Chesapeake Energy Shale Operations Overview Pennsylvania

Natural Gas Uses

Residential and Commercial Cooking, washing, drying, warming water, heating and air conditioning Industrial Pulp and paper, metals, chemicals, stone, clay, glass, process foods, treat waste, incineration, drying, dehumidification, heating and cooling Power Generation Electric utilities and independent producers increasingly using natural gas to provide energy for power plants because: lower capital costs, built faster, work more efficiently, emit less pollution than fossil fuel plants. Transportation Compressed natural gas (CNG) for smaller to mid-size vehicles and fleets Liquefied natural gas (LNG) for mid-size to large vehicles and fleets 12 Million CNG Vehicles Worldwide: 2.7MM in Pakistan, 1.9MM in Iran and Argentina, Fuel cost is 50% less than gasoline

1.6MM in Brazil, only 112,000 in US and 30% less CO2

2 Chesapeake’s Key Operating Areas

Transition toward greater development of unconventional oil and NGL resources in the U.S.

3 Characteristics of the Marcellus Shale

• Deep geologic formation stretching over 95,000 square miles in parts of Ohio, West Virginia, Pennsylvania and New York • 4,000-8,500 feet below ground surface • Between 50 and 200 feet thick • Potential to be the largest natural gas field in the U.S., second largest in the world behind South Pars/North Field off-shore in the Persian Gulf shared by Qatar and Iran • Estimated to hold more than 500 trillion cubic feet of natural gas (estimated value >$1 trillion) • Low permeability • Requires combination of horizontal drilling and hydraulic fracturing

4 Chesapeake Energy Overview

Founded in 1989

Headquartered in Oklahoma City, Oklahoma Offices regionally located in West Virginia (Charleston and Jane Lew) and in Pennsylvania (Mt. Morris, Canonsburg, Harrisburg and Towanda)

Exclusive U.S. onshore focus

Second-largest producer of U.S. natural gas and a Top 15 producer of U.S. liquids 3Q’11 natural gas production of ~2.8 Bcf/d 3Q’11 liquids production of ~94 mbbls/d 22 consecutive years of sequential production growth

Nation’s most active explorer 1993-2012 ~ 11,500 producing wells 44,100 total producing natural gas and oil wells (includes legacy wells)

5 Chesapeake Energy Overview

#1 driller in the world of horizontal wells Over the past 20 years: ~5,000 wells

Nation’s most active horizontal driller 1993-2012 ~165 operated rigs nationwide ― 29 rigs currently drilling in Eastern Division » 17 in Marcellus North » 7 in Marcellus South » 5 in Utica ― 40+ rigs projected in Eastern Division in 2012 ― ~350 wells drilled in Eastern Division in 2011 ― ~380 wells projected in Eastern Division in 2012

Unparalleled inventory of U.S. onshore leasehold and 3-D seismic Higher production rates, less risk

Exceptional drilling success rate – 98%

6

Marcellus and Utica Shale Overview

Top leaseholder in U.S. shale plays #1 in Marcellus Shale: 1,780,000 net acres #1 Utica Shale: 1,360,000 net acres #1 Haynesville Shale: 460,000 net acres #2 Barnett Shale: 220,000 net acres Advantageous JV arrangements Marcellus: StatoilHydro (STO) Utica: Total (TOT) Barnett: Total (TOT) Haynesville: Plains Exploration and Production Company (PXP) Eagle Ford and Niobrara: Chinese National Offshore Oil Corporation (CNOOC) CHK the largest producer in the Marcellus 3Q’11 average production of 723 Mmcf/d Estimated Ultimate Recovery (EUR) per well of 5.75 Bcfe (Marcellus Shale)

7 Chesapeake’s Marcellus Production Growth

Producing Wells 800 71 at year end 2009 183 at year end 2010 700 Producing 286 at year end 2011 Wells 600

Average Daily Production 500 Average 63 Mmcf/day in 2009 400 Daily 272 Mmcf/day in 2010 Production 695 Mmcf/day in 2011 300 (Mmcf/d) Cumulative Cumulative Production 200 Production 23 Bcf in 2009 per Year 119 Bcf in 2010 100 (Bcf) 371 Bcf in 2011 0 2009 2010 2011

8 Oil and Gas Regulation

Myth: “..... the U.S. oil and gas production industry….. Has enjoyed loopholes in federal laws that allow it to pollute the land, air and water, and release toxic substances into the environment.” NRDC Press Release, October 31, 2007

Fact: Development of natural gas is regulated under a system of interrelated, interdependent, and overlapping federal, state and local laws that address exploration and operation.

9 What Applies to Oil and Gas Operations?

Clean Water Act (CWA) Regulates surface discharges of water associated with drilling and production Storm water runoff from drilling and production sites Underground Injection Control (UIC) program of the Safe Drinking Water Act (SDWA) Regulates the underground injection of wastes from all industries including oil and gas Clean Air Act (CAA) Limits air emissions from engines, gas processing equipment and other sources associated with drilling and production Resource Conservation and Recovery Act (RCRA) Requires industry to handle and dispose of its waste or refuse according to specific guidelines National Environmental Policy Act (NEPA) Requires that exploration and production on federal lands be thoroughly analyzed for environmental impacts Occupational Safety and Health Act (OSHA) Protects the health and safety of oil and gas workers, as well as other industries

State and local regulations must be as stringent, and often are more stringent, than federal rules and regulations. 10 Issues Regulated

. Air Quality . Employee Safety . Groundwater Protection . Public Safety (Surface Casing Programs) . Erosion and Sediment Control . Noise . Waste Handling Disposal . Placement/Construction of Wellbores . Well Density/Spacing . Well Production . Well Testing . Surface Water Protection . Floodplains . Water Use . Fluid Handling/Disposal . Road Use . Incident Reporting . Spill Response & Remedial Measures . Wetlands . Chemical Handling & Transportation . Stream Crossings . Cultural Resources . Threatened and Endangered Species

11 Findings and Reports

Among large counties (75,000 or more employees), Washington County, Pa. had the third highest percent increase (4.3%) in employment in the nation between March 2010 and March 2011 according to the U.S. Bureau of Labor Statistics. “Most of the job growth there is tied to Marcellus Shale gas drilling.” ― Scott Fergus, Washington County Director of Administration, 9/30/11

“We have not seen any impacts to groundwater as a result of hydraulic fracturing.” ― Robert Abbey, Director of U.S. Bureau of Land Management, 7/8/11

“The screening results found to date do not indicate a potential for major air related health issues associated with Marcellus Shale drilling activities.” ― PA DEP air quality studies in southwest and northeast PA, 11/1/10

12 The Production Process

Four basic steps to production:

1. Site selection and well pad preparation 2. Drilling the well 3. Completing the well 4. Marketing the gas and reclaiming the site

Plus:

Best Management Practices (BMPs) Economic Impact of the Marcellus Shale

13 Safety Is a Top Priority

Wells are drilled and constructed to recover the natural resources while protecting the environment and providing for the safety of workers and area residents SAFE: Stay Accident Free Everyday Employees attend two-day SAFE workshops SAFE program focuses on developing safe behaviors, promoting a safety-conscious culture and reducing risk in all operating areas Reward and recognize employees for contributing to safe working environments Protecting the community Establish road guidelines for Chesapeake traffic Use staging areas when necessary Dispatch roving patrol vehicle to monitor Chesapeake traffic Maintain and restore damaged roads Coordinate with school transportation departments Communicate with local emergency response personnel and provide weekly operational updates Inform and update local officials on status of operations and residents’ concerns Work with operations personnel to report issues to 911 office, including non-emergency situations

14 Step 1

Site selection and well pad preparation

15 Site Selection

A number of factors are considered in selecting a drilling site: Leasehold Favorable geology Topography Access Roads Routes for pipelines and utilities Environmental factors such as wetlands and sensitive wildlife habitat Available water source(s)

16 Well Pad Preparation

Well pads can be located in rural or urban areas Pad preparation requires approximately 4-6 weeks Typical horizontal well pad requires ~5 acres to construct (not including fresh water impoundments and access roads)

17 Step 2

Drilling the well using horizontal drilling

18 Advanced Drilling Technologies Reduce Surface Footprint

Vertical drilling patterns required: Up to 32 well pads needed to recover the natural resources from 1280 acres (an average unit size) Multiple roads with pipelines and utilities required to access the wells Total surface disturbance was ~45 acres

19 Extraordinary Technology Advances Extract Natural Gas More Effectively

Horizontal drilling substantially reduces surface footprint 6-8 horizontal wells anticipated drilled from each 5 acre pad Each independent well is individually permitted and regulated by the state’s DEP Only one road with pipeline and utilities to well pad Approximately 85% less surface disturbance compared to vertical wells

20 Drilling the Well Using Today’s New Technology

Drilling is a 24/7 operation Reduces rig time on location

Drilling typically lasts 3-4 weeks per wellbore

“Closed-loop” drilling system All drilling materials are contained No materials collected in earthen pits

21 Drilling the Well-Groundwater Protection

4 or more layers of protection are installed in the well to isolate the well from the surrounding strata and protect groundwater supplies and the environment

Surface casing and cement seal Production casing and cement seal Production tubing On some wells, an intermediate string of casing and cement is installed Formation Integrity Test performed and Cement Bond Logs Recorded Pre-Drill Water Well Testing

22 How Deep?

23 Step 3

Completing the well: hydraulic fracturing or well completion

24 Well Completion

After the drilling rig is removed, hydraulic fracturing (“fracing”) begins Fracing is a process to stimulate natural resource production from the hard shale Impoundments, if necessary, hold freshwater only The shale is fractured in stages using a perforating tool Water is mixed with proppant (such as sand) and pumped into the shale reservoir under pressure Generally takes several days per wellbore

25 What does it look like?

Typical Site Layout

Frac Tanks – hold produced water Sand Storage Units

Frac Head Frac Pumps

Data Monitoring Van Blender

Chemical Storage Working Tanks – stage fresh water

26 Process Currently recycling/reusing nearly 100% of produced water Produced water is collected and stored in holding tanks onsite. Then pumped from the tanks through 20-micron filter

Blended with fresh water during the next fracturing job Benefits Reduces or eliminates need for water to be sent

off-site for disposal Reduces impact on local supplies Reduces truck traffic, lowers impact on roads, noise and air

27 Typical Deep Shale Gas Fracturing Mixture

Other: 0.5% Water and Sand: 99.5% Acid Friction Reducer Surfactant Gelling Agent Scale Inhibitor pH Adjusting Agent Breaker Crosslinker Iron Control Corrosion Inhibitor Antibacterial Agent Clay Stabilizer

Not ALL of the chemicals are used in every well. Chesapeake actively participates in a national publicly accessible web-based registry to report the additives used in the process on a well-by-well basis. www.fracfocus.org

28 Fracturing Fluid Additives

29 Water Use Efficiency in Natural Gas Plays

Chesapeake Energy Three Major Deep Shale Plays

Resulting Energy From CHK Est. Avg. Natural Average Water Use Per Natural Gas Production Shale Play Gas Production Over Water Use Efficiency Well 1 Per Well (in gallons per MMBtu) Well Lifetime 2 (based on 1,028 Btu per Cubic Feet )3

Haynesville 5.6 million gallons 6.50 billion cubic feet 6.68 trillion Btu 0.84

Marcellus 5.6 million gallons 5.75 billion cubic feet 5.91 trillion Btu 0.95

Barnett 4.8 million gallons 3.30 billion cubic feet 3.39 trillion Btu 1.32

Source: 1Chesapeake Energy 2009b, 2Chesapeake Energy 2011c, 3USDOE 2007 British Thermal Unit (Btu) Million British Thermal Units (MMBtu) 30 Raw Fuel Source Water Use Efficiency

Energy resource Range of gallons of water used per MMBtu of energy produced Chesapeake deep shale natural gas* 0.84-1.32

Conventional natural gas 1-3 Coal (no slurry transport) 2-8 (with slurry transport) 13-32 Nuclear (processed uranium ready to use in plant) 8-14

Conventional oil 8-20 Synfuel – coal gasification 11-26 Oil shale petroleum 22-56 Tar sands petroleum 27-68 Synfuel – Fisher Tropsch (Coal) 41-60 Enhanced oil recovery (Coal) 21-2,500 Biofuels (Irrigated Corn Ethanol, Irrigated Soy >2,500 Biodiesel)

Source: USDOE 2006 (other than CHK data) *Does not include processing which can add from 0 - 2 gallons per MMBtu Solar and wind not included in table (require virtually no water for processing) Values in table are location independent (domestically produced fuels are more water efficient than imported fuels) 31 Step 4

Marketing the gas and reclaiming the site

32 Marketing /Production to Sales

 Gas and produced water reach surface

 Gas and water are separated by the “Separator”

 Gas travels through sales meter to pipeline

 Pipeline carries gas to market

 Produced water is retained on location in tanks until removed via truck

 CHK has its own MidStream and Marketing (CEMI) Company

33 Reclaiming the Site

Site is reclaimed and landscaped Pad site is reduced to the space needed for necessary production equipment, which will vary based on gas analytics Production equipment could include, but is not limited to, compressor units (not stations), vapor destruction units and storage tanks All access roads remain and are maintained by Chesapeake Occurs when all work on the site is complete Company returns regularly Maintain equipment/monitor production rate, empty tanks

34 Best Management Practices

Exceeding State and Federal Regulation

35 BMPs

Pre-job safety meetings

Erosion and sediment controls follow New York State Department of Environmental Conservation Standards

Berms and trenching on all sites

Pre-drill testing of water wells out to 2,500 feet from the wellhead

Closed-loop drilling system

Use of air drilling through freshwater aquifers

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BMPs Continued

Equipment staged for visual inspection of potential leak points

Chemical containers, tanks and process vessels placed inside lined containment

Hoses and fittings utilize drip pots and troughs under connections

Use of freshwater impoundments only

Aqua Renew Program

Condensate Management Plan Personal and fixed vapor monitoring All employees authorized to stop work activity Wells shut in with remote shut-off

37 Internal Auditing Program

Commenced in 2009 in the Marcellus Play Performed by a third-party firm 40-50 audits/week Sites audited: Pad construction, drilling, completions (including impoundments), production and temporarily inactive sites Elements that are audited: E&S controls Containment Spill prevention Residual waste management Stream crossings

38 Economic Impact of the Marcellus Shale

39 Penn State University Economic Study

The Marcellus industry generated $1.08 billion in state and local taxes in PA in 2010. The industry is expected to generate $1.23 billion in state and local taxes in PA in 2011. The Marcellus industry accounted for nearly 140,000 jobs through 2010 Lease and bonus payments by Marcellus Shale producers totaled $2.06 billion in 2010, with over $1.6 billion paid to individual landowners $11.5 billion total investment For every $1 invested by Marcellus Shale producers, nearly $2 of total economic output is generated as a result Projected natural gas output of 3.5Bcf/day for 2011 6.7 Bcf/day for 2012 12.0 Bcf/day for 2015 17.5 Bcf/day for 2020

Study released 7/2011

40 PSU Study Continued

2011 2012 Economic value added: - Value added: $12.844 billion $14.531 billion State and local taxes: - State and local taxes: $1.231 billion $1.402 billion Jobs: 156,695 - Jobs: 181,335

2015 2020 Value added: -Value added:

$17.195 billion $20.246 billion State and local taxes: - State and local taxes: $1.677 billion $2.003 billion Jobs: 215,979 - Jobs: 256,420

41 Chesapeake Energy Impact/PA

Currently has drilled over 350 Marcellus wells First well drilled in February 2009 Nearly 1,500 employees in PA Fewer than 250 employees in January 2009 Over $1.5 billion for leases paid to landowners since 2008 Over $400 million in contracts to vendors since 2009 Community Investment in PA Over $1.3 million in community investment in 2010 Over $822,000 in community investment in 2011*

* As of July 2011

42 Natural Gas Advantages

Clean Cleanest burning hydrocarbon on the planet

No SO2, no Mercury, negligible particulates 80% less NOx than coal

50% less CO2 than coal, 30% less CO2 than oil Abundant North America has 200-year supply Marcellus Shale has 40-year supply Affordable Natural gas is attractively priced relative to oil American 98% of the natural gas Americans use comes from the U.S. and Canada Reduce our oil addiction Improve our energy budget, national security and the U.S. Dollar

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Thank You!

Contact Info:

Corporate Development Southpointe Office 724-873-5059 AskChesapeake.com

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