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 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 June 30, 2014 and December 31, 2013 and for the three and six months ended June 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 JUNE 30, 2014

($ in millions)



	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	1,371	$	—		$	117	$	(26	)	$	1,462
Restricted cash	—		—			81		(6		)	75
Other	79		2,542			181		31			2,833
Intercompany receivable, net	25,163		—			—		(25,163		)	—
Total Current Assets	26,613		2,542			379		(25,164		)	4,370
PROPERTY AND EQUIPMENT:
Natural gas and oil properties, at cost based on full cost .accounting, net	—		30,786			3,083		(420		)	33,449
Other property and equipment, net	—		2,309			6		—			2,315
Property and equipment held for sale, net	—		247			—		—			247
Total Property and Equipment, Net	—		33,342			3,089		(420		)	36,011
LONG-TERM ASSETS:
Other assets	113		605			28		—			746
Investments in subsidiaries and intercompany advances	1,867		(550		)	—		(1,317		)	—
TOTAL ASSETS	$	28,593	$	35,939		$	3,496	$	(26,901	)	$	41,127
CURRENT LIABILITIES:
Current liabilities	$	261	$	5,446		$	117	$	(32	)	$	5,792
Intercompany payable, net	—		25,608			930		(26,538		)	—
Total Current Liabilities	261		31,054			1,047		(26,570		)	5,792
LONG-TERM LIABILITIES:
Long-term debt, net	11,549		—			—		—			11,549
Deferred income tax liabilities	342		1,964			550		917			3,773
Other long-term liabilities	239		1,054			395		—			1,688
Total Long-Term Liabilities	12,130		3,018			945		917			17,010
EQUITY:
Chesapeake stockholders’ equity	16,202		1,867			1,504		(3,371		)	16,202
Noncontrolling interests	—		—			—		2,123			2,123
Total Equity	16,202		1,867			1,504		(1,248		)	18,325
TOTAL LIABILITIES AND EQUITY	$	28,593	$	35,939		$	3,496	$	(26,901	)	$	41,127

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 JUNE 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	1,469		$	237		$	(2	)	$	1,704
Marketing, gathering and compression	—			3,166			1			—			3,167
Oilfield services	—			23			499			(241		)	281
Total Revenues	—			4,658			737			(243		)	5,152
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			266			16			—			282
Production taxes	—			69			3			—			72
Marketing, gathering and compression	—			3,166			—			—			3,166
Oilfield services	—			22			375			(185		)	212
General and administrative	—			66			24			—			90
Restructuring and other termination costs	—			30			3			—			33
Natural gas, oil and NGL depreciation, depletion and amortization	—			583			68			10			661
Depreciation and amortization of other assets	—			38			71			(30		)	79
Impairment of natural gas and oil properties	—			—			38			(38		)	—
Impairments of fixed assets and other	—			37			3			—			40
Net gains on sales of fixed assets	—			(85		)	(8		)	—			(93		)
Total Operating Expenses	—			4,192			593			(243		)	4,542
INCOME FROM OPERATIONS	—			466			144			—			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 (loss)	136			33			—			(162		)	7
Equity in net earnings of subsidiary	324			35			—			(359		)	—
Total Other Income (Expense)	109			46			(25		)	(369		)	(239		)
INCOME BEFORE INCOME TAXES	109			512			119			(369		)	371
INCOME TAX EXPENSE	(82		)	182			45			(4		)	141
NET INCOME	191			330			74			(365		)	230
Net income attributable to noncontrolling interests	—			—			—			(39		)	(39		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	191			330			74			(404		)	191
Other comprehensive income (loss)	1			(2		)	—			—			(1		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	192		$	328		$	74		$	(404	)	$	190

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	2,241		$	160		$	5		$	2,406
Marketing, gathering and compression	—			2,051			6			—			2,057
Oilfield services	—			60			484			(332		)	212
Total Revenues	—			4,352			650			(327		)	4,675
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			274			14			—			288
Production taxes	—			57			2			—			59
Marketing, gathering and compression	—			2,026			2			—			2,028
Oilfield services	—			99			354			(276		)	177
General and administrative	—			80			26			—			106
Restructuring and other termination costs	—			6			1			—			7
Natural gas, oil and NGL depreciation, depletion and amortization	—			589			56			—			645
Depreciation and amortization of other assets	—			46			71			(41		)	76
Impairment of natural gas and oil properties	—			—			70			(70		)	—
Impairments of fixed assets and other	—			224			7			—			231
Net gains on sales of fixed assets	—			(109		)	—			—			(109		)
Total Operating Expenses	—			3,292			603			(387		)	3,508
INCOME FROM OPERATIONS	—			1,060			47			60			1,167
OTHER INCOME (EXPENSE):
Interest expense	(278		)	(42		)	(21		)	237			(104		)
Losses on investments	—			23			—			—			23
Net gain on sales of investments	—			(10		)	—			—			(10		)
Losses on purchases of debt	(70		)	—			—			—			(70		)
Other income	228			63			(22		)	(266		)	3
Equity in net earnings (losses) of subsidiary	654			(64		)	—			(590		)	—
Total Other Income (Expense)	534			(30		)	(43		)	(619		)	(158		)
INCOME BEFORE INCOME TAXES	534			1,030			4			(559		)	1,009
INCOME TAX EXPENSE (BENEFIT)	(46		)	416			2			12			384
NET INCOME	580			614			2			(571		)	625
Net income attributable to noncontrolling interests	—			—			—			(45		)	(45		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	580			614			2			(616		)	580
Other comprehensive income (loss)	2			(2		)	—			—			—
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	582		$	612		$	2		$	(616	)	$	580

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	3,015		$	459		$	(3	)	$	3,471
Marketing, gathering and compression	—			6,180			2			—			6,182
Oilfield services	—			40			983			(478		)	545
Total Revenues	—			9,235			1,444			(481		)	10,198
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			535			35			—			570
Production taxes	—			117			5			—			122
Marketing, gathering and compression	—			6,145			2			—			6,147
Oilfield services	—			54			769			(392		)	431
General and administrative	—			120			49			—			169
Restructuring and other termination costs	—			23			3			—			26
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,151			129			8			1,288
Depreciation and amortization of other assets	—			78			143			(64		)	157
Impairment of natural gas and oil 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	—			8,151			1,250			(546		)	8,855
INCOME FROM OPERATIONS	—			1,084			194			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 (loss)	479			(107		)	1			(360		)	13
Equity in net earnings of subsidiary	655			12			—			(667		)	—
Total Other Income (Expense)	592			(73		)	(46		)	(699		)	(226		)
INCOME BEFORE INCOME TAXES	592			1,011			148			(634		)	1,117
INCOME TAX EXPENSE	(24		)	377			56			12			421
NET INCOME	616			634			92			(646		)	696
Net income attributable to noncontrolling interests	—			—			—			(80		)	(80		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	616			634			92			(726		)	616
Other comprehensive income	3			5			—			—			8
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	619		$	639		$	92		$	(726	)	$	624

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Natural gas, oil and NGL	$	—		$	3,562		$	288		$	8		$	3,858
Marketing, gathering and compression	—			3,829			9			—			3,838
Oilfield services	—			116			934			(648		)	402
Total Revenues	—			7,507			1,231			(640		)	8,098
OPERATING EXPENSES:
Natural gas, oil and NGL production	—			570			25			—			595
Production taxes	—			108			4			—			112
Marketing, gathering and compression	—			3,767			5			—			3,772
Oilfield services	—			146			716			(530		)	332
General and administrative	—			170			46			—			216
Restructuring and other termination costs	—			137			3			—			140
Natural gas, oil and NGL depreciation, depletion and amortization	—			1,180			113			—			1,293
Depreciation and amortization of other assets	—			96			139			(81		)	154
Impairment of natural gas and oil properties	—			—			161			(161		)	—
Impairments of fixed assets and other	—			251			7			—			258
Net gains on sales of fixed assets	—			(158		)	—			—			(158		)
Total Operating Expenses	—			6,267			1,219			(772		)	6,714
INCOME FROM OPERATIONS	—			1,240			12			132			1,384
OTHER INCOME (EXPENSE):
Interest expense	(496		)	(43		)	(42		)	457			(124		)
Losses on investments	—			(14		)	—			—			(14		)
Net gain on sales of investments	—			(10		)	—			—			(10		)
Losses on purchases of debt	(70		)	—			—			—			(70		)
Other income	443			75			5			(515		)	8
Equity in net earnings (losses) of subsidiary	715			(153		)	—			(562		)	—
Total Other Income (Expense)	592			(145		)	(37		)	(620		)	(210		)
INCOME BEFORE INCOME TAXES	592			1,095			(25		)	(488		)	1,174
INCOME TAX EXPENSE (BENEFIT)	(47		)	474			(9		)	28			446
NET INCOME	639			621			(16		)	(516		)	728
Net income attributable to noncontrolling interests	—			—			—			(89		)	(89		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	639			621			(16		)	(605		)	639
Other comprehensive income	—			12			—			—			12
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	639		$	633		$	(16	)	$	(605	)	$	651

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	$	—		$	2,134		$	509		$	—		$	2,643
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(1,791		)	(205		)	—			(1,996		)
Acquisitions of proved and unproved properties	—			(356		)	—			—			(356		)
Proceeds from divestitures of proved and unproved properties	—			247			1			—			248
Additions to other property and equipment	—			(368		)	(252		)	—			(620		)
Other investing activities	—			858			60			26			944
Net Cash Used In Investing Activities	—			(1,410		)	(396		)	26			(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		)	15			(119		)	(51		)	(348		)
Intercompany advances, net	1,161			(739		)	(422		)	—			—
Net Cash Provided By (Used In) Financing Activities	572			(724		)	(35		)	(51		)	(238		)
Net increase (decrease) in cash and cash equivalents	572			—			78			(25		)	625
Cash and cash equivalents, beginning of period	799			—			39			(1		)	837
Cash and cash equivalents, end of period	$	1,371		$	—		$	117		$	(26	)	$	1,462

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2013

($ in millions)



	Parent^(a)			Guarantor Subsidiaries^(a)			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	1,933		$	297		$	(25	)	$	2,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(2,689		)	(456		)	—			(3,145		)
Acquisitions of proved and unproved properties	—			(549		)	(1		)	—			(550		)
Proceeds from divestitures of proved and unproved properties	—			1,834			61			—			1,895
Additions to other property and equipment	—			(316		)	(190		)	—			(506		)
Other investing activities	—			161			440			130			731
Net Cash Used In Investing Activities	—			(1,559		)	(146		)	130			(1,575		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			6,013			546			—			6,559
Payments on credit facilities borrowings	—			(6,013		)	(565		)	—			(6,578		)
Proceeds from issuance of senior notes, net of discount and offering costs	2,274			—			—			—			2,274
Cash paid to purchase debt	(1,874		)	—			—			—			(1,874		)
Proceeds from sales of noncontrolling interests	—			5			—			—			5
Other financing activities	(245		)	(292		)	16			(105		)	(626		)
Intercompany advances, net	272			(87		)	(185		)	—			—
Net Cash Provided By (Used In) Financing Activities	427			(374		)	(188		)	(105		)	(240		)
Net increase (decrease) in cash and cash equivalents	427			—			(37		)	—			390
Cash and cash equivalents, beginning of period	228			—			59			—			287
Cash and cash equivalents, end of period	$	655		$	—		$	22		$	—		$	677

___________________________________________

(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 June 30, 2013, $228 million and $655 million, respectively, were incorrectly presented in the Guarantor Subsidiaries column. The impact of this error was not material to any previously issued financial statements.