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 December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012. 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 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	$	5,084	$	68	$	(81	)	$	5,863
Intercompany payable, net	—		24,937		—		(24,937		)	—
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 BALANCE SHEET

YEAR ENDED DECEMBER 31, 2013

($ in millions)



	Parent		Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
CURRENT ASSETS:
Cash and cash equivalents	$	799	$	8		$	38	$	(8	)	$	837
Restricted cash	—		37			38		—			75
Other	103		2,465			524		(348		)	2,744
Intercompany receivable, net	25,549		—			860		(26,409		)	—
Total Current Assets	26,451		2,510			1,460		(26,765		)	3,656
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, at cost based on full cost accounting, net	—		30,933			1,471		189			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	—		33,994			2,952		188			37,134
LONG-TERM ASSETS:
Other assets	111		1,161			96		(376		)	992
Investments in subsidiaries and intercompany advances	2,169		(209		)	—		(1,960		)	—
TOTAL ASSETS	$	28,731	$	37,456		$	4,508	$	(28,913	)	$	41,782
CURRENT LIABILITIES:
Current liabilities	$	300	$	5,262		$	309	$	(356	)	$	5,515
Intercompany payable, net	—		26,409			—		(26,409		)	—
Total Current Liabilities	300		31,671			309		(26,765		)	5,515
LONG-TERM LIABILITIES:
Long-term debt, net	11,831		—			1,055		—			12,886
Deferred income tax liabilities	209		2,338			773		87			3,407
Other long-term liabilities	396		1,278			504		(344		)	1,834
Total Long-Term Liabilities	12,436		3,616			2,332		(257		)	18,127
EQUITY:
Chesapeake stockholders’ equity	15,995		2,169			1,867		(4,036		)	15,995
Noncontrolling interests	—		—			—		2,145			2,145
Total Equity	15,995		2,169			1,867		(1,891		)	18,140
TOTAL LIABILITIES AND EQUITY	$	28,731	$	37,456		$	4,508	$	(28,913	)	$	41,782

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	7,765		$	418		$	(3	)	$	8,180
Marketing, gathering and compression	—			12,220			5			—			12,225
Oilfield services	—			41			983			(478		)	546
Total Revenues	—			20,026			1,406			(481		)	20,951
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			1,166			42			—			1,208
Production taxes	—			227			5			—			232
Marketing, gathering and compression	—			12,232			4			—			12,236
Oilfield services	—			53			769			(391		)	431
General and administrative	—			273			49			—			322
Restructuring and other termination costs	—			4			3			—			7
Provision for legal contingencies	100			134			—			—			234
Oil, natural gas and NGL depreciation, depletion and amortization	—			2,523			162			(2		)	2,683
Depreciation and amortization of other assets	—			153			143			(64		)	232
Impairment of oil and natural gas properties	—			—			349			(349		)	—
Impairments of fixed assets and other	—			65			23			—			88
Net gains on sales of fixed assets	—			(192		)	(7		)	—			(199		)
Total Operating Expenses	100			16,638			1,542			(806		)	17,474
INCOME (LOSS) FROM OPERATIONS	(100		)	3,388			(136		)	325			3,477
OTHER INCOME (EXPENSE):
Interest expense	(657		)	(37		)	(42		)	647			(89		)
Losses on investments	—			(77		)	(5		)	2			(80		)
Net gain on sales of investments	—			67			—			—			67
Losses on purchases of debt	(195		)	(2		)	—			—			(197		)
Other income (expense)	502			198			(2		)	(676		)	22
Equity in net earnings (losses) of subsidiary	2,206			(258		)	—			(1,948		)	—
Total Other Income (Expense)	1,856			(109		)	(49		)	(1,975		)	(277		)
INCOME (LOSS) BEFORE INCOME TAXES	1,756			3,279			(185		)	(1,650		)	3,200
INCOME TAX EXPENSE (BENEFIT)	(161		)	1,264			(66		)	107			1,144
NET INCOME (LOSS)	1,917			2,015			(119		)	(1,757		)	2,056
Net income attributable to noncontrolling interests	—			—			—			(139		)	(139		)
NET INCOME ATTRIBUTABLE TO CHESAPEAKE	1,917			2,015			(119		)	(1,896		)	1,917
Other comprehensive income	1			18			—			—			19
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$	1,918		$	2,033		$	(119	)	$	(1,896	)	$	1,936

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	6,439		$	553		$	60		$	7,052
Marketing, gathering and compression	—			9,547			12			—			9,559
Oilfield services	—			221			1,836			(1,162		)	895
Total Revenues	—			16,207			2,401			(1,102		)	17,506
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			1,112			47			—			1,159
Production taxes	—			222			7			—			229
Marketing, gathering and compression	—			9,455			6			—			9,461
Oilfield services	—			239			1,434			(937		)	736
General and administrative	—			375			83			(1		)	457
Restructuring and other termination costs	—			244			4			—			248
Oil, natural gas and NGL depreciation, depletion and amortization	—			2,336			253			—			2,589
Depreciation and amortization of other assets	—			180			281			(147		)	314
Impairment of oil and natural gas properties	—			(2		)	313			(311		)	—
Impairments of fixed assets and other	—			417			129			—			546
Net gains on sales of fixed assets	—			(301		)	(1		)	—			(302		)
Total Operating Expenses	—			14,277			2,556			(1,396		)	15,437
INCOME (LOSS) FROM OPERATIONS	—			1,930			(155		)	294			2,069
OTHER INCOME (EXPENSE):
Interest expense	(921		)	(4		)	(85		)	783			(227		)
Losses on investments	—			(225		)	(1		)	—			(226		)
Net loss on sales of investments	—			(7		)	—			—			(7		)
Losses on purchases of debt	(70		)	(123		)	—			—			(193		)
Other income	3,979			(603		)	13			(3,363		)	26
Equity in net earnings (losses) of subsidiary	(1,129		)	(383		)	—			1,512			—
Total Other Income (Expense)	1,859			(1,345		)	(73		)	(1,068		)	(627		)
INCOME (LOSS) BEFORE INCOME TAXES	1,859			585			(228		)	(774		)	1,442
INCOME TAX EXPENSE (BENEFIT)	1,135			370			(87		)	(870		)	548
NET INCOME (LOSS)	724			215			(141		)	96			894
Net income attributable to noncontrolling interests	—			—			—			(170		)	(170		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	724			215			(141		)	(74		)	724
Other comprehensive income (loss)	3			19			(2		)	—			20
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	727		$	234		$	(143	)	$	(74	)	$	744

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2012

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES:
Oil, natural gas and NGL	$	—		$	5,920		$	351		$	7		$	6,278
Marketing, gathering and compression	—			5,218			212			1			5,431
Oilfield services	—			154			1,553			(1,100		)	607
Total Revenues	—			11,292			2,116			(1,092		)	12,316
OPERATING EXPENSES:
Oil, natural gas and NGL production	—			1,278			26			—			1,304
Production taxes	—			182			6			—			188
Marketing, gathering and compression	—			5,197			115			—			5,312
Oilfield services	—			301			1,096			(932		)	465
General and administrative	—			431			105			(1		)	535
Restructuring and other termination costs	—			5			2			—			7
Oil, natural gas and NGL depreciation, depletion and amortization	—			2,353			154			—			2,507
Depreciation and amortization of other assets	—			187			266			(149		)	304
Impairment of oil and natural gas properties	—			3,192			123			—			3,315
Impairments of fixed assets and other	—			275			65			—			340
Net gains (losses) on sales of fixed assets	—			(269		)	2			—			(267		)
Total Operating Expenses	—			13,132			1,960			(1,082		)	14,010
INCOME (LOSS) FROM OPERATIONS	—			(1,840		)	156			(10		)	(1,694		)
OTHER INCOME (EXPENSE):
Interest expense	(879		)	45			(84		)	841			(77		)
Losses on investments	—			(167		)	55			9			(103		)
Net gain on sales of investments	—			29			1,063			—			1,092
Losses on purchases of debt	(200		)	—			—			—			(200		)
Other income (loss)	819			203			14			(1,028		)	8
Equity in net earnings (losses) of subsidiary	(610		)	436			—			174			—
Total Other Income (Expense)	(870		)	546			1,048			(4		)	720
INCOME (LOSS) BEFORE INCOME TAXES	(870		)	(1,294		)	1,204			(14		)	(974		)
INCOME TAX EXPENSE (BENEFIT)	(101		)	(675		)	470			(74		)	(380		)
NET INCOME (LOSS)	(769		)	(619		)	734			60			(594		)
Net income attributable to noncontrolling interests	—			—			—			(175		)	(175		)
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	(769		)	(619		)	734			(115		)	(769		)
Other comprehensive income (loss)	6			(22		)	—			—			(16		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO CHESAPEAKE	$	(763	)	$	(641	)	$	734		$	(115	)	$	(785	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2014

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	4,201		$	462		$	(29	)	$	4,634
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(4,445		)	(136		)	—			(4,581		)
Acquisitions of proved and unproved properties	—			(1,306		)	(5		)	—			(1,311		)
Proceeds from divestitures of proved and unproved properties	—			5,812			1			—			5,813
Additions to other property and equipment	—			(480		)	(246		)	—			(726		)
Other investing activities	—			1,199			60			—			1,259
Net Cash Provided By (Used In) Investing Activities	—			780			(326		)	—			454
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			6,689			717			—			7,406
Payments on credit facilities borrowings	—			(6,689		)	(1,099		)	—			(7,788		)
Proceeds from issuance of senior notes, net of discount and offering costs	2,966			—			494			—			3,460
Proceeds from issuance of term loans, net of discount and offering costs	—			—			394			—			394
Cash paid to purchase debt	(3,362		)	—			—			—			(3,362		)
Other financing activities	(439		)	(1,278		)	(169		)	(41		)	(1,927		)
Intercompany advances, net	4,136			(3,709		)	(427		)	—			—
Net Cash Provided By (Used In) Financing Activities	3,301			(4,987		)	(90		)	(41		)	(1,817		)
Net increase (decrease) in cash and cash equivalents	3,301			(6		)	46			(70		)	3,271
Cash and cash equivalents, beginning of period	799			8			38			(8		)	837
Cash and cash equivalents, end of period	$	4,100		$	2		$	84		$	(78	)	$	4,108

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2013

($ in millions)



	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	4,218		$	439		$	(43	)	$	4,614
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(4,838		)	(766		)	—			(5,604		)
Acquisitions of proved and unproved properties	—			(1,378		)	346			—			(1,032		)
Proceeds from divestitures of proved and unproved properties	—			3,466			1			—			3,467
Additions to other property and equipment	—			(271		)	(701		)	—			(972		)
Other investing activities	—			246			765			163			1,174
Net Cash Provided By (Used In) Investing Activities	—			(2,775		)	(355		)	163			(2,967		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			6,452			1,217			—			7,669
Payments on credit facilities borrowings	—			(6,452		)	(1,230		)	—			(7,682		)
Proceeds from issuance of senior notes, net of discount and offering costs	2,274			—			—			—			2,274
Cash paid to purchase debt	(2,141		)	—			—			—			(2,141		)
Proceeds from sales of noncontrolling interests	—			—			6			—			6
Other financing activities	1,819			(2,897		)	(17		)	(128		)	(1,223		)
Intercompany advances, net	(1,381		)	1,462			(81		)	—			—
Net Cash Provided By (Used In) Financing Activities	571			(1,435		)	(105		)	(128		)	(1,097		)
Net increase (decrease) in cash and cash equivalents	571			8			(21		)	(8		)	550
Cash and cash equivalents, beginning of period	228			—			59			—			287
Cash and cash equivalents, end of period	$	799		$	8		$	38		$	(8	)	$	837

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2012

($ in millions)



	Parent^(a)			Guarantor Subsidiaries^(a)			Non- Guarantor Subsidiaries			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES	$	—		$	1,711		$	1,182		$	(56	)	$	2,837
CASH FLOWS FROM INVESTING ACTIVITIES:
Drilling and completion costs	—			(8,605		)	(325		)	—			(8,930		)
Acquisitions of proved and unproved properties	—			(3,622		)	461			—			(3,161		)
Proceeds from divestitures of proved and unproved properties	—			5,884			—			—			5,884
Additions to other property and equipment	—			(1,736		)	(915		)	—			(2,651		)
Other investing activities	—			5,083			(316		)	(893		)	3,874
Net Cash Used In Investing Activities	—			(2,996		)	(1,095		)	(893		)	(4,984		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	—			18,930			1,388			—			20,318
Payments on credit facilities borrowings	—			(20,651		)	(999		)	—			(21,650		)
Proceeds from issuance of senior notes, net of discount and offering costs	1,263			—			—			—			1,263
Proceeds from issuance of term loans, net of discount and offering costs	5,722			—			—			—			5,722
Cash paid to purchase debt	(4,000		)	—			—			—			(4,000		)
Proceeds from sales of noncontrolling interests	—			63			1,014			—			1,077
Other financing activities	(477		)	(299		)	(820		)	949			(647		)
Intercompany advances, net	(2,282		)	3,242			(960		)	—			—
Net Cash Provided By (Used In) Financing Activities	226			1,285			(377		)	949			2,083
Net increase (decrease) in cash and cash equivalents	226			—			(290		)	—			(64		)
Cash and cash equivalents, beginning of period	2			—			349			—			351
Cash and cash equivalents, end of period	$	228		$	—		$	59		$	—		$	287

___________________________________________


(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, $228 million was incorrectly presented in the Guarantor Subsidiaries column. The impact of this error was not material to any previously issued financial statements.