Press Releases

OKLAHOMA CITY, May 04, 2010 (BUSINESS WIRE) --Chesapeake Energy Corporation (NYSE:CHK) today announced financial results for the 2010 first quarter. For the 2010 first quarter, Chesapeake reported net income to common stockholders of $590 million ($0.92 per fully diluted common share), operating cash flow of $1.166 billion (defined as cash flow from operating activities before changes in assets and liabilities) and ebitda of $1.441 billion (defined as net income before income taxes, interest expense, and depreciation, depletion and amortization) on revenue of $2.798 billion and production of 233 billion cubic feet of natural gas equivalent (bcfe).

The company's 2010 first quarter results include a realized natural gas and oil hedging gain of $399 million. The results also include various items that are typically not included in published estimates of the company's financial results by certain securities analysts. Excluding the items detailed below, for the 2010 first quarter, Chesapeake reported adjusted net income to common stockholders of $524 million ($0.82 per fully diluted common share) and adjusted ebitda of $1.270 billion. The excluded items and their effects on 2010 first quarter reported results are detailed as follows:

•      - a net non-cash unrealized after-tax mark-to-market gain of $209 million resulting  from the company's natural gas, oil and interest rate hedging programs;
•      - a non-cash after-tax charge of $142 million related to the deconsolidation of the company's midstream joint venture; and
•      - a non-cash after-tax charge of $1 million on exchanges of certain of the company's contingent convertible senior notes for shares of common stock.

The various items described above do not materially affect the calculation of operating cash flow. A reconciliation of operating cash flow, ebitda, adjusted ebitda and adjusted net income to comparable financial measures calculated in accordance with generally accepted accounting principles is presented on pages 11 - 13 of this release.

Key Operational and Financial Statistics Summarized

The table below summarizes Chesapeake's key results during the 2010 first quarter and compares them to results during the 2009 fourth quarter and the 2009 first quarter.

2010 First Quarter Average Daily Production Increases 9% over 2009 First Quarter Production; Production Increases 19% Year-Over-Year Adjusted for Asset Sales; Oil and Natural Gas Liquids Production Increases 35% Year-Over-Year

As announced on May 3, 2010, Chesapeake's daily production for the 2010 first quarter averaged 2.586 bcfe, a decrease of 32 million cubic feet of natural gas equivalent (mmcfe), or 1%, below the 2.618 bcfe produced per day in the 2009 fourth quarter and an increase of 219 mmcfe, or 9%, over the 2.367 bcfe produced per day in the 2009 first quarter. Adjusted for 2010 first quarter asset sales of a 25% joint venture interest in the company's Barnett Shale assets (averaging approximately 155 mmcfe per day of production during the 2010 first quarter) and the company's sixth volumetric production payment transaction (averaging approximately 14 mmcfe per day during the 2010 first quarter), Chesapeake's sequential and year-over-year daily production growth rates would have been 5% and 19%, respectively.

Chesapeake's average daily production of 2.586 bcfe for the 2010 first quarter consisted of 2.328 billion cubic feet of natural gas (bcf) and 43,011 barrels of oil and natural gas liquids (bbls). The company's 2010 first quarter production of 232.8 bcfe was comprised of 209.6 bcf (90% on a natural gas equivalent basis) and 3.9 million barrels of oil and natural gas liquids (mmbbls) (10% on a natural gas equivalent basis). The company's year-over-year growth rate of natural gas production was 7% and its year-over-year growth rate of oil and natural gas liquids production was 35%.

Chesapeake anticipates reporting full-year production growth of approximately 8-10% in 2010 and 16-18% in 2011 and expects to increase its oil and natural gas liquids production to more than 100,000 bbls per day, or 15-20% of total production, by year-end 2012 through organic growth.

Average Realized Prices, Hedging Results and Hedging Positions Detailed

Average prices realized during the 2010 first quarter (including realized gains or losses from natural gas and oil derivatives, but excluding unrealized gains or losses on such derivatives) were $6.31 per thousand cubic feet (mcf) and $67.70 per bbl, for a realized natural gas equivalent price of $6.80 per thousand cubic feet of natural gas equivalent (mcfe). Realized gains from natural gas and oil hedging activities during the 2010 first quarter generated a $1.81 gain per mcf and a $5.11 gain per bbl for a 2010 first quarter realized hedging gain of $399 million, or $1.71 per mcfe. Excluding hedging activity, Chesapeake's average realized pricing basis differentials to NYMEX during the 2010 first quarter were a negative $0.80 per mcf and a negative $16.12 per bbl.

By comparison, average prices realized during the 2009 first quarter (including realized gains or losses from natural gas and oil derivatives, but excluding unrealized gains or losses on such derivatives) were $6.05 per mcf and $39.12 per bbl, for a realized natural gas equivalent price of $6.09 per mcfe. Realized gains from natural gas and oil hedging activities during the 2009 first quarter generated a $2.61 gain per mcf and a $3.13 gain per bbl for a 2009 first quarter realized hedging gain of $519 million, or $2.44 per mcfe. Excluding hedging activity, Chesapeake's average realized pricing basis differentials to NYMEX during the 2009 first quarter were a negative $1.47 per mcf and a negative $7.09 per bbl.

The following tables summarize Chesapeake's 2010 and 2011 open hedge positions through swaps and collars as of May 4, 2010. Depending on changes in natural gas and oil futures markets and management's view of underlying natural gas and oil supply and demand trends, Chesapeake may either increase or decrease its hedging positions at any time in the future without notice.

As of April 30, 2010, Chesapeake's natural gas and oil hedging positions with its 14 different counterparties had a positive mark-to-market value of approximately $265 million. The company's natural gas and oil realized hedging gains for the first three months of 2010 were $399 million and since January 1, 2001 have been $4.8 billion.

The company's updated forecasts and hedging positions for 2010 and 2011 are attached to this release in an Outlook dated May 4, 2010, labeled as Schedule "A," which begins on page 14. This Outlook has been changed from the Outlook dated February 17, 2010, attached as Schedule "B," which begins on page 18, to reflect various updated information.

Company Redirects Capital and Planned Operated Drilling Activity from Natural Gas Plays to
Oil and Natural Gas Liquids Plays

Due to recent low natural gas prices and ongoing success in the company's liquids-rich plays, Chesapeake has revised its 2010 and 2011 drilling plans to redirect capital from its natural gas plays to its liquids-rich plays. In its natural gas shale plays, Chesapeake has reduced its previously planned 2010 peak of 120 operated rigs to approximately 106 rigs and its planned 2011 peak of 122 operated rigs to approximately 105 rigs. In total, the company has reduced its planned capital expenditures on natural gas-focused plays by approximately $300 million and $400 million in 2010 and 2011, 12% and 17%, respectively. The company plans to redirect this capital to accelerate drilling activity in its increasingly successful liquids-rich plays. In particular, Chesapeake plans to increase its drilling activity in its Granite Wash, Eagle Ford Shale, Anadarko Basin, Permian Basin and Rocky Mountain unconventional liquids-rich plays where it is currently drilling with 21 operated drilling rigs. Chesapeake has acquired approximately 1.9 million net acres of leasehold in these plays, and its goal is to achieve a 50-operated-rig drilling program in these plays within the next six to 12 months, which would lead to more rapid value creation from the company's liquids-rich assets. Chesapeake is exploring various alternatives to enable it to recover its leasehold expenditures and to fund accelerated drilling in these plays.

Company Provides Update on Recently Completed and Pending Asset Monetizations

In January 2010, Chesapeake completed its Barnett Shale joint venture with Total E&P USA, Inc., a wholly owned subsidiary of Total S.A. (NYSE:TOT; FP:FP), in which Total paid $800 million in cash at closing and agreed to pay $1.45 billion in drilling carries, of which approximately $450 million is expected to be received in 2010. In February 2010, the company completed its sixth volumetric production payment (VPP) for proceeds of $180 million, or $3.95 per mcfe of proved reserves. In March 2010, as part of its joint venture arrangement with Statoil (NYSE:STO; OSE:STL), Chesapeake sold approximately 50,000 net acres of leasehold in the Marcellus Shale for approximately $245 million to Statoil.

Subsequent to the end of the 2010 first quarter, Chesapeake sold or has agreed to sell leasehold and producing assets for combined proceeds of approximately $750 million in three asset sale transactions and a VPP. The asset sale transactions include $400 million of non-core producing assets in the Permian Basin and the Appalachian Basin with combined production of approximately 30 mmcfe per day and proved reserves of approximately 180 bcfe as well as certain non-core East Texas Haynesville Shale leasehold. In addition, Chesapeake anticipates completing its seventh VPP transaction in May 2010 on certain Chesapeake-operated long-lived oil and liquids-rich producing assets in the Permian Basin for proceeds of approximately $350 million, or approximately $8.75 per mcfe of proved reserves. The assets in the pending seventh VPP include proved reserves of approximately 40 bcfe and current net production of approximately 6 mmcf and 2,200 bbls per day.

Conference Call Information

A conference call to discuss this release of financial results and the company's release of its operational results issued on May 3, 2010 has been scheduled for Wednesday morning, May 5, 2010, at 10:00 a.m. EDT. The telephone number to access the conference call is 913-312-0677 or toll-free 888-812-8589. The passcode for the call is 4406803. We encourage those who would like to participate in the call to dial the access number between 9:50 and 10:00 a.m. EDT. For those unable to participate in the conference call, a replay will be available for audio playback from 2:00 p.m. EDT on May 5, 2010 through midnight EDT on May 19, 2010. The number to access the conference call replay is 719-457-0820 or toll-free 888-203-1112. The passcode for the replay is 4406803. The conference call will also be webcast live on the Internet and can be accessed by going to Chesapeake's website at www.chk.com in the "Events" subsection of the "Investors" section of the website. The webcast of the conference call will be available on Chesapeake's 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 expected natural gas and oil production and future expenses, assumptions regarding future natural gas and oil prices, planned drilling activity, drilling and completion costs and anticipated asset sales, projected cash flow and liquidity, business strategy and other plans and objectives for future operations Disclosures concerning the fair value of 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. We caution you not to place undue reliance on our forward-looking statements, which speak only as of the date of this press release, and we undertake no obligation to update this information.

Factors that could cause actual results to differ materially from expected results are described under "Risk Factors" in our 2009 Form 10-K filed with the U.S. Securities and Exchange Commission on March 1, 2010. These risk factors include the volatility of natural gas and oil prices; the limitations our level of indebtedness may have on our financial flexibility; declines in the values of our natural gas and oil properties resulting in ceiling test write-downs; the availability of capital on an economic basis, including planned asset monetization transactions, to fund reserve replacement costs; our ability to replace reserves and sustain production; uncertainties inherent in estimating quantities of natural gas and oil reserves and projecting future rates of production and the amount and timing of development expenditures; potential differences in our interpretations of new reserve disclosure rules and future SEC guidance; inability to generate profits or achieve targeted results in drilling and well operations; leasehold terms expiring before production can be established; hedging activities resulting in lower prices realized on natural gas and oil sales and the need to secure hedging liabilities; a reduced ability to borrow or raise additional capital as a result of lower natural gas and oil prices; drilling and operating risks, including potential environmental liabilities; legislative and regulatory changes adversely affecting our industry and our business; general economic conditions negatively impacting us and our business counterparties; transportation capacity constraints and interruptions that could adversely affect our cash flow; and adverse results in pending or future litigation.

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.

Chesapeake Energy Corporation is the second-largest producer of natural gas and the most active driller of new wells in the U.S. Headquartered in Oklahoma City, the company's operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S. Chesapeake owns leading positions in the Barnett, Fayetteville, Haynesville, Marcellus, and Bossier natural gas shale plays and in the Eagle Ford, Granite Wash and various other unconventional oil plays. The company has also vertically integrated its operations and owns substantial midstream, compression, drilling and oilfield service assets. Further information is available at www.chk.com.

SCHEDULE "A"

CHESAPEAKE'S OUTLOOK AS OF MAY 4, 2010

Years Ending December 31, 2010 and 2011

Our policy is to periodically provide guidance on certain factors that affect our future financial performance. As of May 4, 2010, we are using the following key assumptions in our projections for 2010 and 2011.

The primary changes from our February 17, 2010 Outlook are in italicized bold and are explained as follows:

1. Our production guidance has been increased;
2. Projected effects of changes in our hedging positions have been updated;
3. Equivalent shares outstanding has been updated to reflect exchanges of convertible senior notes; and
4. Our cash flow projections have been updated, including increased drilling capital expenditures to reflect additional drilling on oil and natural gas liquids rich plays and anticipated cost inflation, partially offset by improved drilling efficiencies.

(a) NYMEX natural gas prices have been updated for actual contract prices through May 2010 and NYMEX oil prices
      have been updated for actual contract prices through March 2010.

(b) Excludes expenses associated with noncash stock compensation.

(c) Does not include gains or losses on interest rate derivatives.

(d) A non-GAAP financial measure. We are unable to provide a reconciliation to projected cash provided by operating
      activities, the most comparable GAAP measure, because of uncertainties associated with projecting future changes
      in assets and liabilities.

(e) Assumes NYMEX prices of $5.00 to $6.00 per mcf and $80.00 per bbl in 2010 and $6.00 to $7.00 per mcf and
      $80.00 per bbl in 2011.

(f) Net of drilling carries.

At March 31, 2010, the company had approximately $2.4 billion of cash and cash equivalents and additional borrowing capacity under its two revolving bank credit facilities.

Commodity Hedging Activities

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

All of our derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty.

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 lock in the gain or loss on the transaction.

Chesapeake enters into natural gas and oil derivative transactions in order to mitigate a portion of its exposure to adverse market changes in natural gas and oil prices. Accordingly, associated gains or losses from the derivative transactions are reflected as adjustments to natural gas and oil sales. All realized gains and losses from natural gas and oil derivatives are included in natural gas and oil sales in the month of related production. In accordance with generally accepted accounting principles, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these nonqualifying 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 natural gas and oil sales. 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 natural gas and oil sales.

The company currently has the following open natural gas swaps in place for 2010 and 2011 and also has the following gains from lifted natural gas trades:

The company currently has the following open natural gas collars in place for 2010 and 2011:

The company currently has the following natural gas written call options in place for 2010 and 2011:

The company has the following natural gas basis protection swaps in place for 2010, 2011 and 2012:

The company also has the following crude oil swaps in place for 2010 and 2011:

Note: Not shown above are written call options covering 1 mmbbls of oil production in Q2-Q4 2010 at a weighted average price of $101.25 per bbl for a weighted average discount of $1.93 per bbl and 3 mmbls of oil production in 2011 at a weighted average price of $93.13 per bbl for a weighted average premium of $5.34 per bbl.

SCHEDULE "B"

CHESAPEAKE'S OUTLOOK AS OF FEBRUARY 17, 2010
(PROVIDED FOR REFERENCE ONLY)
NOW SUPERSEDED BY OUTLOOK AS OF MAY 4, 2010

Years Ending December 31, 2010 and 2011

Our policy is to periodically provide guidance on certain factors that affect our future financial performance. As of February 17, 2010, we are using the following key assumptions in our projections for 2010 and 2011.

The primary changes from our January 4, 2010 Outlook are in italicized bold and are explained as follows:

1. Our production guidance has been increased;
2. Projected effects of changes in our hedging positions have been updated;
3. Certain cost assumptions have been updated;
4. Our rate of DD&A for natural gas and oil has been reduced to reflect our 2009 year-end impairment charge; and
5. Our cash flow projections have been updated, including increased drilling capital expenditures to reflect additional drilling on oil and natural gas liquids rich plays and anticipated cost inflation, partially offset by improved drilling efficiencies.

At December 31, 2009, the company had approximately $2.6 billion of cash and cash equivalents and additional borrowing capacity under its three revolving bank credit facilities.

Commodity Hedging Activities

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

All of our derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty.

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 lock in the gain or loss on the transaction.

Chesapeake enters into natural gas and oil derivative transactions in order to mitigate a portion of its exposure to adverse market changes in natural gas and oil prices. Accordingly, associated gains or losses from the derivative transactions are reflected as adjustments to natural gas and oil sales. All realized gains and losses from natural gas and oil derivatives are included in natural gas and oil sales in the month of related production. In accordance with generally accepted accounting principles, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these nonqualifying 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 natural gas and oil sales. 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 natural gas and oil sales.

The company currently has the following open natural gas swaps in place and also has the following gains from lifted natural gas trades:

The company currently has the following open natural gas collars in place:

The company currently has the following natural gas written call options in place:

The company has the following natural gas basis protection swaps in place:

The company also has the following crude oil swaps in place:

Note: Not shown above are written call options covering 1 mmbbls of oil production in 2010 at a weighted average price of $101.25 per bbl for a weighted average discount of $1.93 per bbl and 5 mmbls of oil production in 2011 at a weighted average price of $101.54 per bbl for a weighted average premium of $3.29 per bbl.

SOURCE: Chesapeake Energy Corporation

Chesapeake Energy Corporation
Investor Contacts:
Jeffrey L. Mobley, CFA, 405-767-4763
jeff.mobley@chk.com
or
John J. Kilgallon, 405-935-4441
john.kilgallon@chk.com
or
Media Contact:
Jim Gipson, 405-935-1310
jim.gipson@chk.com