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 3 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.

The tables 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 June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014. This 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 JUNE 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	2,148		$	1		$	30	$	(128	)	$	2,051
Restricted cash	—			—			38		—			38
Other	78			2,013			51		—			2,142
Intercompany receivable, net	24,917			—			365		(25,282		)	—
Total Current Assets	27,143			2,014			484		(25,410		)	4,231
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, at cost based on full cost accounting, net	—			19,478			716		1,090			21,284
Other property and equipment, net	—			2,237			1		—			2,238
Property and equipment held for sale, net	—			93			—		—			93
Total Property and Equipment, Net	—			21,808			717		1,090			23,615
LONG-TERM ASSETS:
Other assets	121			614			27		(10		)	752
Investments in subsidiaries and intercompany advances	(5,967		)	188			—		5,779			—
TOTAL ASSETS	$	21,297		$	24,624		$	1,228	$	(18,551	)	$	28,598

CURRENT LIABILITIES:
Current liabilities	$	1,547		$	3,653		$	56	$	(128	)	$	5,128
Intercompany payable, net	—			24,785			—		(24,785		)	—
Total Current Liabilities	1,547			28,438			56		(24,913		)	5,128
LONG-TERM LIABILITIES:
Long-term debt, net	10,655			—			—		—			10,655
Deferred income tax liabilities	—			1,263			78		67			1,408
Other long-term liabilities	137			890			137		—			1,164
Total Long-Term Liabilities	10,792			2,153			215		67			13,227
EQUITY:
Chesapeake stockholders’ equity	8,958			(5,967		)	957		5,010			8,958
Noncontrolling interests	—			—			—		1,285			1,285
Total Equity	8,958			(5,967		)	957		6,295			10,243
TOTAL LIABILITIES AND EQUITY	$	21,297		$	24,624		$	1,228	$	(18,551	)	$	28,598

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2014

($ in millions)



	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	4,100	$	2	$	84	$	(78	)	$	4,108
Restricted cash	—		—		38		—			38
Other	55		3,174		93		—			3,322
Intercompany receivable, net	24,527		—		341		(24,868		)	—
Total Current Assets	28,682		3,176		556		(24,946		)	7,468
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, at cost based on full cost accounting, net	—		28,358		1,112		673			30,143
Other property and equipment, net	—		2,276		3		—			2,279
Property and equipment held for sale, net	—		93		—		—			93
Total Property and Equipment, Net	—		30,727		1,115		673			32,515
LONG-TERM ASSETS:
Other assets	153		618		26		(29		)	768
Investments in subsidiaries and intercompany advances	126		467		—		(593		)	—
TOTAL ASSETS	$	28,961	$	34,988	$	1,697	$	(24,895	)	$	40,751

CURRENT LIABILITIES:
Current liabilities	$	792	$	5,081	$	68	$	(78	)	$	5,863
Intercompany payable, net	—		24,940		—		(24,940		)	—
Total Current Liabilities	792		30,021		68		(25,018		)	5,863
LONG-TERM LIABILITIES:
Long-term debt, net	11,154		—		—		—			11,154
Deferred income tax liabilities	—		3,751		234		200			4,185
Other long-term liabilities	112		1,090		142		—			1,344
Total Long-Term Liabilities	11,266		4,841		376		200			16,683
EQUITY:
Chesapeake stockholders’ equity	16,903		126		1,253		(1,379		)	16,903
Noncontrolling interests	—		—		—		1,302			1,302
Total Equity	16,903		126		1,253		(77		)	18,205
TOTAL LIABILITIES AND EQUITY	$	28,961	$	34,988	$	1,697	$	(24,895	)	$	40,751

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	693		$	35		$	—		$	728
Marketing, gathering and compression	—			2,305			—			—			2,305
Total Revenues	—			2,998			35			—			3,033
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			267			9			—			276
Production taxes	—			33			1			—			34
Marketing, gathering and compression	—			2,096			—			—			2,096
General and administrative	—			67			2			—			69
Restructuring and other termination costs	—			(4		)	—			—			(4		)
Provision for legal contingencies	339			(5		)	—			—			334
Oil, natural gas and NGL depreciation, depletion and amortization	—			586			23			(8		)	601
Depreciation and amortization of other assets	—			34			—			—			34
Impairment of oil and natural gas properties	—			5,012			186			(183		)	5,015
Impairments of fixed assets and other	—			84			—			—			84
Net losses on sales of fixed assets	—			1			—			—			1
Total Operating Expenses	339			8,171			221			(191		)	8,540
LOSS FROM OPERATIONS	(339		)	(5,173		)	(186		)	191			(5,507		)
OTHER INCOME (EXPENSE):
Interest expense	(180		)	(37		)	—			146			(71		)
Losses on investments	—			(17		)	—			—			(17		)
Other income (expense)	81			(7		)	—			(75		)	(1		)
Equity in net earnings (losses) of subsidiary	(3,792		)	(154		)	—			3,946			—
Total Other Expense	(3,891		)	(215		)	—			4,017			(89		)
LOSS BEFORE INCOME TAXES	(4,230		)	(5,388		)	(186		)	4,208			(5,596		)
INCOME TAX BENEFIT	(122		)	(1,404		)	(50		)	70			(1,506		)
NET LOSS	(4,108		)	(3,984		)	(136		)	4,138			(4,090		)
Net income attributable to noncontrolling interests	—			—			—			(18		)	(18		)
NET LOSS ATTRIBUTABLE TO CHESAPEAKE	(4,108		)	(3,984		)	(136		)	4,120			(4,108		)
Other comprehensive income	—			3			—			—			3
COMPREHENSIVE LOSS ATTRIBUTABLE TO CHESAPEAKE	$	(4,108	)	$	(3,981	)	$	(136	)	$	4,120		$	(4,105	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	1,618		$	88		$	(2	)	$	1,704
Marketing, gathering and compression	—			3,166			1			—			3,167
Oilfield services	—			23			499			(241		)	281
Total Revenues	—			4,807			588			(243		)	5,152
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			272			10			—			282
Production taxes	—			70			2			—			72
Marketing, gathering and compression	—			3,166			—			—			3,166
Oilfield services	—			22			375			(185		)	212
General and administrative	—			68			22			—			90
Restructuring and other termination costs	—			30			3			—			33
Oil, natural gas and NGL depreciation, depletion and amortization	—			615			36			10			661
Depreciation and amortization of other assets	—			38			71			(30		)	79
Impairment of oil and natural gas properties	—			—			38			(38		)	—
Impairments of fixed assets and other	—			37			3			—			40
Net losses on sales of fixed assets	—			(85		)	(8		)	—			(93		)
Total Operating Expenses	—			4,233			552			(243		)	4,542
INCOME FROM OPERATIONS	—			574			36			—			610
OTHER INCOME (EXPENSE):
Interest expense	(156		)	(3		)	(20		)	152			(27		)
Losses on investments	—			(19		)	(5		)	—			(24		)
Losses on purchases of debt	(195		)	—			—			—			(195		)
Other income	136			29			—			(158		)	7
Equity in net earnings (losses) of subsidiary	324			(32		)	—			(292		)	—
Total Other Income (Expense)	109			(25		)	(25		)	(298		)	(239		)
INCOME BEFORE INCOME TAXES	109			549			11			(298		)	371
INCOME TAX EXPENSE (BENEFIT)	(82		)	221			4			(2		)	141
NET INCOME	191			328			7			(296		)	230
Net income attributable to noncontrolling interests	—			—			—			(39		)	(39		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	191			328			7			(335		)	191
Other comprehensive income (loss)	1			(2		)	—			—			(1		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	192		$	326		$	7		$	(335	)	$	190

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	1,729		$	84		$	—		$	1,813
Marketing, gathering and compression	—			3,980			—			—			3,980
Total Revenues	—			5,709			84			—			5,793
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			554			21			—			575
Production taxes	—			60			2			—			62
Marketing, gathering and compression	—			3,796			—			—			3,796
General and administrative	1			121			3			—			125
Restructuring and other termination costs	—			(14		)	—			—			(14		)
Provision for legal contingencies	339			20			—			—			359
Oil, natural gas and NGL depreciation, depletion and amortization	—			1,249			55			(19		)	1,285
Depreciation and amortization of other assets	—			69			—			—			69
Impairment of oil and natural gas properties	—			9,983			406			(398		)	9,991
Impairments of fixed assets and other	—			88			—			—			88
Net losses on sales of fixed assets	—			4			—			—			4
Total Operating Expenses	340			15,930			487			(417		)	16,340
LOSS FROM OPERATIONS	(340		)	(10,221		)	(403		)	417			(10,547		)
OTHER INCOME (EXPENSE):
Interest expense	(351		)	(74		)	—			303			(122		)
Losses on investments	—			(24		)	—			—			(24		)
Other income (expense)	(39		)	7			—			37			5
Equity in net earnings (losses) of subsidiary	(7,314		)	(333		)	—			7,647			—
Total Other Expense	(7,704		)	(424		)	—			7,987			(141		)
LOSS BEFORE INCOME TAXES	(8,044		)	(10,645		)	(403		)	8,404			(10,688		)
INCOME TAX BENEFIT	(197		)	(2,778		)	(107		)	204			(2,878		)
NET LOSS	(7,847		)	(7,867		)	(296		)	8,200			(7,810		)
Net income attributable to noncontrolling interests	—			—			—			(37		)	(37		)
NET LOSS ATTRIBUTABLE TO CHESAPEAKE	(7,847		)	(7,867		)	(296		)	8,163			(7,847		)
Other comprehensive income (loss)	(2		)	14			—			—			12
COMPREHENSIVE LOSS ATTRIBUTABLE TO CHESAPEAKE	$	(7,849	)	$	(7,853	)	$	(296	)	$	8,163		$	(7,835	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	3,282		$	192		$	(3	)	$	3,471
Marketing, gathering and compression	—			6,180			2			—			6,182
Oilfield services	—			40			983			(478		)	545
Total Revenues	—			9,502			1,177			(481		)	10,198
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			549			21			—			570
Production taxes	—			119			3			—			122
Marketing, gathering and compression	—			6,145			2			—			6,147
Oilfield services	—			54			769			(392		)	431
General and administrative	—			124			45			—			169
Restructuring and other termination costs	—			23			3			—			26
Oil, natural gas and NGL depreciation, depletion and amortization	—			1,201			79			8			1,288
Depreciation and amortization of other assets	—			78			143			(64		)	157
Impairment of oil and natural gas properties	—			—			98			(98		)	—
Impairments of fixed assets and other	—			37			23			—			60
Net gains on sales of fixed assets	—			(109		)	(6		)	—			(115		)
Total Operating Expenses	—			8,221			1,180			(546		)	8,855
INCOME (LOSS) FROM OPERATIONS	—			1,281			(3		)	65			1,343
OTHER INCOME (EXPENSE):
Interest expense	(347		)	(3		)	(42		)	326			(66		)
Losses on investments	—			(42		)	(5		)	2			(45		)
Net gain on sales of investments	—			67			—			—			67
Losses on purchases of debt	(195		)	—			—			—			(195		)
Other income (expense)	479			(114		)	1			(353		)	13
Equity in net earnings (losses) of subsidiary	655			(111		)	—			(544		)	—
Total Other Income (Expense)	592			(203		)	(46		)	(569		)	(226		)
INCOME (LOSS) BEFORE INCOME TAXES	592			1,078			(49		)	(504		)	1,117
INCOME TAX EXPENSE (BENEFIT)	(24		)	448			(18		)	15			421
NET INCOME (LOSS)	616			630			(31		)	(519		)	696
Net income attributable to noncontrolling interests	—			—			—			(80		)	(80		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	616			630			(31		)	(599		)	616
Other comprehensive income	3			5			—			—			8
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	619		$	635		$	(31	)	$	(599	)	$	624

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By Operating Activities	$	—		$	638		$	99		$	—		$	737
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(2,077		)	(91		)	—			(2,168		)
Acquisitions of proved and unproved properties	—			(266		)	—			—			(266		)
Proceeds from divestitures of proved and unproved properties	—			14			—			—			14
Additions to other property and equipment	—			(93		)	—			—			(93		)
Other investing activities	—			(2		)	3			—			1
Net Cash Used In Investing Activities	—			(2,424		)	(88		)	—			(2,512		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Other financing activities	(565		)	398			(65		)	(50		)	(282		)
Intercompany advances, net	(1,387		)	1,387			—			—			—
Net Cash Used In Financing Activities	(1,952		)	1,785			(65		)	(50		)	(282		)
Net decrease in cash and cash equivalents	(1,952		)	(1		)	(54		)	(50		)	(2,057		)
Cash and cash equivalents, beginning of period	4,100			2			84			(78		)	4,108
Cash and cash equivalents, end of period	$	2,148		$	1		$	30		$	(128	)	$	2,051

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By Operating Activities	$	—		$	2,337		$	306		$	—		$	2,643
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(1,946		)	(50		)	—			(1,996		)
Acquisitions of proved and unproved properties	—			(354		)	(2		)	—			(356		)
Proceeds from divestitures of proved and unproved properties	—			247			1			—			248
Additions to other property and equipment	—			(368		)	(252		)	—			(620		)
Other investing activities	—			877			60			7			944
Net Cash Used In Investing Activities	—			(1,544		)	(243		)	7			(1,780		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			140			717			—			857
Payments on credit facilities borrowings	—			(140		)	(1,099		)	—			(1,239		)
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	(193		)	(29		)	(94		)	(32		)	(348		)
Intercompany advances, net	1,186			(764		)	(422		)	—			—
Net Cash Provided By (Used In) Financing Activities	597			(793		)	(10		)	(32		)	(238		)
Net increase in cash and cash equivalents	597			—			53			(25		)	625
Cash and cash equivalents, beginning of period	799			—			38			—			837
Cash and cash equivalents, end of period	$	1,396		$	—		$	91		$	(25	)	$	1,462