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 September 30, 2015 and December 31, 2014 and for the three and nine months ended September 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 SEPTEMBER 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	1,849		$	12		$	1	$	(103	)	$	1,759
Restricted cash	—			—			—		—			—
Other	69			1,736			15		—			1,820
Intercompany receivable, net	24,909			—			457		(25,366		)	—
Total Current Assets	26,827			1,748			473		(25,469		)	3,579
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, at cost based on full cost accounting, net	—			13,503			98		1,125			14,726
Other property and equipment, net	—			2,139			—		—			2,139
Property and equipment held for sale, net	—			94			—		—			94
Total Property and Equipment, Net	—			15,736			98		1,125			16,959
LONG-TERM ASSETS:
Other assets	112			626			10		—			748
Investments in subsidiaries and intercompany advances	(10,358		)	788			—		9,570			—
TOTAL ASSETS	$	16,581		$	18,898		$	581	$	(14,774	)	$	21,286

CURRENT LIABILITIES:
Current liabilities	$	1,529		$	3,118		$	13	$	(103	)	$	4,557
Intercompany payable, net	—			24,788			—		(24,788		)	—
Total Current Liabilities	1,529			27,906			13		(24,891		)	4,557
LONG-TERM LIABILITIES:
Long-term debt, net	10,674			—			—		—			10,674
Deferred income tax liabilities	(5		)	516			32		31			574
Other long-term liabilities	101			834			—		—			935
Total Long-Term Liabilities	10,770			1,350			32		31			12,183
EQUITY:
Chesapeake stockholders’ equity	4,282			(10,358		)	536		9,822			4,282
Noncontrolling interests	—			—			—		264			264
Total Equity	4,282			(10,358		)	536		10,086			4,546
TOTAL LIABILITIES AND EQUITY	$	16,581		$	18,898		$	581	$	(14,774	)	$	21,286

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 SEPTEMBER 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	855		$	25		$	—		$	880
Marketing, gathering and compression	—			2,013			—			—			2,013
Total Revenues	—			2,868			25			—			2,893
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			245			6			—			251
Production taxes	—			25			—			—			25
Marketing, gathering and compression	—			1,955			—			—			1,955
General and administrative	1			47			1			—			49
Restructuring and other termination costs	—			53			—			—			53
Oil, natural gas and NGL depreciation, depletion and amortization	—			478			11			(1		)	488
Depreciation and amortization of other assets	—			31			—			—			31
Impairment of oil and natural gas properties	—			5,412			37			(33		)	5,416
Impairments of fixed assets and other	—			79			—			—			79
Net gains on sales of fixed assets	—			(1		)	—			—			(1		)
Total Operating Expenses	1			8,324			55			(34		)	8,346
LOSS FROM OPERATIONS	(1		)	(5,456		)	(30		)	34			(5,453		)
OTHER INCOME (EXPENSE):
Interest expense	(182		)	(58		)	—			152			(88		)
Losses on investments	—			(33		)	—			—			(33		)
Other income (expense)	140			(113		)	—			(29		)	(2		)
Equity in net earnings (losses) of subsidiary	(4,594		)	(50		)	—			4,644			—
Total Other Expense	(4,636		)	(254		)	—			4,767			(123		)
LOSS BEFORE INCOME TAXES	(4,637		)	(5,710		)	(30		)	4,801			(5,576		)
INCOME TAX BENEFIT (EXPENSE)	15			(985		)	7			26			(937		)
NET LOSS	(4,652		)	(4,725		)	(37		)	4,775			(4,639		)
Net income attributable to noncontrolling interests	—			—			—			(13		)	(13		)
NET LOSS ATTRIBUTABLE TO CHESAPEAKE	(4,652		)	(4,725		)	(37		)	4,762			(4,652		)
Other comprehensive income	8			4			—			—			12
COMPREHENSIVE LOSS ATTRIBUTABLE TO CHESAPEAKE	$	(4,644	)	$	(4,721	)	$	(37	)	$	4,762		$	(4,640	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	2,223		$	118		$	—		$	2,341
Marketing, gathering and compression	—			3,361			1			—			3,362
Total Revenues	—			5,584			119			—			5,703
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			289			9			—			298
Production taxes	—			61			1			—			62
Marketing, gathering and compression	—			3,368			1			—			3,369
General and administrative	—			59			1			—			60
Restructuring and other termination costs	—			(14		)	—			—			(14		)
Provision for legal contingencies	—			100			—			—			100
Oil, natural gas and NGL depreciation, depletion and amortization	—			662			44			(18		)	688
Depreciation and amortization of other assets	—			37			—			—			37
Impairment of oil and natural gas properties	—			—			104			(104		)	—
Impairments of fixed assets and other	—			15			—			—			15
Net gains on sales of fixed assets	—			(86		)	—			—			(86		)
Total Operating Expenses	—			4,491			160			(122		)	4,529
INCOME (LOSS) FROM OPERATIONS	—			1,093			(41		)	122			1,174
OTHER INCOME (EXPENSE):
Interest expense	(178		)	(11		)	—			172			(17		)
Losses on investments	—			(27		)	—			—			(27		)
Other income	56			119			(4		)	(172		)	(1		)
Equity in net earnings (losses) of subsidiary	737			(58		)	—			(679		)	—
Total Other Income (Expense)	615			23			(4		)	(679		)	(45		)
INCOME BEFORE INCOME TAXES	615			1,116			(45		)	(557		)	1,129
INCOME TAX EXPENSE (BENEFIT)	(47		)	454			(17		)	47			437
NET INCOME (LOSS)	662			662			(28		)	(604		)	692
Net income attributable to noncontrolling interests	—			—			—			(30		)	(30		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	662			662			(28		)	(634		)	662
Other comprehensive income (loss)	—			3			—			—			3
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	662		$	665		$	(28	)	$	(634	)	$	665

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	2,583		$	110		$	—		$	2,693
Marketing, gathering and compression	—			5,993			—			—			5,993
Total Revenues	—			8,576			110			—			8,686
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			799			27			—			826
Production taxes	—			85			2			—			87
Marketing, gathering and compression	—			5,750			1			—			5,751
General and administrative	3			168			3			—			174
Restructuring and other termination costs	—			39			—			—			39
Provision for legal contingencies	339			20			—			—			359
Oil, natural gas and NGL depreciation, depletion and amortization	—			1,727			66			(20		)	1,773
Depreciation and amortization of other assets	—			100			—			—			100
Impairment of oil and natural gas properties	—			15,395			443			(431		)	15,407
Impairments of fixed assets and other	—			167			—			—			167
Net losses on sales of fixed assets	—			3			—			—			3
Total Operating Expenses	342			24,253			542			(451		)	24,686
LOSS FROM OPERATIONS	(342		)	(15,677		)	(432		)	451			(16,000		)
OTHER INCOME (EXPENSE):
Interest expense	(532		)	(133		)	—			455			(210		)
Losses on investments	—			(57		)	—			—			(57		)
Other income	100			5			—			(102		)	3
Equity in net earnings (losses) of subsidiary	(11,908		)	(381		)	—			12,289			—
Total Other Expense	(12,340		)	(566		)	—			12,642			(264		)
LOSS BEFORE INCOME TAXES	(12,682		)	(16,243		)	(432		)	13,093			(16,264		)
INCOME TAX BENEFIT	(182		)	(3,720		)	(101		)	189			(3,814		)
NET LOSS	(12,500		)	(12,523		)	(331		)	12,904			(12,450		)
Net income attributable to noncontrolling interests	—			—			—			(50		)	(50		)
NET LOSS ATTRIBUTABLE TO CHESAPEAKE	(12,500		)	(12,523		)	(331		)	12,854			(12,500		)
Other comprehensive income (loss)	6			18			—			—			24
COMPREHENSIVE LOSS ATTRIBUTABLE TO CHESAPEAKE	$	(12,494	)	$	(12,505	)	$	(331	)	$	12,854		$	(12,476	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	5,505		$	310		$	(3	)	$	5,812
Marketing, gathering and compression	—			9,539			4			—			9,543
Oilfield services	—			41			983			(478		)	546
Total Revenues	—			15,085			1,297			(481		)	15,901
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			837			31			—			868
Production taxes	—			181			4			—			185
Marketing, gathering and compression	—			9,512			3			—			9,515
Oilfield services	—			53			769			(391		)	431
General and administrative	—			182			47			—			229
Restructuring and other termination costs	—			9			3			—			12
Provision for legal contingencies	—			100			—			—			100
Oil, natural gas and NGL depreciation, depletion and amortization	—			1,910			124			(57		)	1,977
Depreciation and amortization of other assets	—			116			142			(64		)	194
Impairment of oil and natural gas 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	—			12,758			1,341			(714		)	13,385
INCOME (LOSS) FROM OPERATIONS	—			2,327			(44		)	233			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 (expense)	535			3			(2		)	(524		)	12
Equity in net earnings (losses) of subsidiary	1,391			(167		)	—			(1,224		)	—
Total Other Income (Expense)	1,207			(180		)	(49		)	(1,248		)	(270		)
INCOME (LOSS) BEFORE INCOME TAXES	1,207			2,147			(93		)	(1,015		)	2,246
INCOME TAX EXPENSE (BENEFIT)	(70		)	884			(36		)	81			859
NET INCOME (LOSS)	1,277			1,263			(57		)	(1,096		)	1,387
Net income attributable to noncontrolling interests	—			—			—			(110		)	(110		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	1,277			1,263			(57		)	(1,206		)	1,277
Other comprehensive income	3			8			—			—			11
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	1,280		$	1,271		$	(57	)	$	(1,206	)	$	1,288

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2015

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By Operating Activities	$	—		$	950		$	105		$	—		$	1,055
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(2,633		)	(63		)	—			(2,696		)
Acquisitions of proved and unproved properties	—			(407		)	—			—			(407		)
Proceeds from divestitures of proved and unproved properties	—			151			37			—			188
Additions to other property and equipment	—			(118		)	4			—			(114		)
Other investing activities	—			60			52			12			124
Net Cash Used In Investing Activities	—			(2,947		)	30			12			(2,905		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid to repurchase noncontrolling interest of CHK C-T	—			—			(143		)	—			(143		)
Other financing activities	(631		)	387			(75		)	(37		)	(356		)
Intercompany advances, net	(1,620		)	1,620			—			—			—
Net Cash Used In Financing Activities	(2,251		)	2,007			(218		)	(37		)	(499		)
Net decrease in cash and cash equivalents	(2,251		)	10			(83		)	(25		)	(2,349		)
Cash and cash equivalents, beginning of period	4,100			2			84			(78		)	4,108
Cash and cash equivalents, end of period	$	1,849		$	12		$	1		$	(103	)	$	1,759

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:
Net Cash Provided By Operating Activities	$	—		$	3,423		$	382		$	—		$	3,805
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(3,090		)	(95		)	—			(3,185		)
Acquisitions of proved and unproved properties	—			(1,020		)	(3		)	—			(1,023		)
Proceeds from divestitures of proved and unproved properties	—			722			1			—			723
Additions to other property and equipment	—			(424		)	(251		)	—			(675		)
Other investing activities	—			1,162			60			—			1,222
Net Cash Used In Investing Activities	—			(2,650		)	(288		)	—			(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		)	(1,352		)	(127		)	(11		)	(1,783		)
Intercompany advances, net	(99		)	520			(421		)	—			—
Net Cash Used In Financing Activities	(788		)	(773		)	(42		)	(11		)	(1,614		)
Net decrease in cash and cash equivalents	(788		)	—			52			(11		)	(747		)
Cash and cash equivalents, beginning of period	799			—			38			—			837
Cash and cash equivalents, end of period	$	11		$	—		$	90		$	(11	)	$	90