Consolidating Financial Information

Chesapeake Energy Corporation is a holding company, 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 100% owned subsidiaries on a senior unsecured basis. Our oilfield services subsidiary, COS, and its subsidiaries are separately capitalized and are not guarantors of our senior notes or our other debt obligations, but are subject to the covenants and guarantees in the oilfield services revolving bank credit facility agreement referred to in Note 3 that limit their ability to pay dividends or distributions or make loans to Chesapeake. In addition, subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries are non-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 December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011. Such financial information may not necessarily be indicative of our results of operations, cash flows or financial position had these subsidiaries operated as independent entities. Certain prior year information has been restated for subsidiaries that have changed between guarantor and non-guarantor during 2013.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2013

($ in millions)



	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	799	$	—		$	39	$	(1	)	$	837
Restricted cash	—		—			82		(7		)	75
Other	103		2,395			613		(367		)	2,744
Current assets held for sale	—		—			—		—			—
Intercompany receivable, net	25,385		—			—		(25,385		)	—
Total Current Assets	26,287		2,395			734		(25,760		)	3,656
PROPERTY AND EQUIPMENT:
Natural gas and oil properties, at cost based on full cost accounting, net	—		29,295			3,113		185			32,593
Other property and equipment, net	—		2,317			1,495		(1		)	3,811
Property and equipment held for sale, net	—		701			29		—			730
Total Property and Equipment, Net	—		32,313			4,637		184			37,134
LONG-TERM ASSETS:
Other assets	111		1,146			111		(376		)	992
Investments in subsidiaries and intercompany advances	2,333		(235		)	—		(2,098		)	—
TOTAL ASSETS	$	28,731	$	35,619		$	5,482	$	(28,050	)	$	41,782
CURRENT LIABILITIES:
Current liabilities	$	300	$	5,196		$	378	$	(359	)	$	5,515
Intercompany payable, net	—		24,814			474		(25,288		)	—
Total Current Liabilities	300		30,010			852		(25,647		)	5,515
LONG-TERM LIABILITIES:
Long-term debt, net	11,831		—			1,055		—			12,886
Deferred income tax liabilities	209		2,254			857		87			3,407
Other long-term liabilities	396		1,022			877		(461		)	1,834
Total Long-Term Liabilities	12,436		3,276			2,789		(374		)	18,127
EQUITY:
Chesapeake stockholders’ equity	15,995		2,333			1,841		(4,174		)	15,995
Noncontrolling interests	—		—			—		2,145			2,145
Total Equity	15,995		2,333			1,841		(2,029		)	18,140
TOTAL LIABILITIES AND EQUITY	$	28,731	$	35,619		$	5,482	$	(28,050	)	$	41,782

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

($ in millions)



	Parent^(a)		Guarantor Subsidiaries^(a)			Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	228	$	—		$	59	$	—		$	287
Restricted cash	—		—			111		—			111
Other	1		2,382			511		(348		)	2,546
Current assets held for sale	—		—			4		—			4
Intercompany receivable, net	25,159		—			—		(25,159		)	—
Total Current Assets	25,388		2,382			685		(25,507		)	2,948
PROPERTY AND EQUIPMENT:
Natural gas and oil properties, at cost based on full cost accounting, net	—		28,742			3,387		(211		)	31,918
Other property and equipment, net	—		3,065			1,551		(1		)	4,615
Property and equipment held for sale, net	—		256			378		—			634
Total Property and Equipment, Net	—		32,063			5,316		(212		)	37,167
LONG-TERM ASSETS:
Other assets	217		1,396			261		(378		)	1,496
Investments in subsidiaries and intercompany advances	2,438		(134		)	—		(2,304		)	—
TOTAL ASSETS	$	28,043	$	35,707		$	6,262	$	(28,401	)	$	41,611
CURRENT LIABILITIES:
Current liabilities	$	789	$	5,377		$	428	$	(349	)	$	6,245
Current liabilities held for sale	—		—			21		—			21
Intercompany payable, net	—		23,684			1,586		(25,270		)	—
Total Current Liabilities	789		29,061			2,035		(25,619		)	6,266
LONG-TERM LIABILITIES:
Long-term debt, net	11,089		—			1,068		—			12,157
Deferred income tax liabilities	361		2,425			127		(106		)	2,807
Other liabilities	235		1,783			839		(372		)	2,485
Total Long-Term Liabilities	11,685		4,208			2,034		(478		)	17,449
EQUITY:
Chesapeake stockholders’ equity	15,569		2,438			2,193		(4,631		)	15,569
Noncontrolling interests	—		—			—		2,327			2,327
Total Equity	15,569		2,438			2,193		(2,304		)	17,896
TOTAL LIABILITIES AND EQUITY	$	28,043	$	35,707		$	6,262	$	(28,401	)	$	41,611

___________________________________________


(a)	We have revised the amounts presented as cash and cash equivalents in the Guarantor Subsidiaries and Parent columns to properly reflect the cash of the Parent of $228 million, which was incorrectly presented in the Guarantor Subsidiaries column. The impact of this error was not material to any previously issued financial statements.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AS OF DECEMBER 31, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	6,289		$	754		$	9		$	7,052
Marketing, gathering and compression	—			9,549			10			—			9,559
Oilfield services	—			—			2,218			(1,323		)	895
Total Revenues	—			15,838			2,982			(1,314		)	17,506
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			1,099			60			—			1,159
Production taxes	—			221			8			—			229
Marketing, gathering and compression	—			9,456			5			—			9,461
Oilfield services	—			95			1,761			(1,120		)	736
General and administrative	—			361			97			(1		)	457
Restructuring and other termination costs	—			244			4			—			248
Natural gas, oil and NGL depreciation, depletion and amortization	—			2,303			286			—			2,589
Depreciation and amortization of other assets	—			177			292			(155		)	314
Impairment of natural gas and oil properties	—			—			311			(311		)	—
Impairments of fixed assets and other	—			443			103			—			546
Net gains on sales of fixed assets	—			(301		)	(1		)	—			(302		)
Total Operating Expenses	—			14,098			2,926			(1,587		)	15,437
INCOME (LOSS) FROM OPERATIONS	—			1,740			56			273			2,069
OTHER INCOME (EXPENSE):
Interest expense	(921		)	(4		)	(85		)	783			(227		)
Losses on investments	—			(225		)	(1		)	—			(226		)
Losses on sales of investments	—			(7		)	—			—			(7		)
Losses on purchases of debt and extinguishment of other financing	(70		)	(123		)	—			—			(193		)
Other income (loss)	3,979			(594		)	13			(3,372		)	26
Equity in net earnings of subsidiary	(1,129		)	(264		)	—			1,393			—
Total Other Income (Expense)	1,859			(1,217		)	(73		)	(1,196		)	(627		)
INCOME (LOSS) BEFORE INCOME TAXES	1,859			523			(17		)	(923		)	1,442
INCOME TAX EXPENSE (BENEFIT)	1,135			299			(6		)	(880		)	548
NET INCOME (LOSS)	724			224			(11		)	(43		)	894
Net income attributable to noncontrolling interests	—			—			—			(170		)	(170		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	724			224			(11		)	(213		)	724
Other comprehensive income (loss)	3			19			(2		)	—			20
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	727		$	243		$	(13	)	$	(213	)	$	744

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AS OF DECEMBER 31, 2012

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	5,819		$	387		$	72		$	6,278
Marketing, gathering and compression	—			5,370			212			(151		)	5,431
Oilfield services	—			—			1,941			(1,334		)	607
Total Revenues	—			11,189			2,540			(1,413		)	12,316
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			1,275			29			—			1,304
Production taxes	—			182			6			—			188
Marketing, gathering and compression	—			5,284			115			(87		)	5,312
Oilfield services	—			168			1,433			(1,136		)	465
General and administrative	—			415			121			(1		)	535
Restructuring and other termination costs	—			5			2			—			7
Natural gas, oil and NGL depreciation, depletion and amortization	—			2,346			161			—			2,507
Depreciation and amortization of other assets	—			181			273			(150		)	304
Impairment of natural gas and oil properties	—			3,174			141			—			3,315
Impairments of fixed assets and other	—			275			65			—			340
Net gains on sales of fixed assets	—			(269		)	2			—			(267		)
Total Operating Expenses	—			13,036			2,348			(1,374		)	14,010
INCOME (LOSS) FROM OPERATIONS	—			(1,847		)	192			(39		)	(1,694		)
OTHER INCOME (EXPENSE):
Interest expense	(879		)	45			(84		)	841			(77		)
Losses on investments	—			(167		)	55			9			(103		)
Gains on sales of investments	—			1,030			62			—			1,092
Losses on purchases of debt and extinguishment of other financing	(200		)	—			—			—			(200		)
Other income	819			202			15			(1,028		)	8
Equity in net earnings (losses) of subsidiary	(610		)	(163		)	—			773			—
Total Other Income (Expense)	(870		)	947			48			595			720
INCOME (LOSS) BEFORE INCOME TAXES	(870		)	(900		)	240			556			(974		)
INCOME TAX EXPENSE (BENEFIT)	(101		)	(287		)	93			(85		)	(380		)
NET INCOME (LOSS)	(769		)	(613		)	147			641			(594		)
Net income attributable to noncontrolling interests	—			—			—			(175		)	(175		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(769		)	(613		)	147			466			(769		)
Other comprehensive income (loss)	6			(22		)	—			—			(16		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	(763	)	$	(635	)	$	147		$	466		$	(785	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

AS OF DECEMBER 31, 2011

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	5,886		$	84		$	54		$	6,024
Marketing, gathering and compression	—			5,022			199			(131		)	5,090
Oilfield services	—			18			1,260			(757		)	521
Total Revenues	—			10,926			1,543			(834		)	11,635
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			1,073			—			—			1,073
Production taxes	—			190			2			—			192
Marketing, gathering and compression	—			4,944			116			(93		)	4,967
Oilfield services	—			1			958			(557		)	402
General and administrative	—			477			71			—			548
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,625			7			—			1,632
Depreciation and amortization of other assets	—			169			217			(95		)	291
Impairments of fixed assets and other	—			—			46			—			46
Net gains on sales of fixed assets	—			(2		)	(435		)	—			(437		)
Total Operating Expenses	—			8,477			982			(745		)	8,714
INCOME (LOSS) FROM OPERATIONS	—			2,449			561			(89		)	2,921
OTHER INCOME (EXPENSE):
Interest expense	(640		)	(12		)	(50		)	658			(44		)
Earnings (losses) on investments	—			61			95			—			156
Losses on purchases of debt and extinguishment of other financing	(176		)	—			—			—			(176		)
Other income	646			43			19			(685		)	23
Equity in net earnings of subsidiary	1,846			309			—			(2,155		)	—
Total Other Income (Expense)	1,676			401			64			(2,182		)	(41		)
INCOME (LOSS) BEFORE INCOME TAXES	1,676			2,850			625			(2,271		)	2,880
INCOME TAX EXPENSE (BENEFIT)	(66		)	991			243			(45		)	1,123
NET INCOME (LOSS)	1,742			1,859			382			(2,226		)	1,757
Net income attributable to noncontrolling interests	—			—			—			(15		)	(15		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	1,742			1,859			382			(2,241		)	1,742
Other comprehensive income	9			(9		)	2			—			2
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	1,751		$	1,850		$	384		$	(2,241	)	$	1,744

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	4,115		$	542		$	(43	)	$	4,614
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of proved and unproved properties	—			(6,226		)	(410		)	—			(6,636		)
Proceeds from divestitures of proved and unproved properties	—			3,414			53			—			3,467
Additions to other property and equipment	—			(581		)	(391		)	—			(972		)
Other investing activities	—			117			765			292			1,174
Net Cash Used In Investing Activities	—			(3,276		)	17			292			(2,967		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			6,452			1,217			—			7,669
Payments on credit facilities borrowings	—			(6,452		)	(1,230		)	—			(7,682		)
Proceeds from issuance of senior notes, net of discount and offering costs	2,274			—			—			—			2,274
Cash paid to purchase debt	(2,141		)	—			—			—			(2,141		)
Proceeds from sales of noncontrolling interests	—			—			6			—			6
Other financing activities	1,819			(2,809		)	17			(250		)	(1,223		)
Intercompany advances, net	(1,381		)	1,970			(589		)	—			—
Net Cash Provided By (Used In) Financing Activities	571			(839		)	(579		)	(250		)	(1,097		)
Net increase (decrease) in cash and cash equivalents	571			—			(20		)	(1		)	550
Cash and cash equivalents, beginning of period	228			—			59			—			287
Cash and cash equivalents, end of period	$	799		$	—		$	39		$	(1	)	$	837

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2012

($ in millions)



	Parent^(a)			Guarantor Subsidiaries^(a)			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	3,662		$	431		$	(1,256	)	$	2,837
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of proved and unproved properties	—			(11,099		)	(992		)	—			(12,091		)
Proceeds from divestitures of proved and unproved properties	—			5,583			301			—			5,884
Additions to other property and equipment	—			(855		)	(1,796		)	—			(2,651		)
Other investing activities	—			4,705			2,133			(2,964		)	3,874
Net Cash Used In Investing Activities	—			(1,666		)	(354		)	(2,964		)	(4,984		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			18,336			1,982			—			20,318
Payments on credit facilities borrowings	—			(20,056		)	(1,594		)	—			(21,650		)
Proceeds from issuance of senior notes, net of discount and offering costs	1,263			—			—			—			1,263
Proceeds from issuance of term loans, net of discount and offering costs	5,722			—			—			—			5,722
Cash paid to purchase debt	(4,000		)	—			—			—			(4,000		)
Proceeds from sales of noncontrolling interests	—			—			1,077			—			1,077
Other financing activities	(477		)	(153		)	(4,237		)	4,220			(647		)
Intercompany advances, net	(2,282		)	(123		)	2,405			—			—
Net Cash Provided By (Used In) Financing Activities	226			(1,996		)	(367		)	4,220			2,083
Net increase in cash and cash equivalents	226			—			(290		)	—			(64		)
Cash and cash equivalents, beginning of period	2			—			349			—			351
Cash and cash equivalents, end of period	$	228		$	—		$	59		$	—		$	287

___________________________________________


(a)	We have revised the amounts presented as cash and cash equivalents in the Guarantor Subsidiaries and Parent columns to properly reflect the cash of the Parent of $228 million, which was incorrectly presented in the Guarantor Subsidiaries column. The impact of this error was not material to any previously issued financial statements.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2011

($ in millions)



	Parent^(a)			Guarantor Subsidiaries^(a)			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	5,868		$	438		$	(403	)	$	5,903
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of proved and unproved properties	—			(10,420		)	(2,021		)	—			(12,441		)
Proceeds from divestitures of proved and unproved properties	—			7,651			—			—			7,651
Additions to other property and equipment	—			(520		)	(1,489		)	—			(2,009		)
Other investing activities	—			(348		)	719			616			987
Net Cash Used In Investing Activities	—			(3,637		)	(2,791		)	616			(5,812		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			14,005			1,504			—			15,509
Payments on credit facilities borrowings	—			(15,898		)	(1,568		)	—			(17,466		)
Proceeds from issuance of senior notes, net of discount and offering costs	977			—			637			—			1,614
Cash paid to purchase debt	(2,015		)	—			—			—			(2,015		)
Proceeds from sales of noncontrolling interests	—			—			1,348			—			1,348
Other financing activities	(494		)	1,413			462			(213		)	1,168
Intercompany advances, net	1,533			(1,751		)	218			—			—
Net Cash Provided By (Used In) Financing Activities	1			(2,231		)	2,601			(213		)	158
Net increase in cash and cash equivalents	1			—			248			—			249
Cash and cash equivalents, beginning of period	1			—			101			—			102
Cash and cash equivalents, end of period	$	2		$	—		$	349		$	—		$	351

___________________________________________


(a)	We have revised the amounts presented as cash and cash equivalents in the Guarantor Subsidiaries and Parent columns to properly reflect the cash of the Parent of $2 million which was incorrectly presented in the Guarantor Subsidiaries column. The impact of this error was not material to any previously issued financial statements.