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 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 September 30, 2018 and December 31, 2017 and for the three and nine months ended September 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 SEPTEMBER 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	6		$	1	$	1	$	(4	)	$	4
Other current assets	69			1,160		2		—			1,231
Intercompany receivable, net	8,003			29		176		(8,208		)	—
Total Current Assets	8,078			1,190		179		(8,212		)	1,235
PROPERTY AND EQUIPMENT:
Oil and natural gas properties at cost, based on full cost accounting, net	563			9,433		25		—			10,021
Other property and equipment, net	—			1,109		—		—			1,109
Property and equipment held for sale, net	—			47		—		—			47
Total Property and Equipment, Net	563			10,589		25		—			11,177
LONG-TERM ASSETS:
Other long-term assets	29			218		—		—			247
Investments in subsidiaries and intercompany advances	1,193			79		—		(1,272		)	—
TOTAL ASSETS	$	9,863		$	12,076	$	204	$	(9,484	)	$	12,659

CURRENT LIABILITIES:
Current liabilities	$	563		$	2,415	$	2	$	(4	)	$	2,976
Intercompany payable, net	29			8,179		—		(8,208		)	—
Total Current Liabilities	592			10,594		2		(8,212		)	2,976
LONG-TERM LIABILITIES:
Long-term debt, net	9,380			—		—		—			9,380
Other long-term liabilities	53			289		—		—			342
Total Long-Term Liabilities	9,433			289		—		—			9,722
EQUITY:
Chesapeake stockholders’ equity (deficit)	(162		)	1,193		79		(1,272		)	(162		)
Noncontrolling interests	—			—		123		—			123
Total Equity (Deficit)	(162		)	1,193		202		(1,272		)	(39		)
TOTAL LIABILITIES AND EQUITY	$	9,863		$	12,076	$	204	$	(9,484	)	$	12,659

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 SEPTEMBER 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	1,194		$	5		$	—		$	1,199
Marketing	—			1,219			—			—			1,219
Total Revenues	—			2,413			5			—			2,418
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			132			—			—			132
Oil, natural gas and NGL gathering, processing and transportation	—			362			2			—			364
Production taxes	—			33			1			—			34
Marketing	—			1,238			—			—			1,238
General and administrative	—			66			—			—			66
Provision for legal contingencies, net	—			8			—			—			8
Oil, natural gas and NGL depreciation, depletion and amortization	—			274			—			—			274
Depreciation and amortization of other assets	—			17			—			—			17
Impairments	—			5			—			—			5
Total Operating Expenses	—			2,135			3			—			2,138
INCOME FROM OPERATIONS	—			278			2			—			280
OTHER INCOME (EXPENSE):
Interest expense	(125		)	(2		)	—			—			(127		)
Losses on purchases or exchanges of debt	(68		)	—			—			—			(68		)
Other income	—			1			—			—			1
Equity in net earnings of subsidiary	278			1			—			(279		)	—
Total Other Income (Expense)	85			—			—			(279		)	(194		)
INCOME BEFORE INCOME TAXES	85			278			2			(279		)	86
INCOME TAX EXPENSE	1			—			—			—			1
NET INCOME	84			278			2			(279		)	85
Net income attributable to noncontrolling interests	—			—			(1		)	—			(1		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	84			278			1			(279		)	84
Other comprehensive income	—			8			—			—			8
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	84		$	286		$	1		$	(279	)	$	92

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2017

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	974		$	5		$	—		$	979
Marketing	—			964			—			—			964
Total Revenues	—			1,938			5			—			1,943
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			151			—			—			151
Oil, natural gas and NGL gathering, processing and transportation	—			367			2			—			369
Production taxes	—			20			1			—			21
Marketing	—			978			—			—			978
General and administrative	—			54			—			—			54
Provision for legal contingencies, net	—			20			—			—			20
Oil, natural gas and NGL depreciation, depletion and amortization	—			227			1			—			228
Depreciation and amortization of other assets	—			20			—			—			20
Impairments	—			3			—			—			3
Net gains on sales of fixed assets	—			(1		)	—			—			(1		)
Other operating expense	—			6			—			—			6
Total Operating Expenses	—			1,845			4			—			1,849
INCOME FROM OPERATIONS	—			93			1			—			94
OTHER INCOME (EXPENSE):
Interest expense	(110		)	(4		)	—			—			(114		)
Losses on purchases or exchanges of debt	(1		)	—			—			—			(1		)
Other income	1			3			—			—			4
Equity in net earnings of subsidiary	92			—			—			(92		)	—
Total Other Income (Expense)	(18		)	(1		)	—			(92		)	(111		)
INCOME (LOSS) BEFORE INCOME TAXES	(18		)	92			1			(92		)	(17		)
INCOME TAX EXPENSE	—			—			—			—			—
NET INCOME (LOSS)	(18		)	92			1			(92		)	(17		)
Net income attributable to noncontrolling interests	—			—			(1		)	—			(1		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(18		)	92			—			(92		)	(18		)
Other comprehensive income	—			8			—			—			8
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	(18	)	$	100		$	—		$	(92	)	$	(10	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	3,410		$	14		$	—		$	3,424
Marketing	—			3,738			—			—			3,738
Total Revenues	—			7,148			14			—			7,162
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			417			—			—			417
Oil, natural gas and NGL gathering, processing and transportation	—			1,055			5			—			1,060
Production taxes	—			90			1			—			91
Marketing	—			3,798			—			—			3,798
General and administrative	—			228			1			—			229
Restructuring and other termination costs	—			38			—			—			38
Provision for legal contingencies, net	—			17			—			—			17
Oil, natural gas and NGL depreciation, depletion and amortization	—			811			2			—			813
Depreciation and amortization of other assets	—			54			—			—			54
Impairments	—			51			—			—			51
Other operating income	—			(1		)	—			—			(1		)
Net losses on sales of fixed assets	—			7			—			—			7
Total Operating Expenses	—			6,565			9			—			6,574
INCOME FROM OPERATIONS	—			583			5			—			588
OTHER INCOME (EXPENSE):
Interest expense	(365		)	(2		)	—			—			(367		)
Gains on investments	—			139			—			—			139
Losses on exchanges or repurchases of debt	(68		)	—			—			—			(68		)
Other income	—			63			—			—			63
Equity in net earnings of subsidiary	785			2			—			(787		)	—
Total Other Income (Expense)	352			202			—			(787		)	(233		)
INCOME BEFORE INCOME TAXES	352			785			5			(787		)	355
INCOME TAX BENEFIT	(8		)	—			—			—			(8		)
NET INCOME	360			785			5			(787		)	363
Net income attributable to noncontrolling interests	—			—			(3		)	—			(3		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	360			785			2			(787		)	360
Other comprehensive income	—			25			—			—			25
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	360		$	810		$	2		$	(787	)	$	385

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2017

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	3,710		$	17		$	—		$	3,727
Marketing	—			3,250			—			—			3,250
Total Revenues	—			6,960			17			—			6,977
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			426			—			—			426
Oil, natural gas and NGL gathering, processing and transportation	—			1,075			6			—			1,081
Production taxes	—			63			1			—			64
Marketing	—			3,333			—			—			3,333
General and administrative	3			185			1			—			189
Provision for legal contingencies, net	—			35			—			—			35
Oil, natural gas and NGL depreciation, depletion and amortization	—			624			3			—			627
Depreciation and amortization of other assets	—			62			—			—			62
Impairments	—			3			—			—			3
Other operating expense	—			423			—			—			423
Total Operating Expenses	3			6,229			11			—			6,243
INCOME (LOSS) FROM OPERATIONS	(3		)	731			6			—			734
OTHER INCOME (EXPENSE):
Interest expense	(300		)	(2		)	—			—			(302		)
Gains on purchases or exchanges of debt	183			—			—			—			183
Other income	1			5			—			—			6
Equity in net earnings of subsidiary	737			3			—			(740		)	—
Total Other Income (Expense)	621			6			—			(740		)	(113		)
INCOME BEFORE INCOME TAXES	618			737			6			(740		)	621
INCOME TAX EXPENSE	2			—			—			—			2
NET INCOME	616			737			6			(740		)	619
Net income attributable to noncontrolling interests	—			—			(3		)	—			(3		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	616			737			3			(740		)	616
Other comprehensive income	—			29			—			—			29
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	616		$	766		$	3		$	(740	)	$	645

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2018

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By Operating Activities	$	86		$	1,512		$	7		$	(10	)	$	1,595

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(1,481		)	—			—			(1,481		)
Acquisitions of proved and unproved properties	—			(244		)	—			—			(244		)
Proceeds from divestitures of proved and unproved properties	—			395			—			—			395
Additions to other property and equipment	—			(11		)	—			—			(11		)
Other investing activities	—			149			—			—			149
Net Cash Used In Investing Activities	—			(1,192		)	—			—			(1,192		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings	9,095			—			—			—			9,095
Payments on revolving credit facility borrowings	(9,231		)	—			—			—			(9,231		)
Proceeds from issuance of senior notes, net	1,237			—			—			—			1,237
Cash paid to purchase debt	(1,285		)	—			—			—			(1,285		)
Cash paid for preferred stock dividends	(69		)	—			—			—			(69		)
Other financing activities	(2		)	(127		)	(9		)	(13		)	(151		)
Intercompany advances, net	170			(193		)	1			22			—
Net Cash Used In Financing Activities	(85		)	(320		)	(8		)	9			(404		)
Net increase (decrease) in cash and cash equivalents	1			—			(1		)	(1		)	(1		)
Cash and cash equivalents, beginning of period	5			1			2			(3		)	5
Cash and cash equivalents, end of period	$	6		$	1		$	1		$	(4	)	$	4

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2017

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided By Operating Activities	$	4		$	266		$	11		$	(8	)	$	273

CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(1,597		)	—			—			(1,597		)
Acquisitions of proved and unproved properties	—			(226		)	—			—			(226		)
Proceeds from divestitures of proved and unproved properties	—			1,193			—			—			1,193
Additions to other property and equipment	—			(12		)	—			—			(12		)
Other investing activities	—			40			—			—			40
Net Cash Used In Investing Activities	—			(602		)	—			—			(602		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility borrowings	4,775			—			—			—			4,775
Payments on revolving credit facility borrowings	(4,130		)	—			—			—			(4,130		)
Proceeds from issuance of senior notes, net	742			—			—			—			742
Cash paid to purchase debt	(1,751		)	—			—			—			(1,751		)
Cash paid for preferred stock dividends	(160		)	—			—			—			(160		)
Other financing activities	(36		)	(4		)	(11		)	27			(24		)
Intercompany advances, net	(339		)	339			—			—			—
Net Cash Provided by (Used In) Financing Activities	(899		)	335			(11		)	27			(548		)
Net increase (decrease) in cash and cash equivalents	(895		)	(1		)	—			19			(877		)
Cash and cash equivalents, beginning of period	904			2			1			(25		)	882
Cash and cash equivalents, end of period	$	9		$	1		$	1		$	(6	)	$	5