Chesapeake Energy Corporation Posts Strong Results for the 2004 Second Quarter and Announces $590 Million of Natural Gas Acquisitions in the Mid-Continent and South Texas
Company Reports 2004 Second Quarter Net Income Available to Common Shareholders of $86 Million on Revenue of $574 Million and Production of 86.5 Bcfe; Continuing Production Gains from the Drillbit and From Acquisitions Drive Forecasts Higher for Second Half of 2004 and for 2005
Newly Announced Acquisitions Provide 310 Bcfe of Estimated Proved Reserves, 453 Bcfe of Estimated Probable and Possible Reserves, 50,000 Net Leasehold Acres and Production of 60 Mmcfe per Day; Assets Are 92% Natural Gas and Are Located 56% in the Mid-Continent and 44% in South Texas
PRNewswire-FirstCall
OKLAHOMA CITY

Chesapeake Energy Corporation today reported its financial and operating results for the 2004 second quarter. For the quarter, Chesapeake generated net income available to common shareholders of $85.8 million ($0.31 per fully diluted common share), operating cash flow of $308.2 million (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $324.1 million (defined as income before income taxes, interest expense, and depreciation, depletion and amortization expense) on revenue of $574.3 million.

The company's 2004 second quarter net income available to common shareholders and ebitda include an unrealized after-tax mark-to-market loss of $7.1 million ($0.02 per fully diluted common share) resulting from the company's oil and natural gas and interest rate hedging programs. This is an item typically excluded from analysts' estimates.

If such item is excluded, Chesapeake's net income to common shareholders in the 2004 second quarter would have been $92.9 million ($0.33 per fully diluted common share) and ebitda would have been $344.2 million. This item does not affect the calculation of operating cash flow.

Oil and Natural Gas Production and Proved Reserves Set Records

Production for the 2004 second quarter was 86.5 billion cubic feet of natural gas equivalent (bcfe), an increase of 19.2 bcfe, or 29%, over the 67.3 bcfe produced in the 2003 second quarter and an increase of 7.6 bcfe, or 10%, over the 78.9 bcfe produced in the 2004 first quarter. The 19.2 bcfe increase in this year's second quarter production over 2003 second quarter production consisted of 7.7 bcfe generated from organic drillbit growth and 11.5 bcfe generated from acquisitions. Chesapeake's organic growth rate during the past 12 months has therefore been 11%, well above the company's forecasted organic growth rate of 5% and among the very best organic growth performances reported by public mid- and large-cap E&P companies in the past several years. In addition, the balance between Chesapeake's growth through the drillbit and growth through acquisitions reflects the successful execution of the company's balanced growth strategy.

The 2004 second quarter's production of 86.5 bcfe was comprised of 76.5 billion cubic feet of natural gas (bcf) (88% on a natural gas equivalent basis) and 1.67 million barrels of oil and natural gas liquids (mmbo) (12% on a natural gas equivalent basis). Chesapeake's average daily production rate for the quarter was 951 million cubic feet of natural gas equivalent production (mmcfe), consisting of 841 mmcf of gas and 18,385 barrels of oil and natural gas liquids. The 2004 second quarter was Chesapeake's 12th consecutive quarter of sequential production growth. During these 12 quarters, Chesapeake's production has increased 121%, for an average compound quarterly growth rate of 6.8% and an average annualized growth rate of 30%.

Average prices realized during the 2004 second quarter (including realized gains or losses from oil and gas derivatives, but excluding unrealized gains or losses on such derivatives) were $28.12 per barrel of oil (bo) and $4.87 per thousand cubic feet of natural gas (mcf), for a realized gas equivalent price of $4.85 per thousand cubic feet of natural gas equivalent (mcfe). Chesapeake's average realized pricing differentials to NYMEX during the quarter were a negative $2.19 per bo and a negative $0.68 per mcf. Realized gains or losses from hedging activities generated a $7.70 loss per bo and a $0.56 loss per mcf, for a 2004 second quarter realized hedging loss of $55.3 million, or $0.64 per mcfe. This contrasts with $25.7 million, or $0.33 per mcfe, of realized hedging gains in the 2004 first quarter.

During the 2004 second quarter, the company replaced its 86.5 bcfe of production with an internally estimated 429 bcfe of new proved reserves, for a reserve replacement rate of 496% at a drilling and acquisition cost of $1.52 per mcfe. Reserve replacement through the drillbit was 143 bcfe, or 165%, and reserve replacement through acquisitions was 286 bcfe, or 331%. At the end of the second quarter, Chesapeake's estimated proved reserves were 3.8 trillion cubic feet of natural gas equivalent (tcfe) (4.1 tcfe pro forma for the acquisitions announced today).

Key Operational and Financial Statistics for the 2004 Second Quarter

The table below summarizes Chesapeake's key statistics during the 2004 second quarter and compares them to the 2004 first quarter and the 2003 second quarter:

                                                   Three Months Ended:

                                                6/30/04  3/31/04  6/30/03
  Average daily production (in mmcfe)             951      867      740
  Gas as % of total production                     88       89       89
  Natural gas production (in bcf)                76.5     70.1     60.0
  Average realized gas price ($/mcf) (A)         4.87     5.62     4.73
  Oil production (in mbbls)                     1,673    1,465    1,224
  Average realized oil price ($/bo) (A)         28.12    27.10    26.24
  Natural gas equivalent production (in bcfe)    86.5     78.9     67.3
  Gas equivalent realized price ($/mcfe) (A)     4.85     5.50     4.70
  General and administrative costs ($/mcfe) (E)   .09      .10      .08
  Production taxes ($/mcfe)                       .26      .19 (D)  .25
  Lease operating expenses ($/mcfe)               .57      .57      .51
  Interest expense ($/mcfe) (A)                   .44      .48      .56
  DD&A of oil and gas properties ($/mcfe)        1.58     1.52     1.36
  Operating cash flow ($ in millions) (B)       308.2    333.6    226.1
  Operating cash flow ($/mcfe)                   3.56     4.23     3.36
  Ebitda ($ in millions) (C)                    324.1    348.1    266.4
  Ebitda ($/mcfe)                                3.74     4.41     3.96
  Net income to common shareholders
   ($ in millions)                               85.8    104.4     76.3

   (A)  includes the effects of realized gains or (losses) from hedging, but
        does not include the effects of unrealized gains or (losses) from
        hedging
   (B)  defined as cash flow provided by operating activities before changes
        in assets and liabilities
   (C)  defined as income before income taxes, interest expense, and
        depreciation, depletion and amortization expense
   (D)  includes pre-tax benefit of $6.8 million, or $0.09 per mcfe, from
        prior period severance tax credits
   (E)  excludes expenses associated with non-cash stock based compensation


 Chesapeake Announces $590 Million of Completed or Pending Acquisitions,
  Acquiring 310 Bcfe of Estimated Proved Reserves, 453 Bcfe of Estimated
           Probable and Possible Reserves, 50,000 Net Leasehold
                  Acres and 60 Mmcfe of Daily Production

Chesapeake announced that it has entered into agreements to acquire natural gas assets in the Mid-Continent and South Texas regions through transactions with three private companies. The transactions involve the acquisition of Tulsa-based Bravo Natural Resources, Inc., the acquisition of substantially all the assets of Houston-based Legend Natural Gas, LP and the acquisition of substantially all the assets of Oklahoma City-based Tilford Pinson Exploration, LLC.

Bravo's assets consist of 20,000 acres located in the Granite Wash- producing Stiles Ranch and Allison Britt fields of the Anadarko Basin in Wheeler and Hemphill Counties, Texas and Roger Mills County, Oklahoma. The Granite Wash is a Pennsylvanian-aged formation located at depths of 12-13,000' on Bravo's 20,000 net acres of leasehold. The Granite Wash, and the deeper Cherokee/Atoka Washes, to date have produced more than 1.2 tcfe from 10 major fields in the Anadarko Basin and are currently the subject of intense industry drilling programs in western Oklahoma and in the Texas Panhandle. Chesapeake now has more than 200,000 net acres of potentially prospective leasehold in areas where well costs currently average $1.2-1.5 million, estimated per well reserve recoveries average 1.5-2.0 bcfe and drainage areas average approximately 40 acres. Bravo was formed in early 2003 by Charles R. Stephenson, John H. Hale and Irving, Texas-based Natural Gas Partners VI, L.P. The transaction is expected to close on August 2, subject to satisfaction of customary closing conditions. Bravo was advised in its sale to Chesapeake by Petrie Parkman & Co.

Legend's producing assets and 18,000 net acres of leasehold are located in the Roleta, Haynes, Comitas and En Seguido fields in the Zapata County portion of South Texas. The primary zones of production in these fields are various sands of the Middle and Lower Wilcox formations at depths ranging from 7,000- 13,000'. The majority of Legend's assets are located approximately 3-7 miles south and east of the Zapata County assets Chesapeake acquired in October 2003 from Laredo Energy LP. At the time of acquisition by Chesapeake, the Laredo assets were producing 30 mmcfe per day net to Chesapeake's interest. After better than expected drilling results, the Laredo assets are currently producing 50 mmcfe per day, a 67% increase in just nine months. Zapata County is Texas' most prolific natural gas producing county. Upon closing the Legend transaction, Chesapeake will be the fourth largest gas producer in Zapata County. Legend was formed in 2001 by James A. Winne, III, Michael Becci and New York-based Riverstone Holdings LLC. The transaction is expected to close on August 31, subject to satisfaction of customary closing conditions. Legend was advised in its sale to Chesapeake by Goldman, Sachs & Co.

Tilford Pinson's producing assets and 12,000 net acres of leasehold are located primarily in the Arkoma Basin fields of Northwest Scipio, Northwest Reams and South Pine Hollow in Pittsburg County, Oklahoma. Major zones of production in these fields range from 2,500 foot Hartshorne sands to 6,000 - 8,000' Cromwell and Caney Shale plays. The Cromwell and Caney Shale formations are particularly active and the Caney Shale is considered by some industry observers to have similar characteristics to the Barnett Shale. By virtue of its drilling activities in the past six years and the completion of the Oxley acquisition in May 2003, Chesapeake has become the largest gas producer in Pittsburg County, Oklahoma's eighth largest gas producing county. Tilford Pinson was formed in 1995 by Max Tilford and Dave Pinson. The transaction closed earlier this month.

Through these three transactions, Chesapeake anticipates acquiring an internally estimated 310 bcfe of proved reserves, an internally estimated 453 bcfe of probable and possible reserves and current production of 60 mmcfe per day. Pro forma for these acquisitions, the company's estimated proved oil and natural gas reserves as of June 30, 2004 would have been approximately 4.1 tcfe. Chesapeake believes it can increase the newly acquired properties' production from the current rate of 60 mmcfe per day to at least 90 mmcfe per day by year-end 2005 and at least 120 mmcfe per day by year-end 2006. The company has identified approximately 210 proved undeveloped and 410 probable and possible locations on the 50,000 net leasehold acres being acquired in the transactions announced today.

After allocating approximately $190 million of the combined $590 million purchase price to unevaluated leasehold and mid-stream gas assets, Chesapeake's acquisition cost per mcfe of proved reserves will be $1.29. Including the $190 million of unevaluated leasehold and mid-stream gas assets value and the $690 million of anticipated future drilling costs necessary to fully develop the proved, probable and possible reserves, the company estimates that its all-in cost to develop the 763 bcfe of reserves acquired in the three transactions will be $1.68 per mcfe. Chesapeake believes this is a very attractive all-in acquisition price, especially given the industry's present finding costs, which the company believes are currently over $2.00 per mcfe and are likely to rise in the foreseeable future.

The acquired proved reserves have a reserves-to-production index of 14.2 years, are 92% gas, 97% company-operated, 35% proved developed and have current lease operating expenses of only $0.29 per mcfe. These very low lease operating expenses (approximately 60% per mcfe below the industry average) create unusually high economic values per mcfe of proved reserves and add to the attractiveness of Chesapeake's all-in acquisition cost of $1.68 per mcfe.

The company intends to finance the $590 million of new acquisitions using an approximate 50/50 combination of senior notes and common stock issuance.

Operational Results Continue to Exceed Expectations, Strong Drilling Results

 and Significant Leasehold Additions Lead to Increased Estimates of 5,000
        Undrilled Locations and Three Tcfe of Undeveloped Reserves

Chesapeake's exploratory and development drilling programs and its production enhancement operations on its base and recently acquired properties continue to produce operational results that exceed the company's forecasts. During the 2004 second quarter, Chesapeake drilled 134 gross (96.6 net) operated wells and participated in another 187 gross wells (24.5 net) operated by other companies. The company's drilling success rate was 98% for company- operated wells and 99% for non-operated wells. Chesapeake invested $149 million in operated wells and $52 million in non-operated wells.

During the quarter, the company invested $101 million in acquiring new leasehold and 3-D seismic data as it continued to make significant investments in the building blocks of future organic growth. In addition to adding significant leasehold to its existing dominant positions in Bray, Mayfield, Sahara and other ongoing Anadarko and Arkoma Basin projects, Chesapeake also has been aggressively building industry-leading leasehold positions in the Granite Wash and Cherokee/Atoka Wash gas resource plays in the Anadarko Basin (approximately 200,000 prospective acres), in the Hartshorne Coal and Caney Shale gas resource plays of the Arkoma Basin (approximately 75,000 prospective acres) and in the Barnett Shale gas resource play in North Texas (approximately 30,000 prospective acres in Johnson County). The company believes it has built the largest onshore U.S. inventories of leasehold and 3-D seismic in the industry (more than three million and eight million acres, respectively) and believes it has identified more than 5,000 undrilled locations which could contain up to approximately four tcfe of probable and possible undeveloped reserves.

  Strong Operational Results Lead to Another Increase in 2004 Production
        Forecasts and to a Strong Initial 2005 Production Forecast

Chesapeake is today increasing its 2004 mid-point production forecast by 10.0 bcfe (2.9%) to a range of 353-355 bcfe (967 mmcfe per day at the mid- point) from a range of 341-347 (940 mmcfe per day at the mid-point). Approximately 8.8 bcfe of this 10.0 bcfe increase is attributable to anticipated production from the three new transactions while 1.2 bcfe is attributable to better than expected recent drilling results. This is the third time in 2004 that Chesapeake has increased its production forecasts, each time from a combination of acquisitions and better than expected drilling results. The company forecasts that its organic growth rate will be at least 10% in 2004.

Chesapeake now estimates that its third quarter 2004 production will range from 91.5 to 92.5 bcfe (1,000 mmcfe per day at the midpoint) and its fourth quarter 2004 production will range from 96 to 97 bcfe (1,049 mmcfe per day at the midpoint). Chesapeake's average daily production in the second half of 2004 (1,024 mmcfe per day at the midpoint) is expected to exceed production in the second half of 2003 (784 mmcfe per day) by approximately 240 mmcfe, or 31%. Furthermore, Chesapeake believes that its production will continue growing during 2005 and will range between 390 and 400 bcfe (1,082 mmcfe per day at the midpoint), a 12% increase over the midpoint of forecasted 2004 production.

     Chesapeake Takes Advantage of Recent Natural Gas Price Weakness
              and Lifts Some of its Natural Gas Price Hedges

Chesapeake took advantage of natural gas price weakness during the second quarter and lifted all of its hedges for 2006 and 2007 natural gas production and decreased its hedged natural gas positions by 10% for the second half of 2004 and 39% for 2005. The following tables compare Chesapeake's projected 2004-2007 oil and natural gas production volumes that have been hedged as of July 26, 2004 to what had been previously hedged as of May 11, 2004.

                     Hedged Positions as of July 26, 2004
                               Oil                    Natural Gas
  Quarter or Year    % Hedged      $ NYMEX      % Hedged      $ NYMEX
  2004 1Q               87%         $28.58         99%         $5.97
  2004 2Q               92%         $30.00         81%         $5.15
  2004 3Q               95%         $30.32         68%         $5.25
  2004 4Q               95%         $30.10         40%         $5.12
  2004 Total            92%         $29.80         71%         $5.41
  2005                   9%         $31.56         17%         $4.74
  2006                  ---            ---         ---           ---
  2007                  ---            ---         ---           ---


                     Hedged Positions as of May 11, 2004
                               Oil                    Natural Gas
  Quarter or Year    % Hedged      $ NYMEX      % Hedged      $ NYMEX
  2004 1Q               87%         $28.58         99%         $5.97
  2004 2Q              100%         $30.00         81%         $5.11
  2004 3Q               96%         $30.32         73%         $5.28
  2004 4Q               95%         $30.10         48%         $5.27
  2004 Total            95%         $29.80         74%         $5.44
  2005                   9%         $31.56         28%         $5.12
  2006                  ---            ---         10%         $4.88
  2007                  ---            ---          7%         $4.76


Depending on changes in oil and natural gas futures markets and management's view of underlying oil and natural gas supply and demand trends, Chesapeake may either increase or decrease its hedging positions at any time in the future without notice.

The company's updated 2004 forecasts and initial 2005 forecast are attached to this release in an Outlook dated July 26, 2004 labeled Schedule "A". This Outlook has been changed from the Outlook dated May 11, 2004 (attached as Schedule "B" for investors' convenience) to reflect today's increased production forecasts and the projected effects from the hedging position changes.

Management Comments

Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "Today's announcements of very strong operational and financial results for the 2004 second quarter and of three new value-creating acquisitions provide ongoing confirmation that Chesapeake continues to execute with precision on its business strategy. This strategy focuses on delivering growth through a balance of acquisitions and organic drilling, focusing on natural gas to take advantage of strong long-term supply/demand fundamentals and building dominant regional scale to achieve low operating costs and high returns on capital. This business strategy has worked very well for our shareholders, generating a 1,525% increase in our common stock price since January 1, 1999. We believe Chesapeake's management team can continue the successful execution of the company's 'distinctive' business strategy and continue to deliver significant shareholder value in the years ahead."

Conference Call Information

A conference call has been scheduled for Tuesday morning, July 27, 2004 at 9:00 a.m. EDT to discuss this earnings release. The telephone number to access the conference call is 913.981.5572. For those unable to participate in the conference call, a replay will be available from 12:00 p.m. EDT, July 27, 2004 through midnight EDT on August 9, 2004. The number to access the conference call replay is 719.457.0820 and the passcode is 151543. The conference call will also be simulcast live on the Internet and can be accessed at http://www.chkenergy.com/ by selecting "Conference Calls" under the "Investor Relations" section. The webcast of the conference call will be available on the website for one year.

This press release and the accompanying Outlooks include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our current expectations or forecasts of future events. They include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, and statements concerning anticipated cash flow and liquidity, business strategy and other plans and objectives for future operations. Disclosures concerning derivative contracts and their estimated contribution to our future results of operations are based upon market information as of a specific date. These market prices are subject to significant volatility.

Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in our prospectus dated July 8, 2004 filed with the Securities and Exchange Commission on July 12, 2004. They include the volatility of oil and gas prices; adverse effects our substantial indebtedness and preferred stock obligations could have on our operations and future growth; our ability to compete effectively against strong independent oil and gas companies and majors; possible financial losses and significant collateral requirements as a result of our commodity price and interest rate risk management activities; uncertainties inherent in estimating quantities of oil and gas reserves, including reserves we acquire; projecting future rates of production and the timing of development expenditures; exposure to potential liabilities of acquired properties and companies; our ability to replace reserves; the availability of capital; writedowns of oil and gas carrying values if commodity prices decline; environmental and other claims in excess of insured amounts resulting from drilling and production operations; and the loss of key personnel. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release, and we undertake no obligation to update this information.

Our production forecasts are dependent upon many assumptions, including estimates of production decline rates from existing wells and the outcome of future drilling activity. Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties.

The SEC has generally permitted oil and gas companies, in filings made with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use the terms "probable" and "possible" reserves or other descriptions of volumes of reserves potentially recoverable through additional drilling or recovery techniques that the SEC's guidelines may prohibit us from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being actually realized by the company.

The announcement of proposed financings through the issuance of equity and debt in this press release shall not constitute an offer to sell or a solicitation of an offer to buy any securities. The debt securities will likely not be registered under the Securities Act of 1933 or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and state laws.

Chesapeake Energy Corporation is one of the five largest independent U.S. natural gas producers. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and producing property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast and Ark-La-Tex regions of the United States. The company's Internet address is http://www.chkenergy.com/ .

                        CHESAPEAKE ENERGY CORPORATION
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                     ($ in 000's, except per share data)
                                 (unaudited)

  THREE MONTHS ENDED:                June 30, 2004      June 30, 2003
                                       $      $/mcfe      $      $/mcfe
  REVENUES:
    Oil and gas sales               399,665    4.62    319,519    4.74
    Oil and gas marketing sales     174,627    2.02    110,296    1.64
      Total Revenues                574,292    6.64    429,815    6.38

  OPERATING COSTS:
    Production expenses              49,595    0.57     34,263    0.51
    Production taxes                 22,751    0.26     17,101    0.25
    General and administrative
     expenses:
      General and administrative
       (excluding stock based
        compensation)                 7,420    0.09      5,635    0.08
      Stock based compensation          672    0.01        365    0.01
    Oil and gas marketing expenses  171,115    1.98    106,857    1.59
    Oil and gas depreciation,
     depletion, and amortization    136,743    1.58     91,570    1.36
    Depreciation and amortization
     of other assets                  6,716    0.08      4,122    0.06
      Total Operating Costs         395,012    4.57    259,913    3.86

  INCOME FROM OPERATIONS            179,280    2.07    169,902    2.52

  OTHER INCOME (EXPENSE):
    Interest and other income         1,335    0.01        781    0.01
    Interest expense                (28,806)  (0.33)   (38,036)  (0.56)
      Total Other Income (Expense)  (27,471)  (0.32)   (37,255)  (0.55)

  Income Before Income Taxes        151,809    1.75    132,647    1.97

  Income Tax Expense:
    Current                             ---     ---        ---     ---
    Deferred                         54,654    0.63     50,407    0.75
      Total Income Tax Expense       54,654    0.63     50,407    0.75

  NET INCOME                         97,155    1.12     82,240    1.22

  Preferred Stock Dividends         (11,344)  (0.13)    (5,979)  (0.09)

  NET INCOME AVAILABLE TO
   COMMON SHAREHOLDERS               85,811    0.99     76,261    1.13


  EARNINGS PER COMMON SHARE:

     Basic                            $0.36              $0.36

     Assuming dilution                $0.31              $0.31

  WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING
   (in 000's)

    Basic                           241,147            214,341
    Assuming dilution               303,483            263,919


                        CHESAPEAKE ENERGY CORPORATION
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                     ($ in 000's, except per share data)
                                 (unaudited)

  SIX MONTHS ENDED:                   June 30, 2004     June 30, 2003
                                       $      $/mcfe      $      $/mcfe
  REVENUES:
    Oil and gas sales               819,458    4.95    605,538    4.88
    Oil and gas marketing sales     317,963    1.92    200,604    1.62
      Total Revenues              1,137,421    6.87    806,142    6.50

  OPERATING COSTS:
    Production expenses              94,398    0.57     65,720    0.53
    Production taxes                 37,687    0.23     35,698    0.29
    General and administrative
     expenses:
      General and administrative
       (excluding stock based
        compensation)                15,586    0.09     11,014    0.09
      Stock based compensation        2,541    0.02        365     ---
    Provision for legal settlements     ---     ---        286     ---
    Oil and gas marketing expenses  310,779    1.87    196,215    1.58
    Oil and gas depreciation,
     depletion, and amortization    256,651    1.55    168,184    1.36
    Depreciation and amortization
     of other assets                 12,455    0.08      7,806    0.06
      Total Operating Costs         730,097    4.41    485,288    3.91

  INCOME FROM OPERATIONS            407,324    2.46    320,854    2.59

  OTHER INCOME (EXPENSE):
    Interest and other income         2,678    0.02      1,544    0.01
    Interest expense                (75,351)  (0.46)   (75,040)  (0.60)
    Loss on repurchases or exchanges
     of Chesapeake debt              (6,925)  (0.04)       ---     ---
      Total Other Income (Expense)  (79,598)  (0.48)   (73,496)  (0.59)

  Income Before Income Taxes and
   Cumulative Effect of Accounting
   Change                           327,726    1.98    247,358    2.00

  Income Tax Expense:
    Current                             ---     ---        ---     ---
    Deferred                        117,981    0.71     93,998    0.76
      Total Income Tax Expense      117,981    0.71     93,998    0.76

  NET INCOME BEFORE CUMULATIVE
   EFFECT OF ACCOUNTING CHANGE,
   NET OF TAX                       209,745    1.27    153,360    1.24

  Cumulative Effect of Accounting
   Change, Net of Income Tax
   of $1,464,000                        ---     ---      2,389    0.02

  NET INCOME                        209,745    1.27    155,749    1.26

  Preferred Stock Dividends         (19,512)  (0.12)    (9,505)  (0.08)

  NET INCOME AVAILABLE TO
   COMMON SHAREHOLDERS              190,233    1.15    146,244    1.18


  EARNINGS PER COMMON SHARE:

     Basic
        Income Before Cumulative
         Effect of Accounting Change  $0.80              $0.70
        Cumulative Effect of
         Accounting Change              ---               0.01
        Net Income                    $0.80              $0.71

     Assuming dilution
      Income Before Cumulative Effect
       of Accounting Change           $0.69              $0.62
      Cumulative Effect of
       Accounting Change                ---               0.01
      Net Income                      $0.69              $0.63

  WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING
   (in 000's)

    Basic                           239,016            205,995
    Assuming dilution               301,400            247,391


                        CHESAPEAKE ENERGY CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (in 000's)
                                 (unaudited)

                                            June 30,    December 31,
                                              2004          2003

  Cash                                      $76,237       $40,581
  Other current assets                      461,690       301,823
       TOTAL CURRENT ASSETS                 537,927       342,404

  Property and equipment (net)            5,706,029     4,133,117
  Other assets                               96,768        96,770
       TOTAL ASSETS                      $6,340,724    $4,572,291

  Current liabilities                      $801,102      $513,156
  Long term debt                          2,464,078     2,057,713
  Asset retirement obligation                64,490        48,812
  Long term liabilities                      73,880        28,774
  Deferred tax liability                    497,990       191,026
       TOTAL LIABILITIES                  3,901,540     2,839,481

  STOCKHOLDERS' EQUITY                    2,439,184     1,732,810

  TOTAL LIABILITIES & STOCKHOLDERS'
   EQUITY                                $6,340,724    $4,572,291

  COMMON SHARES OUTSTANDING                 242,790       216,784


                        CHESAPEAKE ENERGY CORPORATION
           SUPPLEMENTAL DATA - OIL & GAS SALES AND INTEREST EXPENSE

                                Three Months Ended       Six Months Ended
                                     June 30,                 June 30,
                                 2004        2003        2004        2003

  Oil and Gas Sales
   ($ in thousands):
    Oil sales                  $59,930     $32,763     $107,961     $67,903
    Oil derivatives - realized
     gains (losses)            (12,878)       (641)     (21,208)     (6,879)
    Oil derivatives -unrealized
     gains (losses)             (1,470)     (1,101)      (7,489)     (1,178)
          Total oil sales       45,582      31,021       79,264      59,846

    Gas sales                  415,216     282,239      775,317     596,289
    Gas derivatives - realized
     gains (losses)            (42,453)      1,811       (8,462)    (84,809)
    Gas derivatives -unrealized
     gains (losses)            (18,680)      4,448      (26,661)     34,212
          Total gas sales      354,083     288,498      740,194     545,692

          Total oil and
           gas sales          $399,665    $319,519     $819,458    $605,538

  Average Sales Price
   (excluding gains (losses)
   on derivatives):
    Oil ($ per bbl)             $35.82      $26.77       $34.40      $29.73
    Gas ($ per mcf)             $ 5.43      $ 4.70       $ 5.29      $ 5.40
    Gas equivalent ($ per mcfe) $ 5.49      $ 4.68       $ 5.34      $ 5.35

  Average Sales Price (excluding
   unrealized gains (losses)
   on derivatives):
    Oil ($ per bbl)             $28.12      $26.24       $27.65      $26.72
    Gas ($ per mcf)             $ 4.87      $ 4.73       $ 5.23      $ 4.63
    Gas equivalent ($ per mcfe) $ 4.85      $ 4.70       $ 5.16      $ 4.61

  Interest Expense
  ($ in thousands):
    Interest                  $(37,513)   $(38,452)    $(76,077)   $(74,156)
    Derivatives - realized
     (gains) losses               (353)        682          405       1,356
    Derivatives - unrealized
     (gains) losses              9,060        (266)         321      (2,240)
          Total Interest
           Expense            $(28,806)   $(38,036)    $(75,351)   $(75,040)


                        CHESAPEAKE ENERGY CORPORATION
                    CONDENSED CONSOLIDATED CASH FLOW DATA
                                  (in 000's)
                                 (unaudited)

  THREE MONTHS ENDED:                        June 30,      June 30,
                                               2004          2003

  Cash provided by operating activities      $328,787      $277,581

  Cash (used in) investing activities       $(864,016)    $(313,485)

  Cash provided by financing activities      $422,041       $33,809


  SIX MONTHS ENDED:                          June 30,      June 30,
                                               2004          2003

  Cash provided by operating activities      $670,557      $376,633

  Cash (used in) investing activities     $(1,599,450)  $(1,315,774)

  Cash provided by financing activities      $964,549      $727,413


                        CHESAPEAKE ENERGY CORPORATION
                 RECONCILIATION OF CERTAIN FINANCIAL MEASURES
                                  (in 000's)
                                 (unaudited)

  THREE MONTHS ENDED:                        June 30,      June 30,
                                               2004          2003

  CASH PROVIDED BY OPERATING ACTIVITIES      $328,787      $277,581

  Adjustments:
    Changes in assets and liabilities         (20,614)      (51,512)

  OPERATING CASH FLOW*                       $308,173      $226,069


  SIX MONTHS ENDED:                          June 30,      June 30,
                                               2004          2003

  CASH PROVIDED BY OPERATING ACTIVITIES      $670,557      $376,633

  Adjustments:
    Changes in assets and liabilities         (28,830)       17,149

  OPERATING CASH FLOW*                       $641,727      $393,782

   *  Operating cash flow represents net cash provided by operating
      activities before changes in assets and liabilities.  Operating cash
      flow is presented because management believes it is a useful adjunct
      to net cash provided by operating activities under accounting
      principles generally accepted in the United States (GAAP).  Operating
      cash flow is widely accepted as a financial indicator of an oil and
      gas company's ability to generate cash which is used to internally
      fund exploration and development activities and to service debt.  This
      measure is widely used by investors and rating agencies in the
      valuation, comparison, rating and investment recommendations of
      companies within the oil and gas exploration and production industry.
      Operating cash flow is not a measure of financial performance under
      GAAP and should not be considered as an alternative to cash flows from
      operating, investing, or financing activities as an indicator of cash
      flows, or as a measure of liquidity.


                      CHESAPEAKE ENERGY CORPORATION
               RECONCILIATION OF CERTAIN FINANCIAL MEASURES
                                (in 000's)
                               (unaudited)

  THREE MONTHS ENDED:                         June 30,         June 30,
                                                2004             2003

  NET INCOME                                  $97,155          $82,240

  Deferred income tax expense                  54,654           50,407
  Interest expense                             28,806           38,036
  Depreciation and amortization
   of other assets                              6,716            4,122
  Oil and gas depreciation, depletion
   and amortization                           136,743           91,570

  EBITDA**                                   $324,074         $266,375


  SIX MONTHS ENDED:                          June 30,         June 30,
                                               2004             2003

  NET INCOME BEFORE CUMULATIVE EFFECT
   OF ACCOUNTING CHANGE                      $209,745         $153,360

  Deferred income tax expense                 117,981           93,998
  Interest expense                             75,351           75,040
  Depreciation and amortization
   of other assets                             12,455            7,806
  Oil and gas depreciation, depletion
   and amortization                           256,651          168,184

  EBITDA**                                   $672,183         $498,388

   **  Ebitda represents net income (loss) before cumulative effect of
       accounting change, income tax expense (benefit), interest expense,
       and depreciation, depletion and amortization expense.  Ebitda is
       presented as a supplemental financial measurement in the evaluation
       of our business.  We believe that it provides additional information
       regarding our ability to meet our future debt service, capital
       expenditures and working capital requirements.  This measure is
       widely used by investors and rating agencies in the valuation,
       comparison, rating and investment recommendations of companies.
       Ebitda is also a financial measurement that, with certain negotiated
       adjustments, is reported to our banks under our bank credit
       facilities and is used in our financial covenants under our bank
       credit facilities and our indentures governing our senior notes.
       Ebitda is not a measure of financial performance under GAAP.
       Accordingly, it should not be considered as a substitute for net
       income, income from operations, or cash flow provided by operating
       activities prepared in accordance with GAAP.  Ebitda is reconciled to
       cash provided by operating activities as follows:


  THREE MONTHS ENDED:                        June 30,         June 30,
                                               2004             2003

  CASH PROVIDED BY OPERATING ACTIVITIES      $328,787         $277,581

  Changes in assets and liabilities           (20,614)         (51,512)
  Interest expense, realized                   37,866           37,770
  Unrealized gains (losses) on oil
   and gas derivatives                        (20,150)           3,347
  Other non-cash items                         (1,815)            (811)

  EBITDA                                     $324,074         $266,375


  SIX MONTHS ENDED:                          June 30,         June 30,
                                               2004             2003

  CASH PROVIDED BY OPERATING ACTIVITIES      $670,557         $376,633

  Changes in assets and liabilities           (28,830)          17,149
  Interest expense, realized                   75,672           72,800
  Unrealized gains (losses) on oil and
   gas derivatives                            (34,150)          33,034
  Other non-cash items                        (11,066)          (1,228)

  EBITDA                                     $672,183         $498,388


                        CHESAPEAKE ENERGY CORPORATION
            RECONCILIATION OF ADJUSTED EARNINGS & ADJUSTED EBITDA
                    ($ In 000'S, except per share amounts)

                                            Three Months     Six Months
                                               Ended           Ended
                                           June 30, 2004   June 30, 2004

  Net income to common shareholders           $85,811         $190,233

  Adjustments, net of tax:
      Unrealized (gains) losses from hedging    7,097           21,651
      Loss on repurchases or exchanges of debt    ---            4,432

  Adjusted earnings*                          $92,908         $216,316

  Adjusted earnings per share
   assuming dilution                            $0.33            $0.77

  EBITDA                                     $324,074         $672,183

  Adjustments, before tax:
      Unrealized (gains) losses from
       oil and gas hedging                     20,150           34,150
      Loss on repurchases or
       exchanges of debt                          ---            6,925

  Adjusted EBITDA*                           $344,224         $713,258

   *  Adjusted earnings and adjusted EBITDA, both non-GAAP financial
      measures, exclude certain items that management believes affect the
      comparability of operating results.  The Company discloses these non-
      GAAP financial measures as a useful adjunct to GAAP earnings and
      EBITDA because:
      a.  Management uses adjusted earnings and adjusted EBITDA to evaluate
          the Company's operational trends and performance relative to other
          oil and gas producing companies.
      b.  Adjusted earnings and adjusted EBITDA are more comparable to
          earnings and EBITDA estimates provided by securities analysts.
      c.  Items excluded generally are one-time items, or items whose timing
          or amount cannot be reasonably estimated.  Accordingly, any
          guidance provided by the Company generally excludes information
          regarding these types of items.


                               SCHEDULE "A"

                 CHESAPEAKE'S OUTLOOK AS OF JULY 26, 2004

Quarter Ending September 30, 2004; Quarter Ending December 31, 2004; Year Ending December 31, 2004; Year Ending December 31, 2005.

We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of July 26, 2004, we are using the following key assumptions in our projections for the third and fourth quarters of 2004, the full-year 2004 and the full- year 2005.

The primary changes from our May 11, 2004 guidance are explained as follows:

   1)  We have replaced our 2004 second quarter forecast with our initial
       forecasts for the 2004 third and fourth quarters, have revised our
       full year 2004 forecast and have provided our initial 2005 forecast.
   2)  We have updated our previous production forecasts for the full year
       2004 to include today's announced acquisitions and the results of
       recent drilling activities.  These include 30 mmcfe per day of
       production beginning August 2, 2004 and an additional 30 mmcfe per
       day beginning September 1, 2004 for the acquisitions and an
       additional 6.5 mmcfe per day beginning July 1, 2004 for better than
       expected drilling results during the second quarter.
   3)  We have updated the projected effects from the reductions in our
       hedging positions.
   4)  We have included our expectations for future NYMEX oil and gas prices
       to illustrate hedging effects only.  They are not a forecast of our
       expectations for 2004 and 2005 oil and natural gas prices.
   5)  For ease of reconciliation, please note that our first quarter 2004
       production was 78.9 bcfe, our second quarter 2004 production was 86.5
       bcfe and our first half 2004 production was 165.4 bcfe.  Our May 11,
       2004 Outlook forecasted a second quarter 2004 production range of 83-
       84 bcfe and a full year 2004 production range of  341-347 bcfe.
   6)  Solely for the purposes of this Schedule "A" we have included the
       projected effects of financing the recently announced acquisitions
       with the issuance of $300 million of long-term debt securities and 23
       million shares of common stock (including a 3 million share over-
       allotment option).  There is no assurance we will make or complete
       such offerings.


                       Quarter      Quarter        Year          Year
                       Ending       Ending         Ending        Ending
                      Sept. 30,     Dec. 31,      Dec. 31,      Dec. 31,
                        2004          2004          2004          2005
  Estimated Production:
    Oil - Mbo          1,600         1,600         6,340         6,360
    Gas - Bcf         82 - 83     86.5 - 87.5    315 - 317     352 - 362
    Gas Equivalent
     - Bcfe         91.5 - 92.5     96 - 97      353 - 355     390 - 400
    Daily gas
     equivalent
     midpoint -
     in Mmcfe          1,000         1,049          967          1,082
  NYMEX Prices (for
   calculation of
   realized hedging
   effects only):
    Oil - $/Bo        $34.00        $32.00        $34.87        $30.00
    Gas - $/Mcf        $5.71         $5.50         $5.73         $5.00
  Estimated Differentials
   to NYMEX Prices:
    Oil - $/Bo        -$2.75        -$2.75        -$2.75        -$2.75
    Gas - $/Mcf       -$0.75        -$0.75        -$0.75        -$0.75
  Estimated Realized
   Hedging Effects
   (based on expected
  NYMEX prices above):
    Oil - $/Bo        -$3.52        -$1.82        -$4.70         $0.13
    Gas - $/Mcf       -$0.23         $0.01        -$0.09         $0.11
  Operating Costs
   per Mcfe of
   Projected
   Production:
    Production
     expense       $0.57 - 0.62  $0.57 - 0.62  $0.57 - 0.62  $0.60 - 0.65
    Production taxes
     (generally 7%
      of O&G
      revenues)    $0.34 - 0.38  $0.34 - 0.38  $0.28 - 0.33  $0.30 - 0.35
    General and
    administrative $0.10 - 0.11  $0.10 - 0.11  $0.10 - 0.11  $0.10 - 0.11
    Stock based
     compensation
     (non-cash)    $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04  $0.06 - 0.07
    DD&A - oil
     and gas       $1.60 - 1.65  $1.60 - 1.65  $1.60 - 1.65  $1.65 - 1.70
    Depreciation of
     other assets  $0.08 - 0.10  $0.08 - 0.10  $0.08 - 0.10  $0.08 - 0.10
    Interest
     expense (A)   $0.46 - 0.50  $0.46 - 0.50  $0.45 - 0.49  $0.44 - 0.48
  Other Income and
   Expense per Mcfe:
    Marketing and
     other income  $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04  $0.02 - 0.04

  Book Tax Rate         36%           36%           36%           36%

  Equivalent Shares
   Outstanding:
    Basic              256 mm        278 mm        253 mm        285 mm
    Diluted (B)        319 mm        328 mm        312 mm        328 mm

  Capital
  Expenditures:
    Drilling,
    leasehold
    and seismic     $260 - $290   $260 - $290      $1,000 -      $1,000 -
                        mm            mm          $1,100 mm     $1,100 mm

   (A)  Does not include gains or losses on interest rate derivatives (SFAS
        133).
   (B)  Does not include the potential conversion of the company's 4.125%
        convertible preferred stock because the common stock price does not
        exceed the conversion price of the preferred.


  Commodity Hedging Activities

The company utilizes hedging strategies to hedge the price of a portion of its future oil and gas production. These strategies include:

   (i)   For swap instruments, we receive a fixed price for the hedged
         commodity and pay a floating market price, as defined in each
         instrument, to the counterparty.  The fixed-price payment and the
         floating-price payment are netted, resulting in a net amount due to
         or from the counterparty.
   (ii)  For cap-swaps, Chesapeake receives a fixed price and pays a
         floating market price.  The fixed price received by Chesapeake
         includes a premium in exchange for a "cap" limiting the
         counterparty's exposure.  In other words, there is no limit to
         Chesapeake's exposure but there is a limit to the downside exposure
         of the counterparty.
   (iii) Basis protection swaps are arrangements that guarantee a price
         differential of oil or gas from a specified delivery point.
         Chesapeake receives a payment from the counterparty if the price
         differential is greater than the stated terms of the contract and
         pays the counterparty if the price differential is less than the
         stated terms of the contract.

Commodity markets are volatile, and as a result, Chesapeake's hedging activity is dynamic. As market conditions warrant, the company may elect to settle a hedging transaction prior to its scheduled maturity date and, as a result, lock in the gain or loss on the transaction.

Chesapeake enters into oil and natural gas derivative transactions in order to mitigate a portion of its exposure to adverse market changes in oil and natural gas prices. Accordingly, associated gains or loses from the derivative transactions are reflected as adjustments to oil and gas sales. All realized gains and losses from oil and natural gas derivatives are included in oil and gas sales in the month of related production. Pursuant to SFAS 133, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these non-qualifying derivatives that occur prior to their maturity (i.e. because of temporary fluctuations in value) are reported currently in the consolidated statement of operations as unrealized gains (losses) within oil and gas sales.

Following provisions of SFAS 133, changes in the fair value of derivative instruments designated as cash flow hedges, to the extent effective in offsetting cash flows attributable to hedged risk, are recorded in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized currently in oil and natural gas sales.

  The company currently has in place the following natural gas swaps:

                                                        % Hedged
                        Avg.
                       NYMEX         Avg. NYMEX                  Open Swap
                       Strike  Gain     Price                   Positions
                       Price  (Loss)  Including   Assuming        as a %
                        Of     from    Open &       Gas        of Estimated
            Open Swaps Open   Locked   Locked    Production       Total
             in Bcf's  Swaps  Swaps  Positions  in Bcf's of:  Gas Production
  2004:
  1st Qtr      69.5    $5.94   $0.03   $5.97       70.1            99%
  2nd Qtr      62.2    $5.15   $0.00   $5.15       76.5            81%
  3rd Qtr (A)  56.3    $5.34  -$0.09   $5.25       82.5            68%
  4th Qtr (A)  35.0    $5.39  -$0.27   $5.12       87.0            40%
  Total 2004  223.0    $5.48  -$0.07   $5.41      316.1            71%

  Total
   2005 (A)    61.3    $5.24  -$0.50   $4.74      357.0            17%

  Total
   2006 (A)(B)  ---      ---     ---     ---      375.0            ---

  Total
   2007 (B)     ---      ---     ---     ---      395.0            ---

  TOTALS
  2004-2007   284.3    $5.43  -$0.29   $5.14    1,443.1            24%

   (A)  Certain hedging arrangements include swaps with knockout price
        ranging from $3.75 to $4.75 covering 4.6 bcf in 2004, $3.75 to $4.75
        covering 9.1 bcf in 2005 and $3.75 covering 7.3 bcf in 2006.
   (B)  Swaps covering 32.9 bcf and 25.6 bcf have been locked for 2006 and
        2007.  This will result in the recognition of $22.6 million and
        $11.6 million of losses in 2006 and 2007, respectively, when the
        hedging arrangements settle.
   (C)  Not shown above are collars covering 1.5 bcf and 4.4 bcf of
        production in 2004 and 2005, respectively, at a weighted average
        floor and ceiling of $3.10 and $4.44.  In addition, call options
        covering 27.4 bcf and 7.3 bcf of production in 2004 and 2005 at
        weighted average price of $6.19 and $6.00 are not included in the
        table above.


The company has also entered into the following natural gas basis protection swaps:

                                            Assuming Gas
                                             Production
        Volume in Bcf's   NYMEX less:       in Bcf's of:    % Hedged
  2004      157.4           0.173              316.1            50%
  2005      109.5           0.156              357.0            31%
  2006       47.5           0.155              375.0            13%
  2007       63.9           0.166              395.0            16%
  2008       64.0           0.166              415.0            15%
  2009       37.0           0.160              435.0             9%
  Totals    479.3          $0.164*           2,293.1            21%
  * weighted average


  The company has entered into the following crude oil hedging arrangements:

                                                     % Hedged
                                                              Open Swap
                                          Assuming Oil        Positions
                Open Swaps   Avg. NYMEX    Production      as % of Total
                 in mbo's   Strike Price  in mbo's of:  Estimated Production
  Q1 - 2004       1,270        $28.58        1,465               87%
  Q2 - 2004       1,540        $30.00        1,673               92%
  Q3 - 2004 (A)   1,519        $30.32        1,600               95%
  Q4 - 2004 (A)   1,518        $30.10        1,600               95%

  Total 2004 (A)  5,847        $29.80        6,338               92%
  Total 2005 (A)    548        $31.56        6,360                9%

   (A)  Certain hedging arrangements include swaps with a knockout price
        ranging from $21.00 to $26.00 covering 2,240 mbo in 2004 and a
        knockout price of $26.00 covering 548 mbo in 2005.


                               SCHEDULE "B"

             CHESAPEAKE'S PREVIOUS OUTLOOK AS OF MAY 11, 2004
                      (PROVIDED FOR REFERENCE ONLY)

              NOW SUPERSEDED BY OUTLOOK AS OF JULY 26, 2004

  Quarter Ending June 30, 2004; Year Ending December 31, 2004.

We have adopted a policy of periodically providing investors with guidance on certain factors that affect our future financial performance. As of May 11, 2004, we are using the following key assumptions in our projections for the second quarter of 2004 and the full-year 2004.

The primary changes from our April 26, 2004 guidance are explained as follows:

   1)  We have increased our production forecast for the second quarter and
       full-year 2004 because of the Greystone acquisition and better than
       expected recent drilling results.
   2)  We have included the effects of financing the Greystone transaction
       with $300 million of senior notes and $125 million of bank debt.
   3)  We have updated the projected effects from changes in our hedging
       positions.
   4)  We have included our expectations for future NYMEX oil and gas prices
       to illustrate hedging effects only.  They are not a forecast of our
       expectations for 2004 oil and natural gas prices.


                                         Quarter Ending    Year Ending
                                         June 30, 2004    Dec. 31, 2004
  Estimated Production:
    Oil - Mbo                                1,540            6,185
    Gas - Bcf                               74 - 75         304 - 310
    Gas Equivalent - Bcfe                   83 - 84         341 - 347
    Daily gas equivalent midpoint
     - in Mmcfe                               918              940
  NYMEX Prices (for calculation of
   realized hedging effects only):
    Oil - $/Bo                              $30.87           $30.00
    Gas - $/Mcf                              $5.35            $5.14
  Estimated Differentials to NYMEX Prices:
    Oil - $/Bo                              -$2.75           -$2.72
    Gas - $/Mcf                             -$0.70           -$0.71
  Estimated Realized Hedging Effects
   (based on expected NYMEX prices above):
    Oil - $/Bo                              -$0.71           +$0.05
    Gas - $/Mcf                             -$0.06           +$0.33
  Operating Costs per Mcfe of
   Projected Production:
    Production expense                   $0.55 - 0.60     $0.55 - 0.60
    Production taxes (generally 7% of
     O&G revenues)                       $0.28 - 0.30     $0.28 - 0.32
    General and administrative           $0.10 - 0.11     $0.10 - 0.11
    Stock based compensation (non-cash)  $0.02 - 0.03     $0.02 - 0.03
    DD&A - oil and gas                   $1.52 - 1.56     $1.52 - 1.60
    Depreciation of other assets         $0.07 - 0.09     $0.07 - 0.09
    Interest expense (A)                 $0.49 - 0.53     $0.45 - 0.50
  Other Income and Expense per Mcfe:
    Marketing and other income           $0.02 - 0.04     $0.02 - 0.04

  Book Tax Rate                               36%              36%
  Equivalent Shares Outstanding:
    Basic                                   241 mm            247 mm
    Diluted                                 304 mm            305 mm

  Capital Expenditures:
    Drilling, leasehold and seismic      $200 - $225 mm    $875 - $925 mm

   (A)  Does not include gains or losses on interest rate derivatives (SFAS
        133).

  Commodity Hedging Activities

Periodically the company utilizes hedging strategies to hedge the price of a portion of its future oil and gas production. These strategies include:

   (i)   For swap instruments, we receive a fixed price for the hedged
         commodity and pay a floating market price, as defined in each
         instrument, to the counterparty.  The fixed-price payment and the
         floating-price payment are netted, resulting in a net amount due to
         or from the counterparty.
   (ii)  For cap-swaps, Chesapeake receives a fixed price and pays a
         floating market price.  The fixed price received by Chesapeake
         includes a premium in exchange for a "cap" limiting the
         counterparty's exposure.  In other words, there is no limit to
         Chesapeake's exposure but there is a limit to the downside exposure
         of the counterparty.
   (iii) Basis protection swaps are arrangements that guarantee a price
         differential of oil or gas from a specified delivery point.
         Chesapeake receives a payment from the counterparty if the price
         differential is greater than the stated terms of the contract and
         pays the counterparty if the price differential is less than the
         stated terms of the contract.

Commodity markets are volatile, and as a result, Chesapeake's hedging activity is dynamic. As market conditions warrant, the company may elect to settle a hedging transaction prior to its scheduled maturity date and, as a result, lock in the gain or loss on the transaction.

Chesapeake enters into oil and natural gas derivative transactions in order to mitigate a portion of its exposure to adverse market changes in oil and natural gas prices. Accordingly, associated gains or loses from the derivative transactions are reflected as adjustments to oil and gas sales. All realized gains and losses from oil and natural gas derivatives are included in oil and gas sales in the month of related production. Pursuant to SFAS 133, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these non-qualifying derivatives that occur prior to their maturity (i.e. because of temporary fluctuations in value) are reported currently in the consolidated statement of operations as unrealized gains (losses) within oil and gas sales.

Following provisions of SFAS 133, changes in the fair value of derivative instruments designated as cash flow hedges, to the extent effective in offsetting cash flows attributable to hedged risk, are recorded in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized currently in oil and natural gas sales.

  The company currently has in place the following natural gas swaps:

                                                        % Hedged
                       Avg.
                      NYMEX         Avg. NYMEX                   Open Swap
                      Strike           Price                     Positions
                      Price   Gain   Including    Assuming         as a %
                       Of     from    Open &        Gas        of Estimated
         Open Swaps   Open   Locked   Locked     Production       Total
         in Bcf's    Swaps   Swaps   Positions  in Bcf's of:  Gas Production

  2004:
  1st Qtr  69.5      $5.94   $0.03    $5.97         70.1            99%
  2nd Qtr  60.4      $5.11   $0.00    $5.11         74.5            81%
  3rd Qtr  58.4      $5.28   $0.00    $5.28         80.0            73%
  4th Qtr  39.6      $5.27   $0.00    $5.27         82.4            48%
  Total
   2004   227.9      $5.43   $0.01    $5.44        307.0            74%

  Total
   2005    88.4      $5.12   $0.00    $5.12        320.0            28%

  Total
   2006    32.9      $4.88   $0.00    $4.88        330.0            10%

  Total
   2007    25.6      $4.76   $0.00    $4.76        340.0             7%

  TOTALS
  2004-
  2007    374.8      $5.26   $0.01    $5.27      1,297.0            29%


The company has also entered into the following natural gas basis protection swaps:

                                         Assuming Gas
             Annual                       Production
        Volume in Bcf's   NYMEX less:    in Bcf's of:    % Hedged
  2004      157.4            0.173          307.0           52%
  2005      109.5            0.156          320.0           34%
  2006       47.5            0.155          330.0           14%
  2007       63.9            0.166          340.0           19%
  2008       64.0            0.166          350.0           18%
  2009       37.0            0.160          360.0           10%
  Totals    479.3           $0.164*       2,007.0           24%
  * weighted average


  The company has entered into the following crude oil hedging arrangements:

                                                  % Hedged
                                                            Open Swap
                                        Assuming Oil        Positions
              Open Swaps   Avg. NYMEX   Production        as % of Total
              in Mmbo's   Strike Price  in Mmbo's of:   Estimated Production

  Q1 - 2004*    1,270        $28.58         1,465               87%

  Q2 - 2004*    1,540        $30.00         1,540              100%

  Q3 - 2004*    1,519        $30.32         1,590               96%

  Q4 - 2004*    1,518        $30.10         1,590               95%

  Total 2004*   5,847        $29.80         6,185               95%
  Total 2005*     548        $31.56         6,360                9%

   *  Swaps with a knockout price of $21.00, with the exception of 2,000
      bopd in 2004 with a knockout price of $24.00, with an additional 1,000
      bopd in Q2 2004 at $24.00, 1,000 bopd in Q3 and Q4 2004 with a
      knockout price of $23.00, 2,000 bopd for 1/04 and 3-8/04 at a knockout
      price of $22.00, 3,000 bopd in 2/04 at a knockout price of $22.00 and
      1,500 bopd from 4/04 through 12/05 at a knockout price of $26.00.

SOURCE: Chesapeake Energy Corporation

CONTACT: Marc Rowland, Executive Vice President and Chief Financial
Officer, +1-405-879-9232, or Tom Price, Jr., Senior Vice President-Investor
Relations, +1-405-879-9257, both of Chesapeake Energy Corporation