NATURAL GAS: FUELING AMERICA’S FUTURE 2009 ANNUAL REPORT CHESAPEAKE ENERGY CORPORATION CORPORATE PROFILE 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. Chesapeake’s stock is listed on the New York Stock Exchange under the symbol CHK. Further information is available at www.chk.com. ON THE COVER CONTENTS Scenes from the field to the natural gas 1 FINANCIAL REVIEW fueling station depict how Chesapeake 4 LETTER TO SHAREHOLDERS explores for, produces and advocates the 14 FUELING AMERICA’S FUTURE expanded use of natural gas — the clean, 16 OPERATING AREAS affordable, abundant energy resource that 20 INVESTOR Q&A is Fueling America’s 22 SOCIAL RESPONSIBILITY Future. 24 COMMUNITY RELATIONS 26 ENVIRONMENTAL, HEALTH & SAFETY 28 BOARD OF DIRECTORS 28 GOVERNANCE 29 OFFICERS 30 EMPLOYEES 45 FORM 10-K INSIDE BACK COVER CORPORATE INFORMATION FINANCIAL REVIEW Six Months ($ in millions, except per share data) Ended Years Ended December 31 December 31 Years Ended June 30 Financial and Operating Data 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1997 1996 1995 1994 1993 Revenues Natural gas and oil sales $ 5,049 $ 7,858 $ 5,624 $ 5,619 $ 3,273 $ 1,936 $ 1,297 $ 568 $ 820 $ 470 $ 280 $ 257 $ 96 $ 193 $ 111 $ 57 $ 22 $ 12 Midstream and service operations revenue 2,653 3,771 2,176 1,707 1,392 773 420 171 149 158 75 121 58 76 35 9 7 5 TotalTotal revenuesrevenues $ 7,702 $ 11,629 $ 7,800 $ 7,326 $ 4,665 $ 2,7092,709 $ 1,7171,717 $ 739 $ 969 $ 628628 $ 355 $ 378 $ 154 $ 269 $ 146146 $ 6666 $ 29 $ 17 Operating costs Production expenses 876 889 640 490 317 205 138 98 75 50 46 51 8 11 6 3 2 3 Production taxes 107 284 216 176 208 104 78 30 33 25 13 8 2 4 2 1 2 — General and administrative expenses 349 377 243 139 64 37 24 18 15 13 13 20 6 9 5 4 3 3 Midstream and service operations expenses 2,498 3,648 2,063 1,590 1,358 755 410 166 144 152 72 119 58 75 33 8 5 4 Depreciation, depletion and amortization 1,615 2,144 1,988 1,462 945 611 386 235 182 109 103 155 63 107 54 27 10 5 Impairments and other 11,202 2,830 — 55 — 5 6 — — — — 881 110 236 — — — 1 Total operating costs 16,647 10,172 5,150 3,912 2,892 1,717 1,042 547 449 349 247 1,234 247 442 100 43 22 16 Income (loss) from operations (8,945 ) 1,457 2,650 3,414 1,773 992 675 192 520 279 108 (856 ) (93 ) (173 ) 46 23 7 1 Other income (expense) (28 ) (11 ) 15 26 10 5 1 7 3 3 8 4 79 11 4 2 1 1 Interest expense (113 ) (271 ) (401 ) (316 ) (221 ) (167 ) (154 ) (112 ) (98 ) (86 ) (81 ) (68 ) (18 ) (18 ) (14 ) (7 ) (3 ) (2 ) Miscellaneous gains (losses) (202 ) (184 ) 83 117 (70 ) (25 ) (21 ) (20 ) (63 ) — — (14 ) — (7 ) — — — — Total other income (expense) (343 ) (466 ) (303 ) (173 ) (281 ) (187 ) (174 ) (125 ) (158 ) (83 ) (73 ) (78 ) 61 (14 ) (10 ) (5 ) (2 ) (1 ) Income (loss) before income taxes and cumulative effect of accounting change (9,288 ) 991 2,347 3,241 1,492 805 501 67 362 196 35 (934 ) (32 ) (187 ) 36 18 5 — Income tax expense (benefit): Current 4 423 29 5 — — 5 (2 ) 4 — — — — — — — — — Deferred (3,487 ) (36 ) 863 1,242 545 290 185 29 141 (260 ) 2 — — (4 ) 13 6 1 — Net income (loss) before cumulative effect of accounting change, net of tax (5,805 ) 604 1,455 1,994 947 515 311 40 217 456 33 (934 ) (32 ) (183 ) 23 12 4 — Net (income) loss attributable to noncontrolling interest (25 ) — — — — — — — — — — — — — — — — — Cumulative effect of accounting change, net of tax — — — — — — 2 — — — — — — — — — — — Net IncomeIncome (loss)(loss) $ (5,830(5,830 ) $ 604604 $ 1,4551,455 $ 1,994 $ 947947 $ 515 $ 313133 $ 40 $ 217 $ 456 $ 33 $ ((934934 ) $ ((3232 ) $ (183(183 ) $ 23 $ 12 $ 4 — Preferred stock dividends (23 ) (33 ) (94 ) (89 ) (42 ) (40 ) (22 ) (10 ) (2 ) (9 ) (16 ) (12 ) — — — — — (1 ) Gain (loss) on redemption of preferred stock — (67 ) (128 ) (10 ) (26 ) (36 ) — — — 7 — — — — — — — — Net incomeincome (loss)(loss) availableavailable toto commoncommon stockholdersstockholders $ (5,853(5,853 ) $ 504504 $ 1,2331,233 $ 1,8951,895 $ 879879 $ 439439 $ 291 $ 30 $ 215 $ 454 $ 17 $ ((946946 ) $ ((3232 ) $ (183(183 ) $ 23 $ 12 $ 4 $ (1 ) Earnings per common share – basic: Income (loss) before cumulative effect of accounting change $ (9.57 ) $ 0.94 $ 2.70 $ 4.76 $ 2.73 $ 1.73 $ 1.36 $ 0.18 $ 1.33 $ 3.52 $ 0.17 $ (9.97 ) $ (0.45 ) $ (2.79 ) $ 0.43 $ 0.22 $ 0.08 $ (0.02 ) Cumulative effect of accounting change — — — — — — 0.02 — — — — — — — — — — — EPSEPS – basibasicc $ (9.57(9.57) $ 0.94 $ 2.2.7070 $ 44.76.76 $ 2.2.7373 $ 11.73.73 $ 11.38.38 $ 0.0.1818 $ 11.33.33 $ 3.52 $ 0.0.1717 $ (9.9(9.977) $ (0.4(0.455) $ (2.79) $ 0.0.4343 $ 0.22 $ 0.08 $ (0.02) Earnings per common share – assuming dilution: Income (loss) before cumulative effect of accounting change $ (9.57 ) $ 0.93 $ 2.63 $ 4.33 $ 2.51 $ 1.53 $ 1.20 $ 0.17 $ 1.25 $ 3.01 $ 0.16 $ (9.97 ) $ (0.45 ) $ (2.79 ) $ 0.40 $ 0.21 $ 0.08 $ (0.02 ) Cumulative effect of accounting change — — — — — — 0.01 — — — — — — — — — — — EPSEPS – assumingassuming dilutiondilution $ (9.57(9.57 ) $ 0.93 $ 2.63 $ 4.334.33 $ 2.512.51 $ 11.53.53 $ 1.211.21 $ 0.170.17 $ 1.251.25 $ 3.01 $ 0.0.1616 $ (9.97(9.97 ) $ (0.45(0.45 ) $ (2.79(2.79 ) $ 0.0.4040 $ 0.21 $ 0.08 $ (0.02(0.02 ) Cash provided by (used in) operating activities (GAAP) $ 4,356 $ 5,357 $ 4,974 $ 4,843 $ 2,407 $ 1,432 $ 939 $ 429 $ 478 $ 315 $ 145 $ 95 $ 139 $ 84 $ 121 $ 55 $ 19 $ (1 ) OperatingOperating cash flowflow (non-GAAP) * $ 4,3334,333 $ 5,2995,299 $ 4,6754,675 $ 4,0404,040 $ 22,426,426 $ 1,4031,403 $ 897 $ 409409 $ 443443 $ 306 $ 139139 $ 111188 $ 68 $ 161161 $ 88 $ 4646 $ 1616 $ 4 Balance Sheet Data (at end of period) TotalTotal assetsassets $ 29,91429,914 $ 38,59338,593 $ 30,76430,764 $ 24,41324,413 $ 116,1146,114 $ 8,2458,245 $ 4,5724,572 $ 2,8762,876 $ 2,2872,287 $ 1,4401,440 $ 851 $ 813813 $ 953 $ 949949 $ 572572 $ 277277 $ 126126 $ 7979 Long-term debt, net of current maturities 12,295 13,175 10,178 7,187 5,286 3,075 2,058 1,651 1,329 945 964 919 509 509 268 146 48 14 TotalTotal equityequity (deficit)(deficit) $ 12,341 $ 17,017 $ 12,62412,624 $ 11,366 $ 6,296,2999 $ 3,1633,163 $ 1,7331,733 $ 908908 $ 767 $ 313 $ (218(218 ) $ ((249249 ) $ 280280 $ 287287 $ 178178 $ 45 $ 3131 $ 31 Other Operating and Financial Data ProvedProved reservesreserves in naturalnatural gasgas equivalentsequivalents (bcfe)(bcfe) 14,25414,254 12,05112,051 10,87910,879 8,956 7,5217,521 4,9024,902 3,1693,169 2,2052,205 1,780 1,355 1,2061,206 1,0911,091 448448 403403 425425 243 142 137 FutureFuture net natural gasgas andand oil revenuesrevenues discountediscountedd atat 10%10% ** $ 9,4499,449 $ 15,60115,601 $ 20,57320,573 $ 13,64713,647 $ 22,93422,934 $ 10,50410,504 $ 7,3337,333 $ 3,7183,718 $ 1,6471,647 $ 66,046,046 $ 1,1,089089 $ 666611 $ 446767 $ 443737 $ 547547 $ 188188 $ 141 $ 142142 Natural gas price used in reserve report (per mcf) $ 3.13 $ 5.12 $ 6.19 $ 5.41 $ 8.76 $ 5.65 $ 5.68 $ 4.28 $ 2.51 $ 10.12 $ 2.25 $ 1.68 $ 2.29 $ 2.12 $ 2.41 $ 1.60 $ 1.98 $ 2.43 Oil price used in reserve report (per bbl) $ 56.72 $ 41.60 $ 90.58 $ 56.25 $ 56.41 $ 39.91 $ 30.22 $ 30.18 $ 18.82 $ 26.41 $ 24.72 $ 10.48 $ 17.62 $ 18.38 $ 20.90 $ 17.41 $ 18.27 $ 18.71 Natural gas production (bcf) 835 775 655 526 422 322 240 161 144 116 109 94 27 62 52 25 7 3 Oil production (mmbbl) 11.8 11.2 9.9 8.7 7.7 6.8 4.7 3.5 2.9 3.1 4.1 6.0 1.9 2.8 1.4 1.1 0.5 0.3 ProductionProduction (bcfe)(bcfe) 906906 843 714 578578 469469 363363 268268 181181 161161 134134 133133 130130 38 79 6060 32 1010 4 Sales price per mcfe *** $ 6.22 $ 8.38 $ 8.40 $ 8.86 $ 6.90 $ 5.23 $ 4.79 $ 3.61 $ 4.56 $ 3.50 $ 2.10 $ 1.97 $ 2.49 $ 2.45 $ 1.84 $ 1.78 $ 2.21 $ 2.68 Production expense per mcfe $ 0.97 $ 1.05 $ 0.90 $ 0.85 $ 0.68 $ 0.56 $ 0.51 $ 0.54 $ 0.47 $ 0.37 $ 0.35 $ 0.39 $ 0.20 $ 0.15 $ 0.11 $ 0.11 $ 0.21 $ 0.67 Production taxes per mcfe $ 0.12 $ 0.34 $ 0.30 $ 0.31 $ 0.44 $ 0.29 $ 0.29 $ 0.17 $ 0.20 $ 0.19 $ 0.10 $ 0.06 $ 0.07 $ 0.05 $ 0.03 $ 0.03 $ 0.15 — General and administrative expense per mcfe $ 0.38 $ 0.45 $ 0.34 $ 0.24 $ 0.14 $ 0.10 $ 0.09 $ 0.10 $ 0.09 $ 0.10 $ 0.10 $ 0.15 $ 0.15 $ 0.11 $ 0.08 $ 0.11 $ 0.31 $ 0.84 Depreciation, depletion and amortization expense per mcfe $ 1.78 $ 2.55 $ 2.78 $ 2.53 $ 2.02 $ 1.69 $ 1.44 $ 1.30 $ 1.12 $ 0.81 $ 0.77 $ 1.19 $ 1.63 $ 1.36 $ 0.90 $ 0.85 $ 0.99 $ 1.09 Number of employees (full-time at end of period) 8,152 7,649 6,219 4,883 2,885 1,718 1,192 866 677 462 424 481 360 362 344 325 250 150 Cash dividends declared per common share $ 0.30 $ 0.2925 $ 0.2625 $ 0.23 $ 0.195 $ 0.17 $ 0.135 $ 0.06 — — — $ 0.04 $ 0.04 $ 0.02 — — — — StockStock priceprice (at(at endend of periodperiod – ssplitplit adjusted)adjusted) $ 25.88 $ 16.1716.17 $ 39.20 $ 29.05 $ 331.731.73 $ 16.5016.50 $ 13.5813.58 $ 7.74 $ 6.61 $ 110.120.12 $ 2.38 $ 0.940.94 $ 7.507.50 $ 9.819.81 $ 29.52 $ 5.645.64 $ 0.85 $ 1.181.18 * See page 13 for definition of this non-GAAP measure.