in cash and cash equivalents classified in current assets held for sale	—			—			(14		)	—			(14		)
Net increase (decrease) in cash and cash equivalents	—			53			(262		)	—			(209		)
Cash and cash equivalents, beginning of period	—			1			350			—			351
Cash and cash equivalents, end of period	$	—		$	54		$	88		$	—		$	142

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2011

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	3,683		$	41		$	—		$	3,724
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to proved and unproved properties	—			(9,118		)	—			—			(9,118		)
Proceeds from divestitures of proved and unproved properties	—			6,357			—			—			6,357
Additions to other property and equipment	—			(778		)	(638		)	—			(1,416		)
Other investing activities	—			(130		)	95			497			462
Cash used in investing activities	—			(3,669		)	(543		)	497			(3,715		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			11,914			—			—			11,914
Payments on credit facilities borrowings	—			(12,057		)	—			—			(12,057		)
Proceeds from issuance of senior notes, net of discount and offering costs	977			—			—			—			977
Cash paid to purchase debt	(2,015		)	—			—			—			(2,015		)
Proceeds from sales of noncontrolling interests	—			—			—			—			—
Other financing activities	(393		)	1,567			504			(497		)	1,181
Intercompany advances, net	1,431			(1,438		)	7			—			—
Cash provided by financing activities	—			(14		)	511			(497		)	—
Change in cash and cash equivalents classified in current assets held for sale	—			—			—			—			—
Net increase (decrease) in cash and cash equivalents	—			—			9			—			9
Cash and cash equivalents, beginning of period	—			102			—			—			102
Cash and cash equivalents, end of period	$	—		$	102		$	9		$	—		$	111