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CHESAPEAKE ENERGY CORPORATION
2012 ANNUAL REPORT
(1) The peer group comprises of Anadarko Petroleum Corporation, Apache Corporation, Devon Energy Corporation, Encana Corporation and EOG Resources, Inc.
CHESAPEAKE’S COMMON STOCK PRICE Chesapeake’s Stock Price at Month End
Henry Hub Natural Gas Spot Price at Month End
CHESAPEAKE ENERGY CORPORATION (NYSE:CHK) is the second-largest producer of
natural gas, a top 11 producer of oil and natural gas liquids and the most active driller of 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 Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Missis-
sippi Lime and Niobrara unconventional liquids plays and in the Haynesville/Bossier, Marcellus and Barnett unconventional
natural gas shale plays. The company also owns substantial marketing, compression and oilfield services businesses through
its subsidiaries Chesapeake Energy Marketing, Inc., MidCon Compression, L.L.C. and Chesapeake Oilfield Operating, L.L.C.
PRODUCTION GROWTHAverage mmcfe per day for year
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0807 09 10 11 1206050403
PROVED RESERVE GROWTHBcfe at end of year
1009080706050403 11 120
5,000
10,000
15,000
20,000
CHK
Com
mon
Sto
ck P
rice
$/m
cf
DEC 02 DEC 03 DEC 04 DEC 05 DEC 06 DEC 07 DEC 08 DEC 09 DEC 10 DEC 11 DEC 12$ 0
$ 10
$ 20
$ 30
$ 40
$ 50
$ 60
$ 70
$ 80
$ 0
$ 5
$ 10
$ 15
$ 20
07 08 09 10 11 12$ 0
$ 60
$ 40
$ 20
$ 80
$ 100
$ 120
CHESAPEAKE’S FIVE-YEAR COMMON STOCK PERFORMANCE The graph assumes an investment of $100 on December
31, 2007 and the reinvestment of all dividends.
CHK S&P 500 Peer Group (1)
The past year has been a defining one for Chesapeake as
we implemented many strategic and financial changes and
several important governance enhancements, all while
navigating the lowest natural gas prices in over a decade.
In 2012, we sold non-core assets, increased our liquids
production, reduced our overall rig count by nearly half, op-
timized our capital expenditures, reduced administrative and
operating costs, improved safety across our operations and
strengthened our overall financial position. Five new indepen-
dent directors and a new independent, non-executive Chair-
man have been appointed to our Board of Directors since
June 2012. Aubrey K. McClendon, our co-founder and Chief
Executive Officer, agreed with the Board to retire on April 1,
2013, and I have been tasked to serve as Acting Chief Execu-
tive Officer and as a member of a newly created three-person
Office of the Chairman. Additionally, we implemented gover-
nance reforms focused on enhancing financial and manage-
ment oversight, Board accountability to shareholders and cor-
porate responsibility. I am very proud of our accomplishments
and the contributions of our employees, who remain dedicated
and focused in a challenging market environment.
Looking ahead, Chesapeake’s management and Board are
aligned on the company’s business strategy and objectives. We
will continue to execute our plan to develop existing assets,
optimize our portfolio through targeted asset sales, strengthen
our balance sheet and drive capital efficiencies throughout our
organization. I am confident this strategy will generate more
efficient production growth, stronger cash flow, better returns
on capital and greatly improved shareholder returns.
As I write this letter, our operations continue to perform ex-
ceptionally well. The three main initiatives contributing to our
strong operational performance and improving financial position
include our shift to liquids, drilling the “core of the core” of our
acreage and selling non-core assets.
SHIFT TO LIQUIDSChesapeake entered 2012 focused on continued growth of
oil and natural gas liquids production to provide a more bal-
anced portfolio of cash-flow generating assets. This initiative
has been under way since 2010, and I am pleased to report
great progress. During 2012, our liquids production increased
nearly 47,000 barrels per day, or 54% year over year — ranking
Chesapeake among the top three organic liquids growth stories
in the industry. Our liquids plays are generating the strongest
returns in the company, and we have accordingly allocated ap-
proximately 85% of our drilling and completion capital to liquids
plays in 2013.
DRILLING THE CORE OF THE COREChesapeake has shifted its operational strategy from capturing
acreage to developing our extensive existing acreage positions.
Chesapeake has invested billions of dollars in leasehold and
infrastructure to deliver decades of production growth and cash
flow. It is now time to realize the benefits of our investments and
deliver efficiency gains as we transition from hold-by-production
drilling to pad drilling across our asset base. Our emphasis will
be to concentrate on the core of the core in these plays, which
means drilling our best well next.
ASSET SALESAs a part of our ongoing efforts to strengthen our financial posi-
tion and meet our funding objectives, we are executing an asset
sales program primarily targeting non-core assets. This enables
us to redirect capital to higher rate-of-return drilling projects and
reduces our total invested capital. During 2012, we sold nearly
$12 billion of assets, with the largest sales comprising our exits
from the Permian Basin and the midstream business. In 2013,
we are well on our way to achiev-
ing our target of $4 to $7 billion
in asset sales.
OUR PATH FORWARDChesapeake has built one of the
largest resource bases in the
domestic exploration and produc-
tion industry, which we believe
will serve as the foundation for
strong shareholder returns for
decades to come. However, the
path forward for Chesapeake and
its shareholders is very different from our past. Our next chap-
ter will be characterized by continued operational excellence; a
prudent approach to funding future growth through fiscal and
capital discipline; an increased emphasis on safety, the environ-
ment and corporate governance; and a commitment to better
returns for our shareholders.
I believe we have the best employees and assets in the
business, which will enable Chesapeake to further its leader-
ship position in the energy industry. As we continue to deliver
on our plan, Chesapeake will grow stronger and more profitable,
and we are also well positioned to reap the benefits of a natural
gas price recovery, which we believe is beginning to take hold. In
my 22 years with Chesapeake, I have never been more excited
and energized about our future, and I look forward to Chesa-
peake delivering strong results for our shareholders in 2013
and the years ahead.
DEAR SHAREHOLDERS,
Best regards,
Steven C. Dixon
Acting Chief Executive Officer
Chief Operating Officer
April 15, 2013
FINANCIAL REVIEW ($ in millions, except per share data)
(a) A non-GAAP measure defined as cash provided by (used in) operating activities before changes in assets and liabilities. Please refer to the Investors section of our website at www.chk.com for reconciliations of non-GAAP financial measures to comparable financial measures calculated in accordance with generally accepted accounting principles.
(b) PV-10 is the present value (10% discount rate) of estimated future gross revenues to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs calculated in accordance with SEC regulations in effect at the respective year ends. Please see pages 155–157 of our Form 10-K for information on the standardized measure of discounted future net revenues.
(c) Adjusted for field differentials.(d) Prior to 2010, NGL revenues and volumes were not material for separate presentation.(e) Excludes unrealized gains (losses) on natural gas and oil hedging.
Years Ended December 31 Years Ended December 31
Six MonthsEnded
December 31Years Ended June 30
Financial and Operating Data 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1997 1996 1995 1994 1993Revenues: Natural gas, oil and NGL $ 6,278 $ 6,024 $ 5,647 $ 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 Marketing, gathering and compression 5,431 5,090 3,479 2,463 3,598 2,040 1,577 1,392 773 420 171 149 158 75 121 58 76 35 9 7 5 Oilfield services 607 521 240 190 173 136 130 — — — — — — — — — — — — — — Total revenues $ 12,316 $ 11,635 $ 9,366 $ 7,702 $ 11,629 $ 7,800 $ 7,326 $ 4,665 $ 2,709 $ 1,717 $ 739 $ 969 $ 628 $ 355 $ 378 $ 154 $ 269 $ 146 $ 66 $ 29 $ 17 Operating expenses: Natural gas, oil and NGL production 1,304 1,073 893 876 889 640 490 317 205 138 98 75 50 46 51 8 11 6 3 2 3 Production taxes 188 192 157 107 284 216 176 208 104 78 30 33 25 13 8 2 4 2 1 2 — Marketing, gathering and compression 5,312 4,967 3,352 2,316 3,505 1,969 1,522 1,358 755 410 166 144 152 72 119 58 75 33 8 5 4 Oilfield services 465 402 208 182 143 94 68 — — — — — — — — — — — — — — General and administrative 535 548 453 349 377 243 139 64 37 24 18 15 13 13 20 6 9 5 4 3 3 Depreciation, depletion and amortization 2,811 1,923 1,614 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 3,395 (391 ) (116 ) 11,202 2,830 — 55 — 5 6 — — — — 881 110 236 — — — 1 Total operating expenses 14,010 8,714 6,561 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 (1,694 ) 2,921 2,805 (8,945 ) 1,457 2,650 3,414 1,773 992 675 192 520 279 108 (856 ) (93 ) (173 ) 46 23 7 1 Interest expense (77 ) (44 ) (19 ) (113 ) (271 ) (401 ) (316 ) (221 ) (167 ) (154 ) (112 ) (98 ) (86 ) (81 ) (68 ) (18 ) (18 ) (14 ) (7 ) (3 ) (2 )Other income (expense) (95 ) 179 243 (28 ) (11 ) 15 26 10 5 1 7 3 3 8 4 79 11 4 2 1 1 Miscellaneous gains (losses) 892 (176 ) (145 ) (202 ) (184 ) 83 117 (70 ) (25 ) (21 ) (20 ) (63 ) — — (14 ) — (7 ) — — — — Total other income (expense) 720 (41 ) 79 (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 (974 ) 2,880 2,884 (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 income taxes 47 13 — 4 423 29 5 — — 5 (2 ) 4 — — — — — — — — — Deferred income taxes (427 ) 1,110 1,110 (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 (594 ) 1,757 1,774 (5,805 ) 604 1,455 1,994 947 515 311 40 217 456 33 (934 ) (32 ) (183 ) 23 12 4 — Net income attributable to noncontrolling interests (175 ) (15 ) — (25 ) — — — — — — — — — — — — — — — — — Cumulative effect of accounting change, net of tax — — — — — — — — — 2 — — — — — — — — — — — Net income (loss) attributable to Chesapeake $ (769 ) $ 1,742 $ 1,774 $ (5,830 ) $ 604 $ 1,455 $ 1,994 $ 947 $ 515 $ 313 $ 40 $ 217 $ 456 $ 33 $ (934 ) $ (32 ) $ (183 ) $ 23 $ 12 $ 4 — Preferred stock dividends (171 ) (172 ) (111 ) (23 ) (33 ) (94 ) (89 ) (42 ) (40 ) (22 ) (10 ) (2 ) (9 ) (16 ) (12 ) — — — — — (1 )Gain (loss) on conversion/exchange of preferred stock — — — — (67 ) (128 ) (10 ) (26 ) (36 ) — — — 7 — — — — — — — — Net income (loss) available to common stockholders $ (940 ) $ 1,570 $ 1,663 $ (5,853 ) $ 504 $ 1,233 $ 1,895 $ 879 $ 439 $ 291 $ 30 $ 215 $ 454 $ 17 $ (946 ) $ (32 ) $ (183 ) $ 23 $ 12 $ 4 $ (1 )Earnings per common share – basic: Income (loss) before cumulative effect of accounting change $ (1.46 ) $ 2.47 $ 2.63 $ (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 — — — — — — — — — — — EPS – basic $ (1.46 ) $ 2.47 $ 2.63 $ (9.57 ) $ 0.94 $ 2.70 $ 4.76 $ 2.73 $ 1.73 $ 1.38 $ 0.18 $ 1.33 $ 3.52 $ 0.17 $ (9.97 ) $ (0.45 ) $ (2.79 ) $ 0.43 $ 0.22 $ 0.08 $ (0.02 )Earnings per common share – diluted: Income (loss) before cumulative effect of accounting change $ (1.46 ) $ 2.32 $ 2.51 $ (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 — — — — — — — — — — — EPS – diluted $ (1.46 ) $ 2.32 $ 2.51 $ (9.57 ) $ 0.93 $ 2.63 $ 4.33 $ 2.51 $ 1.53 $ 1.21 $ 0.17 $ 1.25 $ 3.01 $ 0.16 $ (9.97 ) $ (0.45 ) $ (2.79 ) $ 0.40 $ 0.21 $ 0.08 $ (0.02 )Cash provided by (used in) operating activities (GAAP) $ 2,837 $ 5,903 $ 5,117 $ 4,356 $ 5,357 $ 4,974 $ 4,843 $ 2,407 $ 1,432 $ 939 $ 429 $ 478 $ 315 $ 145 $ 95 $ 139 $ 84 $ 121 $ 55 $ 19 $ (1 )Operating cash flow (non-GAAP) (a) $ 4,069 $ 5,309 $ 5,168 $ 4,487 $ 5,299 $ 4,675 $ 4,040 $ 2,426 $ 1,403 $ 897 $ 409 $ 443 $ 306 $ 139 $ 118 $ 68 $ 161 $ 88 $ 46 $ 16 $ 4
Balance Sheet Data (at end of period)Total assets $ 41,611 $ 41,835 $ 37,179 $ 29,914 $ 38,593 $ 30,764 $ 24,413 $ 16,114 $ 8,245 $ 4,572 $ 2,876 $ 2,287 $ 1,440 $ 851 $ 813 $ 953 $ 949 $ 572 $ 277 $ 126 $ 79 Long-term debt, net of current maturities $ 12,157 $ 10,626 $ 12,640 $ 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 Total equity (deficit) $ 17,896 $ 17,961 $ 15,264 $ 12,341 $ 17,017 $ 12,624 $ 11,366 $ 6,299 $ 3,163 $ 1,733 $ 908 $ 767 $ 313 $ (218 ) $ (249 ) $ 280 $ 287 $ 178 $ 45 $ 31 $ 31
Other Operating and Financial DataProved reserves in natural gas equivalents (bcfe) 15,690 18,789 17,096 14,254 12,051 10,879 8,956 7,521 4,902 3,169 2,205 1,780 1,355 1,206 1,091 448 403 425 243 142 137 Discounted future net natural gas and oil revenues (PV-10) (b) $ 17,773 $ 19,878 $ 15,146 $ 9,449 $ 15,601 $ 20,573 $ 13,647 $ 22,934 $ 10,504 $ 7,333 $ 3,718 $ 1,647 $ 6,046 $ 1,089 $ 661 $ 467 $ 437 $ 547 $ 188 $ 141 $ 142 Natural gas price used in reserve report (per mcf) (c) $ 1.75 $ 3.19 $ 3.52 $ 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) (c) $ 91.78 $ 88.50 $ 75.17 $ 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 NGL price used in reserve report (per bbl) (c)(d) $ 30.81 $ 40.38 $ 32.06 — — — — — — — — — — — — — — — — — — Natural gas production (bcf) 1,129 1,004 925 835 775 655 526 422 322 240 161 144 116 109 94 27 62 52 25 7 3 Oil production (mmbbl) 31.3 17.0 10.9 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 NGL production (mmbbl) (d) 17.6 14.7 7.5 — — — — — — — — — — — — — — — — — — Production (bcfe) 1,422 1,194 1,035 906 843 714 578 469 363 268 181 161 134 133 130 38 79 60 32 10 4 Sales price per mcfe (e) $ 4.02 $ 5.70 $ 6.09 $ 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 $ 0.92 $ 0.90 $ 0.86 $ 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 $ 0.13 $ 0.16 $ 0.15 $ 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 $ 0.46 $ 0.44 $ 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 $ 1.97 $ 1.61 $ 1.56 $ 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) 11,989 12,598 10,021 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 $ 0.3500 $ 0.3375 $ 0.3000 $ 0.3000 $ 0.2925 $ 0.2625 $ 0.2300 $ 0.1950 $ 0.1700 $ 0.1350 $ 0.0600 — — — $ 0.04 $ 0.04 $ 0.02 — — — — Stock price (at end of period – split adjusted) $ 16.62 $ 22.29 $ 25.91 $ 25.88 $ 16.17 $ 39.20 $ 29.05 $ 31.73 $ 16.50 $ 13.58 $ 7.74 $ 6.61 $ 10.12 $ 2.38 $ 0.94 $ 7.50 $ 9.81 $ 29.52 $ 5.64 $ 0.85 $ 1.18
FINANCIAL REVIEW ($ in millions, except per share data)
(a) A non-GAAP measure defined as cash provided by (used in) operating activities before changes in assets and liabilities. Please refer to the Investors section of our website at www.chk.com for reconciliations of non-GAAP financial measures to comparable financial measures calculated in accordance with generally accepted accounting principles.
(b) PV-10 is the present value (10% discount rate) of estimated future gross revenues to be generated from the production of proved reserves, net of estimated production and future development costs, using prices and costs calculated in accordance with SEC regulations in effect at the respective year ends. Please see pages 155–157 of our Form 10-K for information on the standardized measure of discounted future net revenues.
(c) Adjusted for field differentials.(d) Prior to 2010, NGL revenues and volumes were not material for separate presentation.(e) Excludes unrealized gains (losses) on natural gas and oil hedging.
Years Ended December 31 Years Ended December 31
Six MonthsEnded
December 31Years Ended June 30
Financial and Operating Data 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1997 1996 1995 1994 1993Revenues: Natural gas, oil and NGL $ 6,278 $ 6,024 $ 5,647 $ 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 Marketing, gathering and compression 5,431 5,090 3,479 2,463 3,598 2,040 1,577 1,392 773 420 171 149 158 75 121 58 76 35 9 7 5 Oilfield services 607 521 240 190 173 136 130 — — — — — — — — — — — — — — Total revenues $ 12,316 $ 11,635 $ 9,366 $ 7,702 $ 11,629 $ 7,800 $ 7,326 $ 4,665 $ 2,709 $ 1,717 $ 739 $ 969 $ 628 $ 355 $ 378 $ 154 $ 269 $ 146 $ 66 $ 29 $ 17 Operating expenses: Natural gas, oil and NGL production 1,304 1,073 893 876 889 640 490 317 205 138 98 75 50 46 51 8 11 6 3 2 3 Production taxes 188 192 157 107 284 216 176 208 104 78 30 33 25 13 8 2 4 2 1 2 — Marketing, gathering and compression 5,312 4,967 3,352 2,316 3,505 1,969 1,522 1,358 755 410 166 144 152 72 119 58 75 33 8 5 4 Oilfield services 465 402 208 182 143 94 68 — — — — — — — — — — — — — — General and administrative 535 548 453 349 377 243 139 64 37 24 18 15 13 13 20 6 9 5 4 3 3 Depreciation, depletion and amortization 2,811 1,923 1,614 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 3,395 (391 ) (116 ) 11,202 2,830 — 55 — 5 6 — — — — 881 110 236 — — — 1 Total operating expenses 14,010 8,714 6,561 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 (1,694 ) 2,921 2,805 (8,945 ) 1,457 2,650 3,414 1,773 992 675 192 520 279 108 (856 ) (93 ) (173 ) 46 23 7 1 Interest expense (77 ) (44 ) (19 ) (113 ) (271 ) (401 ) (316 ) (221 ) (167 ) (154 ) (112 ) (98 ) (86 ) (81 ) (68 ) (18 ) (18 ) (14 ) (7 ) (3 ) (2 )Other income (expense) (95 ) 179 243 (28 ) (11 ) 15 26 10 5 1 7 3 3 8 4 79 11 4 2 1 1 Miscellaneous gains (losses) 892 (176 ) (145 ) (202 ) (184 ) 83 117 (70 ) (25 ) (21 ) (20 ) (63 ) — — (14 ) — (7 ) — — — — Total other income (expense) 720 (41 ) 79 (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 (974 ) 2,880 2,884 (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 income taxes 47 13 — 4 423 29 5 — — 5 (2 ) 4 — — — — — — — — — Deferred income taxes (427 ) 1,110 1,110 (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 (594 ) 1,757 1,774 (5,805 ) 604 1,455 1,994 947 515 311 40 217 456 33 (934 ) (32 ) (183 ) 23 12 4 — Net income attributable to noncontrolling interests (175 ) (15 ) — (25 ) — — — — — — — — — — — — — — — — — Cumulative effect of accounting change, net of tax — — — — — — — — — 2 — — — — — — — — — — — Net income (loss) attributable to Chesapeake $ (769 ) $ 1,742 $ 1,774 $ (5,830 ) $ 604 $ 1,455 $ 1,994 $ 947 $ 515 $ 313 $ 40 $ 217 $ 456 $ 33 $ (934 ) $ (32 ) $ (183 ) $ 23 $ 12 $ 4 — Preferred stock dividends (171 ) (172 ) (111 ) (23 ) (33 ) (94 ) (89 ) (42 ) (40 ) (22 ) (10 ) (2 ) (9 ) (16 ) (12 ) — — — — — (1 )Gain (loss) on conversion/exchange of preferred stock — — — — (67 ) (128 ) (10 ) (26 ) (36 ) — — — 7 — — — — — — — — Net income (loss) available to common stockholders $ (940 ) $ 1,570 $ 1,663 $ (5,853 ) $ 504 $ 1,233 $ 1,895 $ 879 $ 439 $ 291 $ 30 $ 215 $ 454 $ 17 $ (946 ) $ (32 ) $ (183 ) $ 23 $ 12 $ 4 $ (1 )Earnings per common share – basic: Income (loss) before cumulative effect of accounting change $ (1.46 ) $ 2.47 $ 2.63 $ (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 — — — — — — — — — — — EPS – basic $ (1.46 ) $ 2.47 $ 2.63 $ (9.57 ) $ 0.94 $ 2.70 $ 4.76 $ 2.73 $ 1.73 $ 1.38 $ 0.18 $ 1.33 $ 3.52 $ 0.17 $ (9.97 ) $ (0.45 ) $ (2.79 ) $ 0.43 $ 0.22 $ 0.08 $ (0.02 )Earnings per common share – diluted: Income (loss) before cumulative effect of accounting change $ (1.46 ) $ 2.32 $ 2.51 $ (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 — — — — — — — — — — — EPS – diluted $ (1.46 ) $ 2.32 $ 2.51 $ (9.57 ) $ 0.93 $ 2.63 $ 4.33 $ 2.51 $ 1.53 $ 1.21 $ 0.17 $ 1.25 $ 3.01 $ 0.16 $ (9.97 ) $ (0.45 ) $ (2.79 ) $ 0.40 $ 0.21 $ 0.08 $ (0.02 )Cash provided by (used in) operating activities (GAAP) $ 2,837 $ 5,903 $ 5,117 $ 4,356 $ 5,357 $ 4,974 $ 4,843 $ 2,407 $ 1,432 $ 939 $ 429 $ 478 $ 315 $ 145 $ 95 $ 139 $ 84 $ 121 $ 55 $ 19 $ (1 )Operating cash flow (non-GAAP) (a) $ 4,069 $ 5,309 $ 5,168 $ 4,487 $ 5,299 $ 4,675 $ 4,040 $ 2,426 $ 1,403 $ 897 $ 409 $ 443 $ 306 $ 139 $ 118 $ 68 $ 161 $ 88 $ 46 $ 16 $ 4
Balance Sheet Data (at end of period)Total assets $ 41,611 $ 41,835 $ 37,179 $ 29,914 $ 38,593 $ 30,764 $ 24,413 $ 16,114 $ 8,245 $ 4,572 $ 2,876 $ 2,287 $ 1,440 $ 851 $ 813 $ 953 $ 949 $ 572 $ 277 $ 126 $ 79 Long-term debt, net of current maturities $ 12,157 $ 10,626 $ 12,640 $ 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 Total equity (deficit) $ 17,896 $ 17,961 $ 15,264 $ 12,341 $ 17,017 $ 12,624 $ 11,366 $ 6,299 $ 3,163 $ 1,733 $ 908 $ 767 $ 313 $ (218 ) $ (249 ) $ 280 $ 287 $ 178 $ 45 $ 31 $ 31
Other Operating and Financial DataProved reserves in natural gas equivalents (bcfe) 15,690 18,789 17,096 14,254 12,051 10,879 8,956 7,521 4,902 3,169 2,205 1,780 1,355 1,206 1,091 448 403 425 243 142 137 Discounted future net natural gas and oil revenues (PV-10) (b) $ 17,773 $ 19,878 $ 15,146 $ 9,449 $ 15,601 $ 20,573 $ 13,647 $ 22,934 $ 10,504 $ 7,333 $ 3,718 $ 1,647 $ 6,046 $ 1,089 $ 661 $ 467 $ 437 $ 547 $ 188 $ 141 $ 142 Natural gas price used in reserve report (per mcf) (c) $ 1.75 $ 3.19 $ 3.52 $ 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) (c) $ 91.78 $ 88.50 $ 75.17 $ 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 NGL price used in reserve report (per bbl) (c)(d) $ 30.81 $ 40.38 $ 32.06 — — — — — — — — — — — — — — — — — — Natural gas production (bcf) 1,129 1,004 925 835 775 655 526 422 322 240 161 144 116 109 94 27 62 52 25 7 3 Oil production (mmbbl) 31.3 17.0 10.9 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 NGL production (mmbbl) (d) 17.6 14.7 7.5 — — — — — — — — — — — — — — — — — — Production (bcfe) 1,422 1,194 1,035 906 843 714 578 469 363 268 181 161 134 133 130 38 79 60 32 10 4 Sales price per mcfe (e) $ 4.02 $ 5.70 $ 6.09 $ 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 $ 0.92 $ 0.90 $ 0.86 $ 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 $ 0.13 $ 0.16 $ 0.15 $ 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 $ 0.46 $ 0.44 $ 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 $ 1.97 $ 1.61 $ 1.56 $ 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) 11,989 12,598 10,021 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 $ 0.3500 $ 0.3375 $ 0.3000 $ 0.3000 $ 0.2925 $ 0.2625 $ 0.2300 $ 0.1950 $ 0.1700 $ 0.1350 $ 0.0600 — — — $ 0.04 $ 0.04 $ 0.02 — — — — Stock price (at end of period – split adjusted) $ 16.62 $ 22.29 $ 25.91 $ 25.88 $ 16.17 $ 39.20 $ 29.05 $ 31.73 $ 16.50 $ 13.58 $ 7.74 $ 6.61 $ 10.12 $ 2.38 $ 0.94 $ 7.50 $ 9.81 $ 29.52 $ 5.64 $ 0.85 $ 1.18
OUR COMMITMENT TO CORPORATE RESPONSIBILITY
Corporate responsibility is vital to what we do every day. Through consistent engagement with the communities where we oper-
ate, we are improving operations, reducing surface impacts, driving sustainable and profitable growth and creating value. Earlier
this year we released our inaugural Corporate Responsibility Report, which provides an informative and transparent view of our
operations and practices, including corporate governance, environmental, health and safety, community outreach and more.
Read the full report at chk.com/corporate-responsibility.
BOARD OF DIRECTORS (as of April 15, 2013)
Merrill A. “Pete” Miller, Jr. (3,4)
Chairman, President and Chief Executive Officer National Oilwell Varco, Inc. Houston, Texas
Frederic M. Poses (2)
Chief Executive Officer Ascend Performance Materials New York, New York
Vincent J. Intrieri (2)
Senior Managing Director Icahn Capital LP New York, New York
R. Brad Martin (3,4)
Chairman RBM Venture Company
Former Chairman and Chief Executive Officer Saks Incorporated Memphis, Tennessee
Archie W. Dunham (1,2)
Chairman of the Board
Former Chairman ConocoPhillips Houston, Texas
Bob G. Alexander (3)
Former President and Chief Executive Officer National Energy Group, Inc. Edmond, Oklahoma
Louis A. Raspino (4)
Former President and Chief Executive Officer Pride International, Inc. Houston, Texas
Louis A. Simpson (2)
Chairman SQ Advisors, LLC
Former President and Chief Executive Officer, Capital Operations GEICO Corporation Naples, Florida
(1) Office of the Chairman (2) Nominating, Governance and Social Responsibility Committee (3) Compensation Committee (4) Audit Committee
MANAGEMENT TEAM (as of April 15, 2013)
Martha A. Burger
Senior Vice President – Human and Corporate Resources
Jennifer M. Grigsby
Senior Vice President, Treasurer and Corporate Secretary
Henry J. Hood
Senior Vice President – Land
James C. Johnson
Senior Vice President – Marketing
Michael A. Johnson
Senior Vice President – Accounting, Controller and Chief Accounting Officer
John M. Kapchinske
Senior Vice President – Geoscience
Stephen W. Miller
Senior Vice President – Drilling
Jeffrey L. Mobley
Senior Vice President – Investor Relations and Research
Thomas S. Price, Jr.
Senior Vice President – Corporate Development and Government Relations
Cathy L. Tompkins
Senior Vice President – Information Technology and Chief Information Officer
James R. Webb
Senior Vice President – Legal and General Counsel
Jerry L. Winchester
Senior Vice President – Oilfield Services and Chief Executive Officer of Chesapeake Oilfield Services
Steven C. Dixon (1)
Acting Chief Executive Officer Chief Operating Officer
Domenic J. Dell’Osso, Jr. (1)
Executive Vice President and Chief Financial Officer
Jeffrey A. Fisher
Executive Vice President – Production
Douglas J. Jacobson
Executive Vice President – Acquisitions and Divestitures
(1) Office of the Chairman
CORPORATE HEADQUARTERS6100 North Western Avenue
Oklahoma City, OK 73118
(405) 848-8000
INVESTOR INFORMATIONCompany financial information, public disclosures
and other information are available through
Chesapeake’s website at www.chk.com. We will
promptly deliver free of charge, upon request, a
copy of the annual report on Form 10-K to any
shareholder requesting a copy. Requests should
be directed to Investor Relations at our corporate
headquarters address.
COMMON STOCKChesapeake Energy Corporation’s common stock
is listed on the New York Stock Exchange (NYSE)
under the symbol CHK. As of March 31, 2013
there were approximately 355,000 beneficial own-
ers of our common stock.
COMMON STOCK DIVIDENDSDuring 2012, the company declared a cash divi-
dend of $0.0875 per share on March 5, June 12,
September 24 and December 17 for a total divi-
dend declared of $0.35 per share.
INDEPENDENT PUBLIC ACCOUNTANTSPricewaterhouseCoopers LLP
6120 South Yale, Suite 1850
Tulsa, OK 74136
(918) 524-1200
STOCK TRANSFER AGENT AND REGISTRARCommunication concerning the transfer of shares,
lost certificates, duplicate mailings or change of
address notifications should be directed to our
transfer agent:
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
(800) 884-4225
www.computershare.com
TRUSTEE FOR THE COMPANY’S SENIOR NOTES Issued prior to 2013 The Bank of New York
Mellon Trust Company, N.A.
101 Barclay Street, 8th Floor
New York, NY 10286
www.bnymellon.com
Issued in 2013Deutsche Bank Trust Company Americas
60 Wall Street, 37th Floor
New York, NY 10005
www.tss.db.com
FORWARD-LOOKING STATEMENTSThe letter to shareholders includes “forward-looking statements” that give our
current expectations or forecasts of future events. They include our planned
drilling activity and capital expenditures, resulting expected production, natural
gas price trends and future asset sales, as well as statements concerning
anticipated cash flow and liquidity, our business strategy and objectives for fu-
ture operations. 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 inac-
curate assumptions or by known or unknown risks and uncertainties. Factors
that could cause actual results to differ materially from expected results are
described under “Risk Factors” in Item 1A of our 2012 Annual Report on Form
10-K included in this report. We caution you not to place undue reliance on
forward-looking statements, and we undertake no obligation to update this in-
formation. We urge you to carefully review and consider the disclosures made
in this report and our filings with the Securities and Exchange Commission
regarding the risks and factors that may affect our business.
CORPORATE INFORMATION
CHESAPEAKE COMMON STOCK PRICE HISTORY
2013 High Low Last
First Quarter $ 22.97 $ 16.32 $ 20.41
2012 High Low Last
Fourth Quarter $ 21.66 $ 16.23 $ 16.62
Third Quarter 20.64 16.62 18.87
Second Quarter 23.69 13.32 18.60
First Quarter 26.09 20.41 23.17
2011 High Low Last
Fourth Quarter $ 29.87 $ 22.00 $ 22.29
Third Quarter 35.75 25.54 25.55
Second Quarter 34.70 27.28 29.69
First Quarter 35.95 25.93 33.52
2010 High Low Last
Fourth Quarter $ 26.43 $ 20.97 $ 25.91
Third Quarter 23.00 19.68 22.65
Second Quarter 25.55 19.62 20.95
First Quarter 29.22 22.10 23.64
/ C H E S A P E A K E
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6100 NORTH WESTERN AVENUE | OKLAHOMA CITY, OK 73118 | CHK.COM
CHESAPEAKE ENERGY CORPORATION
2012 ANNUAL REPORT
(1) The peer group comprises of Anadarko Petroleum Corporation, Apache Corporation, Devon Energy Corporation, Encana Corporation and EOG Resources, Inc.
CHESAPEAKE’S COMMON STOCK PRICE Chesapeake’s Stock Price at Month End
Henry Hub Natural Gas Spot Price at Month End
CHESAPEAKE ENERGY CORPORATION (NYSE:CHK) is the second-largest producer of
natural gas, a top 11 producer of oil and natural gas liquids and the most active driller of 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 Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Missis-
sippi Lime and Niobrara unconventional liquids plays and in the Haynesville/Bossier, Marcellus and Barnett unconventional
natural gas shale plays. The company also owns substantial marketing, compression and oilfield services businesses through
its subsidiaries Chesapeake Energy Marketing, Inc., MidCon Compression, L.L.C. and Chesapeake Oilfield Operating, L.L.C.
PRODUCTION GROWTHAverage mmcfe per day for year
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0807 09 10 100908070605040311 1112 12060504030
5,000
10,000
15,000
20,000
0
500
1000
1500
2000
2500
3000
3500
4000
0
5000
10000
15000
20000
PROVED RESERVE GROWTHBcfe at end of year
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0807 09 10 100908070605040311 1112 12060504030
5,000
10,000
15,000
20,000
0
500
1000
1500
2000
2500
3000
3500
4000
0
5000
10000
15000
20000
$ 0
$ 10
$ 20
$ 30
$ 40
$ 50
$ 60
$ 70
JAN 00 JAN 01 JAN 02 JAN 03 JAN 04 JAN 05 JAN 06 JAN 07 JAN 08 JAN 09 JAN 10
CHK
Stoc
k Pr
iceCH
K Co
mm
on S
tock
Pri
ce
$/m
cf
$ 0
$ 2.50
$ 5.00
$ 7.50
$ 10.00
$ 12.50
$ 15.00
$ 17.50
$/m
cf
01020304050607080
0
5
10
15
20
DEC 02 DEC 03 DEC 04 DEC 05 DEC 06 DEC 07 DEC 08 DEC 09 DEC 10 DEC 11 DEC 12$ 0
$ 10
$ 20
$ 30
$ 40
$ 50
$ 60
$ 70
$ 80
$ 0
$ 5
$ 10
$ 15
$ 20
0
20
40
60
80
100
120
0
20
40
60
80
100
120
40
60
80
100
120
07 08 09 10 11 12$ 0
$ 60
$ 40
$ 20
$ 80
$ 100
$ 120
CHESAPEAKE’S FIVE-YEAR COMMON STOCK PERFORMANCE The graph assumes an investment of $100 on December 31, 2007 and the reinvestment of all dividends.
CHK S&P 500 Peer Group (1)
