Chesapeake Bumps Up Production in Second Quarter 2009

For the 2009 second quarter, Chesapeake Energy's daily production averaged 2.453 billion cubic feet of natural gas equivalent (bcfe), an increase of 86 million cubic feet of natural gas equivalent (mmcfe), or 4%, over the 2.367 bcfe produced per day in the 2009 first quarter and an increase of 125 mmcfe, or 5%, over the 2.328 bcfe produced per day in the 2008 second quarter. Adjusted for the company's voluntary production curtailments due to low natural gas and oil prices (which averaged approximately 74 mmcfe per day during the 2009 second quarter), the company’s three 2008 volumetric production payment sales (which averaged approximately 139 mmcfe per day during the 2009 second quarter) and the estimated impact from the company's 2008 sales of Woodford Shale and Fayetteville Shale properties (which would have averaged approximately 81 mmcfe per day during the 2009 second quarter), Chesapeake's sequential and year-over-year production growth rates would have been 4% and 16%, respectively, after making similar adjustments to prior quarters. The company is not currently curtailing production, but may do so again later this summer or fall as market conditions dictate. The company also expects that rising pipeline and gathering system pressures during the next few months will likely result in involuntary natural gas production curtailments across the industry.

Chesapeake's average daily production for the 2009 second quarter consisted of 2.245 billion cubic feet of natural gas (bcf) and 34,637 barrels of oil and natural gas liquids (bbls). The company’s 2009 second quarter production of 223.2 bcfe was comprised of 204.3 bcf (92% on a natural gas equivalent basis) and 3.152 million barrels of oil and natural gas liquids (mmbbls) (8% on a natural gas equivalent basis).

Company Increases Proved Natural Gas and Oil Reserves by 0.7 Tcfe to 12.5 Tcfe, Anticipates Reporting 2009 Second Quarter Drilling and Net Acquisition Costs of Less Than $1.00 per Mcfe; Company Record Set for Organic Reserve Additions and Reserve Replacement Over a Six-Month Period; Year-End Proved Reserve Targets for 2009 and 2010 Reaffirmed at 14 and 16 Tcfe, Respectively

Chesapeake began the 2009 second quarter with estimated proved reserves of 11.851 trillion cubic feet of natural gas equivalent (tcfe) and ended the 2009 second quarter with 12.525 tcfe, an increase of 674 bcfe, or 5.7%. During the 2009 second quarter, Chesapeake replaced 223 bcfe of production with an estimated 897 bcfe of new proved reserves for a reserve replacement rate of 402%. The quarter's reserve movement includes 493 bcfe of extensions, 343 bcfe of positive performance revisions, 156 bcfe of positive revisions resulting from natural gas and oil price increases between March 31, 2009 and June 30, 2009 and 95 bcfe of net divestitures.

During the 2009 first half, Chesapeake increased its estimated proved reserves by 474 bcfe, or 3.9%, from 12.051 tcfe at year-end 2008. For the 2009 first half, Chesapeake replaced 436 bcfe of production with an estimated 910 bcfe of new proved reserves for a reserve replacement rate of 209%. The reserve movement in the 2009 first half includes 920 bcfe of extensions, 740 bcfe of positive performance revisions, 664 bcfe of downward revisions resulting from natural gas and oil price decreases between December 31, 2008 and June 30, 2009 and 86 bcfe of net divestitures. Chesapeake's 1,660 bcfe of extensions and performance revisions in the 2009 first half set a company record for the highest level of organic reserve additions over a six-month period and its organic reserve replacement rate of 381% for the six-month period was also the highest in the company's history.

Chesapeake anticipates reporting total drilling and net acquisition costs for the 2009 second quarter of less than $1.00 per mcfe. This estimate excludes costs for the acquisition of unproved properties and leasehold, capitalized interest on unproved properties, seismic and costs relating to asset retirement obligations, and also excludes positive revisions of proved reserves from higher natural gas and oil prices. The estimate includes the benefit of drilling carries associated with the Haynesville ($118 million), Fayetteville ($166 million) and Marcellus ($27 million) joint ventures. A complete reconciliation of 2009 second quarter proved reserves and finding and acquisition costs will be provided on August 3, 2009 in conjunction with the company’s release of financial and operational results for the 2009 second quarter.

Chesapeake continued the industry’s most active drilling program during the 2009 first half, and drilled 580 gross operated wells (432 net wells with an average working interest of 74%) and participated in another 581 gross wells operated by other companies (44 net wells with an average working interest of 8%). The company's drilling success rate was 99% for both company-operated and non-operated wells. Also during the 2009 first half, Chesapeake used an average of 104 operated rigs and an average of 53 non-operated rigs.

As of June 30, 2009, the present value of future net cash flows, discounted at 10% per year, of Chesapeake's estimated proved reserves (PV-10) was $11.076 billion using field differential adjusted prices based on NYMEX quarter-end prices of $3.89 per thousand cubic feet (mcf) and $70.00 per bbl. Chesapeake's PV-10 changes by approximately $400 million for every $0.10 per mcf change in natural gas prices and approximately $65 million for every $1.00 per bbl change in oil prices.

By comparison, the December 31, 2008 PV-10 of the company's proved reserves was $15.601 billion ($11.833 billion applying the SFAS 69 standardized measure) using field differential adjusted prices based on NYMEX year-end prices of $5.71 per mcf and $44.61 per bbl. The June 30, 2008 PV-10 of the company's proved reserves was $51.5 billion using field differential adjusted prices based on NYMEX quarter-end prices of $13.10 per mcf and $140.02 per bbl.

Chesapeake's Leasehold and 3-D Seismic Inventories Total 14.3 Million Net Acres and 22.7 Million Acres; Risked Unproved Reserves in the Company’s Inventory Total 62 Tcfe and Unrisked Unproved Reserves Total 172 Tcfe

Since 2000, Chesapeake has built the largest combined inventories of onshore leasehold (14.3 million net acres) and 3-D seismic (22.7 million acres) in the U.S. and the largest inventory of U.S. Big 4 shale play leasehold (2.7 million net acres). On its leasehold at June 30, 2009, Chesapeake had identified an estimated 12.5 tcfe of proved reserves, approximately 62 tcfe of risked unproved reserves and 172 tcfe of unrisked unproved reserves. The company is currently using 95 operated drilling rigs to further develop its inventory of approximately 36,000 net drillsites, which represents more than a 10-year inventory of drilling projects.
 

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