Condensed 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 4 are fully and unconditionally guaranteed, jointly and severally, by certain of our 100% owned subsidiaries on a senior unsecured basis. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries are non-guarantors. Our former oilfield services subsidiaries were separately capitalized and were not guarantors of our debt obligations.

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, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013. 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.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2014

($ in millions)



	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	13	$	—	$	90	$	(13	)	$	90
Restricted cash	—		—		38		—			38
Other	73		2,737		191		—			3,001
Intercompany receivable, net	24,366		—		—		(24,366		)	—
Total Current Assets	24,452		2,737		319		(24,379		)	3,129
PROPERTY AND EQUIPMENT:
Natural gas and oil properties, at cost based on full cost accounting, net	—		30,739		2,999		499			34,237
Other property and equipment, net	—		2,309		5		—			2,314
Property and equipment held for sale, net	—		101		—		—			101
Total Property and Equipment, Net	—		33,149		3,004		499			36,652
LONG-TERM ASSETS:
Other assets	105		604		28		—			737
Investments in subsidiaries and intercompany advances	3,805		686		—		(4,491		)	—
TOTAL ASSETS	$	28,362	$	37,176	$	3,351	$	(28,371	)	$	40,518
CURRENT LIABILITIES:
Current liabilities	$	247	$	5,308	$	68	$	(21	)	$	5,602
Intercompany payable, net	—		23,807		703		(24,510		)	—
Total Current Liabilities	247		29,115		771		(24,531		)	5,602
LONG-TERM LIABILITIES:
Long-term debt, net	11,533		59		—		—			11,592
Deferred income tax liabilities	132		3,305		713		135			4,285
Other long-term liabilities	130		892		386		—			1,408
Total Long-Term Liabilities	11,795		4,256		1,099		135			17,285
EQUITY:
Chesapeake stockholders’ equity	16,320		3,805		1,481		(5,286		)	16,320
Noncontrolling interests	—		—		—		1,311			1,311
Total Equity	16,320		3,805		1,481		(3,975		)	17,631
TOTAL LIABILITIES AND EQUITY	$	28,362	$	37,176	$	3,351	$	(28,371	)	$	40,518

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		2,411			578		(348		)	2,744
Intercompany receivable, net	25,357		—			—		(25,357		)	—
Total Current Assets	26,259		2,411			699		(25,713		)	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	—		2,360			1,452		(1		)	3,811
Property and equipment held for sale, net	—		701			29		—			730
Total Property and Equipment, Net	—		32,356			4,594		184			37,134
LONG-TERM ASSETS:
Other assets	111		1,161			96		(376		)	992
Investments in subsidiaries and intercompany advances	2,361		(262		)	—		(2,099		)	—
TOTAL ASSETS	$	28,731	$	35,666		$	5,389	$	(28,004	)	$	41,782
CURRENT LIABILITIES:
Current liabilities	$	300	$	5,227		$	344	$	(356	)	$	5,515
Intercompany payable, net	—		24,775			558		(25,333		)	—
Total Current Liabilities	300		30,002			902		(25,689		)	5,515
LONG-TERM LIABILITIES:
Long-term debt, net	11,831		—			1,055		—			12,886
Deferred income tax liabilities	209		2,281			830		87			3,407
Other long-term liabilities	396		1,022			788		(372		)	1,834
Total Long-Term Liabilities	12,436		3,303			2,673		(285		)	18,127
EQUITY:
Chesapeake stockholders’ equity	15,995		2,361			1,814		(4,175		)	15,995
Noncontrolling interests	—		—			—		2,145			2,145
Total Equity	15,995		2,361			1,814		(2,030		)	18,140
TOTAL LIABILITIES AND EQUITY	$	28,731	$	35,666		$	5,389	$	(28,004	)	$	41,782

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	2,085		$	256		$	—		$	2,341
Marketing, gathering and compression	—			3,361			1			—			3,362
Oilfield services	—			—			—			—			—
Total Revenues	—			5,446			257			—			5,703
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			284			14			—			298
Production taxes	—			59			3			—			62
Marketing, gathering and compression	—			3,368			1			—			3,369
Oilfield services	—			—			—			—			—
General and administrative	—			57			3			—			60
Restructuring and other termination costs	—			(14		)	—			—			(14		)
Provision for legal contingencies	—			100			—			—			100
Natural gas, oil and NGL depreciation, depletion and amortization	—			599			82			7			688
Depreciation and amortization of other assets	—			37			—			—			37
Impairment of natural gas and oil properties	—			—			104			(104		)	—
Impairments of fixed assets and other	—			15			—			—			15
Net gains on sales of fixed assets	—			(86		)	—			—			(86		)
Total Operating Expenses	—			4,419			207			(97		)	4,529
INCOME FROM OPERATIONS	—			1,027			50			97			1,174
OTHER INCOME (EXPENSE):
Interest expense	(178		)	(11		)	—			172			(17		)
Losses on investments	—			(27		)	—			—			(27		)
Other income (expense)	56			120			(4		)	(173		)	(1		)
Equity in net earnings of subsidiary	737			(2		)	—			(735		)	—
Total Other Income (Expense)	615			80			(4		)	(736		)	(45		)
INCOME BEFORE INCOME TAXES	615			1,107			46			(639		)	1,129
INCOME TAX EXPENSE (BENEFIT)	(47		)	429			18			37			437
NET INCOME	662			678			28			(676		)	692
Net income attributable to noncontrolling interests	—			—			—			(30		)	(30		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	662			678			28			(706		)	662
Other comprehensive income	—			3			—			—			3
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	662		$	681		$	28		$	(706	)	$	665

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	1,340		$	245		$	1		$	1,586
Marketing, gathering and compression	—			3,031			1			—			3,032
Oilfield services	—			57			464			(272		)	249
Total Revenues	—			4,428			710			(271		)	4,867
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			262			20			—			282
Production taxes	—			60			2			—			62
Marketing, gathering and compression	—			3,009			—			—			3,009
Oilfield services	—			70			385			(244		)	211
General and administrative	—			97			24			(1		)	120
Restructuring and other termination costs	—			63			—			—			63
Natural gas, oil and NGL depreciation, depletion and amortization	—			549			103			—			652
Depreciation and amortization of other assets	—			45			71			(37		)	79
Impairment of natural gas and oil properties	—			—			99			(99		)	—
Impairments of fixed assets and other	—			31			54			—			85
Net gains on sales of fixed assets	—			(133		)	—			1			(132		)
Total Operating Expenses	—			4,053			758			(380		)	4,431
INCOME FROM OPERATIONS	—			375			(48		)	109			436
OTHER INCOME (EXPENSE):
Interest expense	(207		)	(27		)	(21		)	215			(40		)
Losses on investments	—			(22		)	—			—			(22		)
Net gain on sales of investments	—			3			—			—			3
Other income	208			44			2			(244		)	10
Equity in net earnings (losses) of subsidiary	201			(87		)	—			(114		)	—
Total Other Income (Expense)	202			(89		)	(19		)	(143		)	(49		)
INCOME BEFORE INCOME TAXES	202			286			(67		)	(34		)	387
INCOME TAX EXPENSE (BENEFIT)	—			142			(25		)	30			147
NET INCOME (LOSS)	202			144			(42		)	(64		)	240
Net income attributable to noncontrolling interests	—			—			—			(38		)	(38		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE (LOSS)	202			144			(42		)	(102		)	202
Other comprehensive income (loss)	2			1			(2		)	—			1
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	204		$	145		$	(44	)	$	(102	)	$	203

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	5,100		$	715		$	(3	)	$	5,812
Marketing, gathering and compression	—			9,539			4			—			9,543
Oilfield services	—			40			984			(478		)	546
Total Revenues	—			14,679			1,703			(481		)	15,901
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			818			50			—			868
Production taxes	—			177			8			—			185
Marketing, gathering and compression	—			9,512			3			—			9,515
Oilfield services	—			54			769			(392		)	431
General and administrative	—			176			53			—			229
Restructuring and other termination costs	—			9			3			—			12
Provision for legal contingencies	—			100			—			—			100
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,750			211			16			1,977
Depreciation and amortization of other assets	—			116			142			(64		)	194
Impairment of natural gas and oil properties	—			—			202			(202		)	—
Impairments of fixed assets and other	—			52			23			—			75
Net gains on sales of fixed assets	—			(194		)	(7		)	—			(201		)
Total Operating Expenses	—			12,570			1,457			(642		)	13,385
INCOME FROM OPERATIONS	—			2,109			246			161			2,516
OTHER INCOME (EXPENSE):
Interest expense	(524		)	(14		)	(42		)	498			(82		)
Losses on investments	—			(69		)	(5		)	2			(72		)
Net gain on sales of investments	—			67			—			—			67
Losses on purchases of debt	(195		)	—			—			—			(195		)
Other income (loss)	535			12			(2		)	(533		)	12
Equity in net earnings of subsidiary	1,391			11			—			(1,402		)	—
Total Other Income (Expense)	1,207			7			(49		)	(1,435		)	(270		)
INCOME BEFORE INCOME TAXES	1,207			2,116			197			(1,274		)	2,246
INCOME TAX EXPENSE (BENEFIT)	(70		)	804			76			49			859
NET INCOME	1,277			1,312			121			(1,323		)	1,387
Net income attributable to noncontrolling interests	—			—			—			(110		)	(110		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	1,277			1,312			121			(1,433		)	1,277
Other comprehensive income	3			8			—			—			11
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	1,280		$	1,320		$	121		$	(1,433	)	$	1,288

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	4,903		$	532		$	9		$	5,444
Marketing, gathering and compression	—			6,861			10			—			6,871
Oilfield services	—			172			1,398			(920		)	650
Total Revenues	—			11,936			1,940			(911		)	12,965
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			833			44			—			877
Production taxes	—			167			6			—			173
Marketing, gathering and compression	—			6,776			5			—			6,781
Oilfield services	—			216			1,101			(774		)	543
General and administrative	—			267			69			—			336
Restructuring and other termination costs	—			200			3			—			203
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,729			216			—			1,945
Depreciation and amortization of other assets	—			142			210			(118		)	234
Impairment of natural gas and oil properties	—			—			260			(260		)	—
Impairments of fixed assets and other	—			282			61			—			343
Net gains on sales of fixed assets	—			(291		)	—			1			(290		)
Total Operating Expenses	—			10,321			1,975			(1,151		)	11,145
INCOME (LOSS) FROM OPERATIONS	—			1,615			(35		)	240			1,820
OTHER INCOME (EXPENSE):
Interest expense	(703		)	(70		)	(63		)	672			(164		)
Losses on investments	—			(36		)	—			—			(36		)
Net gain on sales of investments	—			(7		)	—			—			(7		)
Losses on purchases of debt	(70		)	—			—			—			(70		)
Other income	651			120			7			(760		)	18
Equity in net earnings (losses) of subsidiary	916			(241		)	—			(675		)	—
Total Other Income (Expense)	794			(234		)	(56		)	(763		)	(259		)
INCOME (LOSS) BEFORE INCOME TAXES	794			1,381			(91		)	(523		)	1,561
INCOME TAX EXPENSE (BENEFIT)	(46		)	617			(35		)	58			594
NET INCOME (LOSS)	840			764			(56		)	(581		)	967
Net income attributable to noncontrolling interests	—			—			—			(127		)	(127		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	840			764			(56		)	(708		)	840
Other comprehensive income (loss)	2			12			(1		)	—			13
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	842		$	776		$	(57	)	$	(708	)	$	853

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	3,188		$	617		$	—		$	3,805
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(2,847		)	(338		)	—			(3,185		)
Acquisitions of proved and unproved properties	—			(1,020		)	(3		)	—			(1,023		)
Proceeds from divestitures of proved and unproved properties	—			726			(3		)	—			723
Additions to other property and equipment	—			(423		)	(252		)	—			(675		)
Other investing activities	—			1,143			60			19			1,222
Net Cash Used In Investing Activities	—			(2,421		)	(536		)	19			(2,938		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			2,856			717			—			3,573
Payments on credit facilities borrowings	—			(2,797		)	(1,099		)	—			(3,896		)
Proceeds from issuance of senior notes, net of discount and offering costs	2,966			—			494			—			3,460
Proceeds from issuance of oilfield services term loan, net of issuance costs	—			—			394			—			394
Cash paid to purchase debt	(3,362		)	—			—			—			(3,362		)
Other financing activities	(293		)	(1,300		)	(159		)	(31		)	(1,783		)
Intercompany advances, net	(97		)	474			(377		)	—			—
Net Cash Provided By (Used In) Financing Activities	(786		)	(767		)	(30		)	(31		)	(1,614		)
Net increase (decrease) in cash and cash equivalents	(786		)	—			51			(12		)	(747		)
Cash and cash equivalents, beginning of period	799			—			39			(1		)	837
Cash and cash equivalents, end of period	$	13		$	—		$	90		$	(13	)	$	90

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2013

($ in millions)



	Parent^(a)			Guarantor Subsidiaries^(a)			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	3,321		$	298		$	(33	)	$	3,586
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(3,826		)	(644		)	—			(4,470		)
Acquisitions of proved and unproved properties	—			(402		)	(409		)	—			(811		)
Proceeds from divestitures of proved and unproved properties	—			2,736			53			—			2,789
Additions to other property and equipment	—			(418		)	(221		)	—			(639		)
Other investing activities	—			67			757			260			1,084
Net Cash Used In Investing Activities	—			(1,843		)	(464		)	260			(2,047		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			6,311			825			—			7,136
Payments on credit facilities borrowings	—			(6,310		)	(958		)	—			(7,268		)
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	—			5			—			—			5
Other financing activities	(374		)	(297		)	46			(220		)	(845		)
Intercompany advances, net	979			(1,187		)	208			—			—
Net Cash Provided By (Used In) Financing Activities	738			(1,478		)	121			(220		)	(839		)
Net increase (decrease) in cash and cash equivalents	738			—			(45		)	7			700
Cash and cash equivalents, beginning of period	228			—			59			—			287
Cash and cash equivalents, end of period	$	966		$	—		$	14		$	7		$	987

___________________________________________

(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. As of December 31, 2012 and September 30, 2013, $228 million and $966 million, respectively, were incorrectly presented in the Guarantor Subsidiaries column. The impact of this error was not material to any previously issued financial statements.