Chesapeake Energy Reduces Drilling Budget

Chesapeake Energy plans to reduce its drilling capital expenditure (capex) budget during the second half of 2008 through year-end 2010 by approximately $3.2 billion, or 17%, in response to an approximate 50% decrease in natural gas prices since June 30, 2008 and concerns about the possibility of an emerging U.S. natural gas surplus in advance of increased demand from the U.S. transportation sector.  Of the $3.2 billion drilling capex reduction, $0.8 billion is attributable to the drilling capex carry associated with the company's recently closed Fayetteville Shale joint venture with BP America (NYSE:BP), $0.5 billion is attributable to the drilling capex carry anticipated in a Marcellus Shale joint venture and $1.9 billion is attributable to reduced drilling activity. The company plans to reduce its current operated drilling rig count of 157 rigs to approximately 140 rigs by year-end 2008 and expects to keep its rig count relatively flat through 2009 and 2010.

In addition to reducing drilling capex, Chesapeake has elected to temporarily curtail a portion of its unhedged natural gas production in the Mid-Continent region due to unusually weak wellhead natural gas prices that are substantially below industry breakeven costs. The company has curtailed approximately 100 million cubic feet (mmcf) per day of net natural gas production (approximately 125-150 mmcf per day gross) and plans to restore this production once natural gas prices recover from recently depressed wellhead price levels of $3.00 - 5.00 per thousand cubic feet (mcf). This curtailment represents approximately 4% of the company's current net natural gas and oil production capacity of over 2.3 billion cubic feet of natural gas equivalent per day (92% natural gas).

The company has also reduced its full-year 2008 production growth estimate to 18% from 21% to account for the temporary curtailment discussed above, the sale of 45 million cubic feet of natural gas equivalent (mmcfe) per day of production associated with its Fayetteville Shale joint venture with BP, the anticipated sale of 60 mmcfe per day of production in the 2008 fourth quarter associated with the company's fourth volumetric production payment (VPP) and shut-ins in the 2008 third quarter of onshore production associated with natural gas processing plant limitations as a result of damage by Hurricane Ike.

Additionally, as a result of reduced drilling activity levels announced today, the company has lowered its anticipated production growth forecasts in 2009 and 2010 to 16% per year from 19% per year. At these levels, Chesapeake believes its production growth will still remain at or near the top of its large-cap peer group, particularly in light of continued strong drilling results from its shale plays. Notably, during the month of September, Chesapeake completed three additional horizontal Haynesville Shale wells with average per well initial production rates exceeding 10 mmcfe per day bringing its total horizontal Haynesville Shale wells on production to 14.

Chesapeake Closes $1.9 Billion Fayetteville Shale 25% Joint Venture Transaction with BP and Continues Negotiations on Marcellus Shale 25% Joint Venture; Company Resumes Plans to Sell a Minority Interest in its Midstream Business for Approximately $1 Billion to Help Fund Haynesville Midstream Capex

On September 19, 2008, Chesapeake closed its Fayetteville Shale 25% joint venture transaction with BP. In this transaction, the company received $1.1 billion in cash and will receive a further $800 million during the remainder of 2008 and in 2009 through the funding of 100% of Chesapeake's 75% share of drilling and completion expenditures. In addition, Chesapeake continues to make progress in its discussions with multiple parties regarding a Marcellus Shale 25% joint venture that is anticipated to be similar in structure to the Plains Exploration & Production (NYSE:PXP) Haynesville Shale and BP Fayetteville Shale transactions. The company anticipates completing a Marcellus Shale joint venture transaction by year-end 2008.

In addition, Chesapeake has recently resumed plans to sell a minority interest in its midstream natural gas business to institutional investors. Projected proceeds of approximately $1 billion will be used to fund a portion of the costs associated with building the midstream infrastructure in various shale plays, primarily in the Haynesville Shale. In preparation for this transaction, the company is in the process of transferring all of its midstream natural gas assets outside of Appalachia, which consist primarily of gas gathering systems and processing assets, into new partnership entities managed by Chesapeake Midstream Partners, L.P. (CMP). CMP is in the process of finalizing a secured revolving credit facility for its operations with an initial borrowing capacity of $500 million. The assets managed by CMP, which are expected to continue growing substantially in future years, should generate annualized cash flow from operating activities of approximately $300 - 350 million in 2009 and $400 - 450 million in 2010. Chesapeake anticipates that in the next few years, CMP will become the largest producer-operated midstream natural gas business in the U.S.

Including planned asset sales and as a result of reduced drilling capex, Chesapeake anticipates generating excess cash of approximately $2 billion in 2009 and 2010 that will be primarily directed to debt reduction.

Natural Gas and Oil Hedging Update

As of June 30, 2008, Chesapeake's natural gas and oil hedging positions had a negative mark-to-market value of approximately $6.5 billion. Subsequent to June 30, the prices of natural gas and oil have significantly declined and Chesapeake's hedging positions had a negative mark-to-market value of approximately $500 million (including settlements for the 2008 third quarter) as of September 18, 2008, or a favorable change of approximately $6.0 billion.

For the second half of 2008 and for the full years 2009 and 2010, Chesapeake has hedged through swaps and collars approximately 83%, 72% and 46% of its expected natural gas and oil production at average prices of $9.30, $9.63 and $9.89 per thousand cubic feet of natural gas equivalent (mcfe), respectively. In addition, Chesapeake has collected approximately $400 million in premiums for written calls with strike prices above current market prices for its natural gas and oil production in the second half of 2008 and for the full years 2009 and 2010.

The company's updated forecasts for 2008 through 2010 are attached to this release in an Outlook dated September 22, 2008, labeled as Schedule "A," which begins on page 6. This Outlook has been changed from the Outlook dated July 31, 2008 (attached as Schedule "B," which begins on page 11) to reflect various updated information.

Management Comments

Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented, "During the past ten years, Chesapeake has led the E&P industry in production growth, and through our efforts and those of other leading independent producers, there are now abundant supplies of natural gas in the U.S. market. In fact, we believe there is now sufficient domestic natural gas supply growth to satisfy a growing percentage of the U.S. transportation fuel market through the use of CNG-fueled vehicles. However, until the market has sufficient incentives for service station owners to build out CNG infrastructure, for auto manufacturers to offer new CNG vehicles in large quantities and for consumers to install home refueling devices, retrofit existing vehicles and purchase new CNG vehicles, insufficient natural gas demand exists to prevent periodic declines in wellhead natural gas prices below the industry's breakeven profitability levels.

"Therefore, we believe it is in the best interests of Chesapeake's shareholders to temporarily curtail a portion of our natural gas production, reduce the company's drilling capex and lower our production growth to provide time for rising natural gas demand to catch up with increasing natural gas supply. We have made these decisions even though Chesapeake is well hedged, has one of the lowest cost structures in the large-cap E&P industry and has a substantial portion of its capex budget during the next few years carried by other companies. We will monitor market conditions and bring curtailed natural gas production volumes back on stream as prices improve. We remain confident that natural gas is the single best solution to meeting America's energy, transportation and environmental challenges in the years ahead and we will continue our industry-leading efforts to increase both supply and demand for clean, affordable and abundant American natural gas.

"We are hopeful that many of Chesapeake's shareholders, employees and royalty owners, along with public officials and natural gas consumers across the country, have seen and appreciated the company's new advertising campaign, CNG Now. We strongly believe that natural gas is the cleanest and most affordable alternative to expensive imported oil, has a very large and important role to play in rejuvenating the U.S. auto manufacturing industry, can help lower greenhouse gas emissions and can help reduce the financial burden of high gasoline prices on Americans. We intend to continue our advertising campaign and encourage producers and consumers alike to indicate their support to federal, state and local officials.

"Further, we are pleased that our Fayetteville Shale joint venture transaction with BP is now in place and look forward to completing a similar joint venture in the Marcellus Shale. We are also happy to report that we have resumed efforts to sell a $1 billion minority interest in our midstream natural gas business. Our midstream business has grown substantially over the past three years and is well positioned for further growth as it builds additional gathering infrastructure in the Barnett, Fayetteville and Haynesville Shale plays to support the company's rapid production growth in these areas. Now that the Haynesville Shale's success is more visible to potential midstream equity partners, we believe it is the right time to initiate a new process to bring in an equity partner interested in helping fund anticipated growth in our midstream business.

"Finally, I am also pleased to announce that Chesapeake completed three new horizontal Haynesville Shale wells in September with average initial production rates exceeding 10 mmcfe per day on restricted chokes with high flowing casing pressure. We look forward to initial production commencing from our first PXP joint venture Haynesville Shale well in October and will provide a full update on the Haynesville Shale and other important plays at our Investor and Analyst Meeting in Oklahoma City on October 15 and 16, 2008. This meeting will be webcast so that all investors will be able to learn more about our operations and prospects for future growth."