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, contingent convertible senior notes, term loan and revolving credit facility listed in Note 3 are fully and unconditionally guaranteed, jointly and severally, by certain of our 100% owned subsidiaries. Subsidiaries with noncontrolling interests, consolidated variable interest entities and certain de minimis subsidiaries are non-guarantors.

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, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017. 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, 2018

($ in millions)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	5		$	1	$	2	$	(5	)	$	3
Other current assets	63			1,173		1		—			1,237
Intercompany receivable, net	8,132			31		175		(8,338		)	—
Total Current Assets	8,200			1,205		178		(8,343		)	1,240
PROPERTY AND EQUIPMENT:
Oil and natural gas properties at cost, based on full cost accounting, net	521			9,129		25		—			9,675
Other property and equipment, net	—			1,164		—		—			1,164
Property and equipment held for sale, net	—			11		—		—			11
Total Property and Equipment, Net	521			10,304		25		—			10,850
LONG-TERM ASSETS:
Other long-term assets	44			207		—		—			251
Investments in subsidiaries and intercompany advances	907			78		—		(985		)	—
TOTAL ASSETS	$	9,672		$	11,794	$	203	$	(9,328	)	$	12,341

CURRENT LIABILITIES:
Current liabilities	$	561		$	2,315	$	2	$	(5	)	$	2,873
Intercompany payable, net	32			8,306		—		(8,338		)	—
Total Current Liabilities	593			10,621		2		(8,343		)	2,873
LONG-TERM LIABILITIES:
Long-term debt, net	9,238			—		—		—			9,238
Other long-term liabilities	81			266		—		—			347
Total Long-Term Liabilities	9,319			266		—		—			9,585
EQUITY:
Chesapeake stockholders’ equity (deficit)	(240		)	907		78		(985		)	(240		)
Noncontrolling interests	—			—		123		—			123
Total Equity (Deficit)	(240		)	907		201		(985		)	(117		)
TOTAL LIABILITIES AND EQUITY	$	9,672		$	11,794	$	203	$	(9,328	)	$	12,341

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2017

($ in millions)



	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	5		$	1		$	2		$	(3	)	$	5
Other current assets	154			1,364			3			(1		)	1,520
Intercompany receivable, net	8,697			436			—			(9,133		)	—
Total Current Assets	8,856			1,801			5			(9,137		)	1,525
PROPERTY AND EQUIPMENT:
Oil and natural gas properties at cost, based on full cost accounting, net	435			8,888			27			—			9,350
Other property and equipment, net	—			1,314			—			—			1,314
Property and equipment held for sale, net	—			16			—			—			16
Total Property and Equipment, Net	435			10,218			27			—			10,680
LONG-TERM ASSETS:
Other long-term assets	52			168			—			—			220
Investments in subsidiaries and intercompany advances	806			(146		)	—			(660		)	—
TOTAL ASSETS	$	10,149		$	12,041		$	32		$	(9,797	)	$	12,425

CURRENT LIABILITIES:
Current liabilities	$	190		$	2,168		$	2		$	(4	)	$	2,356
Intercompany payable, net	433			8,648			52			(9,133		)	—
Total Current Liabilities	623			10,816			54			(9,137		)	2,356
LONG-TERM LIABILITIES:
Long-term debt, net	9,921			—			—			—			9,921
Other long-term liabilities	101			419			—			—			520
Total Long-Term Liabilities	10,022			419			—			—			10,441
EQUITY:
Chesapeake stockholders’ equity (deficit)	(496		)	806			(146		)	(660		)	(496		)
Noncontrolling interests	—			—			124			—			124
Total Equity (Deficit)	(496		)	806			(22		)	(660		)	(372		)
TOTAL LIABILITIES AND EQUITY	$	10,149		$	12,041		$	32		$	(9,797	)	$	12,425

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	978		$	4		$	—		$	982
Marketing	—			1,273			—			—			1,273
Total Revenues	—			2,251			4			—			2,255
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			138			—			—			138
Oil, natural gas and NGL gathering, processing and transportation	—			338			2			—			340
Production taxes	—			26			—			—			26
Marketing	—			1,292			—			—			1,292
General and administrative	—			90			1			—			91
Provision for legal contingencies, net	—			4			—			—			4
Oil, natural gas and NGL depreciation, depletion and amortization	—			270			1			—			271
Depreciation and amortization of other assets	—			19			—			—			19
Impairments	—			46			—			—			46
Other operating income	—			(1		)	—			—			(1		)
Net gains on sales of fixed assets	—			(1		)	—			—			(1		)
Total Operating Expenses	—			2,221			4			—			2,225
INCOME FROM OPERATIONS	—			30			—			—			30
OTHER INCOME (EXPENSE):
Interest expense	(117		)	—			—			—			(117		)
Other income	—			62			—			—			62
Equity in net earnings (losses) of subsidiary	91			(1		)	—			(90		)	—
Total Other Income (Expense)	(26		)	61			—			(90		)	(55		)
INCOME (LOSS) BEFORE INCOME TAXES	(26		)	91			—			(90		)	(25		)
INCOME TAX BENEFIT	(9		)	—			—			—			(9		)
NET INCOME (LOSS)	(17		)	91			—			(90		)	(16		)
Net income attributable to noncontrolling interests	—			—			(1		)	—			(1		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(17		)	91			(1		)	(90		)	(17		)
Other comprehensive income	—			7			—			—			7
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	(17	)	$	98		$	(1	)	$	(90	)	$	(10	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2017

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	1,273		$	6		$	—		$	1,279
Marketing	—			1,002			—			—			1,002
Total Revenues	—			2,275			6			—			2,281
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			140			—			—			140
Oil, natural gas and NGL gathering, processing and transportation	—			355			2			—			357
Production taxes	—			21			—			—			21
Marketing	—			1,027			—			—			1,027
General and administrative	3			67			—			—			70
Provision for legal contingencies, net	—			17			—			—			17
Oil, natural gas and NGL depreciation, depletion and amortization	—			202			—			—			202
Depreciation and amortization of other assets	—			21			—			—			21
Net losses on sales of fixed assets	—			1			—			—			1
Other operating expense	—			26			—			—			26
Total Operating Expenses	3			1,877			2			—			1,882
INCOME (LOSS) FROM OPERATIONS	(3		)	398			4			—			399
OTHER INCOME (EXPENSE):
Interest income (expense)	(95		)	2			—			—			(93		)
Gains on purchases or exchanges of debt	191			—			—			—			191
Other expense	—			(1		)	—			—			(1		)
Equity in net earnings of subsidiary	402			3			—			(405		)	—
Total Other Income	498			4			—			(405		)	97
INCOME BEFORE INCOME TAXES	495			402			4			(405		)	496
INCOME TAX EXPENSE	1			—			—			—			1
NET INCOME	494			402			4			(405		)	495
Net income attributable to noncontrolling interests	—			—			(1		)	—			(1		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	494			402			3			(405		)	494
Other comprehensive income	—			7			—			—			7
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	494		$	409		$	3		$	(405	)	$	501

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	2,216		$	9		$	—		$	2,225
Marketing	—			2,519			—			—			2,519
Total Revenues	—			4,735			9			—			4,744
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			285			—			—			285
Oil, natural gas and NGL gathering, processing and transportation	—			693			3			—			696
Production taxes	—			57			—			—			57
Marketing	—			2,560			—			—			2,560
General and administrative	—			162			1			—			163
Restructuring and other termination costs	—			38			—			—			38
Provision for legal contingencies, net	—			9			—			—			9
Oil, natural gas and NGL depreciation, depletion and amortization	—			537			2			—			539
Depreciation and amortization of other assets	—			37			—			—			37
Impairments	—			46			—			—			46
Other operating income	—			(1		)	—			—			(1		)
Net losses on sales of fixed assets	—			7			—			—			7
Total Operating Expenses	—			4,430			6			—			4,436
INCOME FROM OPERATIONS	—			305			3			—			308
OTHER INCOME (EXPENSE):
Interest expense	(240		)	—			—			—			(240		)
Gains on investments	—			139			—			—			139
Other income	—			62			—			—			62
Equity in net earnings (losses) of subsidiary	507			1			—			(508		)	—
Total Other Income (Expense)	267			202			—			(508		)	(39		)
INCOME BEFORE INCOME TAXES	267			507			3			(508		)	269
INCOME TAX BENEFIT	(9		)	—			—			—			(9		)
NET INCOME	276			507			3			(508		)	278
Net income attributable to noncontrolling interests	—			—			(2		)	—			(2		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	276			507			1			(508		)	276
Other comprehensive income	—			17			—			—			17
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	276		$	524		$	1		$	(508	)	$	293

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2017

($ in millions)



	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	2,736	$	12		$	—		$	2,748
Marketing	—			2,286		—			—			2,286
Total Revenues	—			5,022		12			—			5,034
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			275		—			—			275
Oil, natural gas and NGL gathering, processing and transportation	—			708		4			—			712
Production taxes	—			43		—			—			43
Marketing	—			2,355		—			—			2,355
General and administrative	3			131		1			—			135
Provision for legal contingencies, net	—			15		—			—			15
Oil, natural gas and NGL depreciation, depletion and amortization	—			397		2			—			399
Depreciation and amortization of other assets	—			42		—			—			42
Other operating expense	—			417		—			—			417
Net losses on sales of fixed assets	—			1		—			—			1
Total Operating Expenses	3			4,384		7			—			4,394
INCOME (LOSS) FROM OPERATIONS	(3		)	638		5			—			640
OTHER INCOME (EXPENSE):
Interest expense	(190		)	2		—			—			(188		)
Gains on purchases or exchanges of debt	184			—		—			—			184
Other income	—			2		—			—			2
Equity in net earnings of subsidiary	645			3		—			(648		)	—
Total Other Income (Expense)	639			7		—			(648		)	(2		)
INCOME BEFORE INCOME TAXES	636			645		5			(648		)	638
INCOME TAX EXPENSE	2			—		—			—			2
NET INCOME	634			645		5			(648		)	636
Net income attributable to noncontrolling interests	—			—		(2		)	—			(2		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	634			645		3			(648		)	634
Other comprehensive income	—			21		—			—			21
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	634		$	666	$	3		$	(648	)	$	655

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By Operating Activities	$	88		$	1,006		$	5		$	(8	)	$	1,091

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(979		)	—			—			(979		)
Acquisitions of proved and unproved properties	—			(191		)	—			—			(191		)
Proceeds from divestitures of proved and unproved properties	—			384			—			—			384
Additions to other property and equipment	—			(5		)	—			—			(5		)
Other investing activities	—			148			—			—			148
Net Cash Used In Investing Activities	—			(643		)	—			—			(643		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings	6,118			—			—			—			6,118
Payments on revolving credit facility borrowings	(6,393		)	—			—			—			(6,393		)
Cash paid for preferred stock dividends	(46		)	—			—			—			(46		)
Other financing activities	(2		)	(126		)	(7		)	6			(129		)
Intercompany advances, net	235			(237		)	2			—			—
Net Cash Used In Financing Activities	(88		)	(363		)	(5		)	6			(450		)
Net decrease in cash and cash equivalents	—			—			—			(2		)	(2		)
Cash and cash equivalents, beginning of period	5			1			2			(3		)	5
Cash and cash equivalents, end of period	$	5		$	1		$	2		$	(5	)	$	3

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2017

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By (Used In) Operating Activities	$	2		$	(64	)	$	8		$	(4	)	$	(58	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(1,031		)	—			—			(1,031		)
Acquisitions of proved and unproved properties	—			(162		)	—			—			(162		)
Proceeds from divestitures of proved and unproved properties	—			951			—			—			951
Additions to other property and equipment	—			(7		)	—			—			(7		)
Other investing activities	—			26			—			—			26
Net Cash Used In Investing Activities	—			(223		)	—			—			(223		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings	2,551			—			—			—			2,551
Payments on revolving credit facility borrowings	(1,976		)	—			—			—			(1,976		)
Proceeds from issuance of senior notes, net	742			—			—			—			742
Cash paid to purchase debt	(1,746		)	—			—			—			(1,746		)
Cash paid for preferred stock dividends	(137		)	—			—			—			(137		)
Other financing activities	(38		)	(2		)	(7		)	25			(22		)
Intercompany advances, net	(287		)	288			(1		)	—			—
Net Cash Provided by (Used In) Financing Activities	(891		)	286			(8		)	25			(588		)
Net increase (decrease) in cash and cash equivalents	(889		)	(1		)	—			21			(869		)
Cash and cash equivalents, beginning of period	904			2			1			(25		)	882
Cash and cash equivalents, end of period	$	15		$	1		$	1		$	(4	)	$	13