Expand Energy (EXE) 10-Q 10 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	May. 05, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	CHK
Entity Registrant Name	CHESAPEAKE ENERGY CORP
Entity Central Index Key	0000895126
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		650,913,021

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
CURRENT ASSETS:
Cash and cash equivalents	$516	$307
Accounts receivable	1,419	1,325
Short-term derivative instruments	1,297	692
Deferred income tax asset		24
Other	103	98
Total Current Assets	3,335	2,446
Natural gas and oil properties, at cost based on full-cost accounting:
Evaluated natural gas and oil properties	35,720	35,007
Unevaluated properties	10,118	10,005
Less: accumulated depreciation, depletion and amortization of natural gas and oil properties	(24,523)	(24,220)
Total natural gas and oil properties, at cost based on full-cost accounting	21,315	20,792
Other property and equipment:
Natural gas gathering systems and treating plants	1,590	3,516
Buildings and land	1,674	1,673
Drilling rigs and equipment	723	687
Natural gas compressors	351	325
Other	568	550
Less: accumulated depreciation and amortization of other property and equipment	(566)	(833)
Total other property and equipment	4,340	5,918
Total Property and Equipment	25,655	26,710
OTHER ASSETS:
Investments	1,005	404
Long-term derivative instruments	15	60
Other assets	278	294
Total Other Assets	1,298	758
TOTAL ASSETS	30,288	29,914
CURRENT LIABILITIES:
Accounts payable	1,296	957
Short-term derivative instruments	14	27
Accrued liabilities	812	920
Deferred income taxes	212
Income taxes payable		1
Revenues and royalties due others	637	565
Accrued interest	152	218
Total Current Liabilities	3,123	2,688
LONG-TERM LIABILITIES:
Long-term debt, net	12,204	12,295
Deferred income tax liabilities	1,295	1,059
Asset retirement obligations	283	282
Long-term derivative instruments	699	787
Revenues and royalties due others	78	73
Other liabilities	390	389
Total Long-Term Liabilities	14,949	14,885
CONTINGENCIES AND COMMITMENTS (Note 3)
Chesapeake stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 651,823,247 and 648,549,165 shares issued at March 31, 2010 and December 31, 2009, respectively	7	6
Paid-in capital	12,160	12,146
Retained earnings (deficit)	(665)	(1,261)
Accumulated other comprehensive income, net of tax of ($161) million and ($62) million, respectively	265	102
Less: treasury stock, at cost; 943,220 and 877,205 common shares as of March 31, 2010 and December 31, 2009, respectively	(17)	(15)
Total Chesapeake Stockholders' Equity	12,216	11,444
Noncontrolling interest		897
Total Equity	12,216	12,341
TOTAL LIABILITIES AND EQUITY	30,288	29,914
4.50% cumulative convertible preferred stock
Chesapeake stockholders' equity:
Preferred Stock	256	256
5.00% cumulative convertible preferred stock (series 2005B)
Chesapeake stockholders' equity:
Preferred Stock	209	209
5.00% cumulative convertible preferred stock (series 2005)
Chesapeake stockholders' equity:
Preferred Stock	$1	$1

1_CONDENSED CONSOLIDATED BALANC

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data	Mar. 31, 2010	Dec. 31, 2009
Common stock, par value	0.01	0.01
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	651,823,247	648,549,165
Accumulated other comprehensive income, tax	($161)	($62)
Treasury stock, shares	943,220	877,205
Preferred Stock
Preferred Stock, par value	0.01	0.01
Preferred Stock, shares authorized	20,000,000	20,000,000
4.50% cumulative convertible preferred stock
Preferred stock, shares issued	2,558,900	2,558,900
Preferred stock, shares outstanding	2,558,900	2,558,900
Preferred stock amount entitled in liquidation	256	256
5.00% cumulative convertible preferred stock (series 2005B)
Preferred stock, shares issued	2,095,615	2,095,615
Preferred stock, shares outstanding	2,095,615	2,095,615
Preferred stock amount entitled in liquidation	209	209
5.00% cumulative convertible preferred stock (series 2005)
Preferred stock, shares issued	5,000	5,000
Preferred stock, shares outstanding	5,000	5,000
Preferred stock amount entitled in liquidation	$1	$1

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
REVENUES:
Natural gas and oil sales	$1,898	$1,397
Marketing, gathering and compression sales	844	552
Service operations revenue	56	46
Total Revenues	2,798	1,995
OPERATING COSTS:
Production expenses	207	238
Production taxes	48	23
General and administrative expenses	109	90
Marketing, gathering and compression expenses	815	523
Service operations expense	49	40
Natural gas and oil depreciation, depletion and amortization	308	447
Depreciation and amortization of other assets	50	57
Impairment of natural gas and oil properties and other assets		9,630
Total Operating Costs	1,586	11,048
INCOME (LOSS) FROM OPERATIONS	1,212	(9,053)
OTHER INCOME (EXPENSE):
Other income	15	8
Interest expense (income)	(25)	14
Impairment of investments		(153)
Loss on exchanges of Chesapeake debt	(2)
Total Other Income (Expense)	(12)	(131)
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE	1,200	(9,184)
INCOME TAX EXPENSE (BENEFIT):
Current income taxes
Deferred income taxes	462	(3,444)
Total Income Tax Expense (Benefit)	462	(3,444)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX	738	(5,740)
Cumulative effect of accounting change, net of income taxes of $89 million	(142)
NET INCOME (LOSS)	596	(5,740)
Net (income) loss attributable to noncontrolling interest
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	596	(5,740)
Preferred stock dividends	(6)	(6)
NET INCOME (LOSS) AVAILABLE TO CHESAPEAKE COMMON STOCKHOLDERS	$590	($5,746)
EARNINGS (LOSS) PER COMMON SHARE - BASIC:
Income before cumulative effect of accounting change	1.17	-9.63
Cumulative effect of accounting change	-0.23
Earnings Per Share, Basic, Total	0.94	-9.63
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION:
Income before cumulative effect of accounting change	1.14	-9.63
Cumulative effect of accounting change	-0.22
Earnings Per Share, Diluted, Total	0.92	-9.63
CASH DIVIDEND DECLARED PER COMMON SHARE	0.075	0.075
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in millions):
Basic	630	597
Assuming dilution	647	597

2_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) (USD $)
In Millions	3 Months Ended Mar. 31, 2010
Cumulative effect of accounting change, income taxes	$89

3_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ATTRIBUTABLE TO CHESAPEAKE	$596	($5,740)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization	358	504
Deferred income tax expense (benefit)	462	(3,444)
Unrealized gains on derivatives	(342)	(145)
Realized gains on financing derivatives	(94)	(19)
Stock-based compensation	32	34
Accretion of discount on contingent convertible notes	19	20
(Gain) loss from equity investments	(13)	1
Cumulative effect of deconsolidation of investment in CMP	142
Loss on exchanges of Chesapeake debt	2
Impairment of natural gas and oil properties and other fixed assets		9,630
Impairment of investments		153
Other	4	5
Change in assets and liabilities	17	262
Cash provided by operating activities	1,183	1,261
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development of natural gas and oil properties	(1,020)	(1,347)
Acquisitions of natural gas and oil proved and unproved properties and leasehold	(1,030)	(413)
Additions to other property and equipment	(279)	(667)
Additions to investments	(6)	(8)
Proceeds from divestitures of proved and unproved properties and leasehold	1,044
Proceeds from sales of volumetric production payments	180
Proceeds from sale of other assets	56
Proceeds from sale of compressors		68
Deposits for divestitures	21
Other	20
Cash used in investing activities	(1,014)	(2,367)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities borrowings	2,924	1,575
Payments on credit facilities borrowings	(2,944)	(3,120)
Proceeds from issuance of senior notes, net of offering costs		1,346
Cash paid for common stock dividends	(47)	(44)
Cash paid for preferred stock dividends	(6)	(6)
Derivative settlements	94	1
Net increase (decrease) in outstanding payments in excess of cash balance	45	(287)
Other	(26)	(25)
Cash provided by (used in) financing activities	40	(560)
Net increase (decrease) in cash and cash equivalents	209	(1,666)
Cash and cash equivalents, beginning of period	307	1,749
Cash and cash equivalents, end of period	516	83
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION OF CASH PAYMENTS FOR:
Interest, net of capitalized interest	89	27
Income taxes, net of refunds received	($8)	$114

4_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (USD $)
In Millions	Preferred Stock	COMMON STOCK	PAID-IN CAPITAL	RETAINED EARNINGS (DEFICIT)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	TREASURY STOCK - COMMON	TOTAL CHESAPEAKE STOCKHOLDERS' EQUITY	NONCONTROLLING INTEREST	Total
Balance, beginning of period at Dec. 31, 2008	$505	$6	$11,680	$4,569	$267	($10)
Issuance of 0 and 14,360,642 shares of common stock for the purchase of proved and unproved properties and leasehold			232
Purchase of 70,177 and 64,242 shares for company benefit plans						(1)
Hedging activity					266
Net income (loss)				(5,740)					(5,740)
Exchange of common stock for 0 and 3,033 shares of 4.125% preferred stock	(3)
Release of 4,162 and 1,972 shares for company benefit plans
Investment activity					49
Exchange of 0 and 182,887 shares of common stock for preferred stock			3
Stock-based compensation			53
Exercise of stock options			1
Dividends on common stock			(45)
Dividends on preferred stock			(6)
Tax benefit (reduction in tax benefit) from exercise of stock-based compensation			(8)
Balance, end of period at Mar. 31, 2009	502	6	11,910	(1,171)	582	(11)	11,818		11,818
Balance, beginning of period at Dec. 31, 2009	466	6	12,146	(1,261)	102	(15)		897	12,341
Purchase of 70,177 and 64,242 shares for company benefit plans						(2)
Hedging activity					166
Deconsolidation of investment in CMP								(897)
Net income (loss)				596					596
Exchange of 298,500 and 0 shares of common stock for convertible notes			9
Release of 4,162 and 1,972 shares for company benefit plans
Investment activity					(3)
Stock-based compensation			57
Exercise of stock options and other		1
Exercise of stock options			1
Dividends on common stock			(47)
Dividends on preferred stock			(6)
Balance, end of period at Mar. 31, 2010	$466	$7	$12,160	($665)	$265	($17)	$12,216		$12,216

5_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Parenthetical)
	3 Months Ended Mar. 31, 2010 Preferred Stock	3 Months Ended Mar. 31, 2009 Preferred Stock
Preferred Stock
Shares of 4.125% preferred stock exchanged	0	3,033
COMMON STOCK:
Shares of common stock issued for the purchase of proved and unproved properties and leasehold	0	14,360,642
Shares of common stock for preferred stock	0	182,887
PAID-IN CAPITAL:
Shares of common stock issued for the purchase of proved and unproved properties and leasehold	0	14,360,642
Shares of common stock for convertible notes	298,500	0
Shares of common stock for preferred stock	0	182,887
TREASURY STOCK - COMMON:
Shares of treasury stock purchase for company benefit plans	70,177	64,242
Shares of treasury stock released for company benefit plans	4,162	1,972

6_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net income (loss)	$596	($5,740)
Other comprehensive income (loss), net of income tax:
Change in fair value of derivative instruments, net of income taxes of $152 million and $296 million	249	484
Reclassification of gain on settled contracts, net of income taxes of ($53) million and ($112) million	(87)	(184)
Ineffective portion of derivatives qualifying for cash flow hedge accounting, net of income taxes of $2 million and ($21) million	4	(34)
Unrealized (gain) loss on marketable securities, net of income taxes of ($2) million and $4 million	(3)	6
Reclassification of loss on investments, net of income taxes of $0 and $26 million		43
Comprehensive income (loss)	759	(5,425)
(Income) loss attributable to noncontrolling interest
Comprehensive income (loss) available to Chesapeake	$759	($5,425)

7_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Change in fair value of derivative instruments, income taxes	$152	$296
Reclassification of gain on settled contracts, income taxes	(53)	(112)
Ineffective portion of derivatives qualifying for cash flow hedge accounting, income taxes	2	(21)
Unrealized (gain) loss on marketable securities, income taxes	(2)	4
Reclassification of loss on investments, income taxes	$0	$26

Basis of Presentation and Summa

Basis of Presentation and Summary of Significant Accounting Policies
	3 Months Ended Mar. 31, 2010
Basis of Presentation and Summary of Significant Accounting Policies	1. Basis of Presentation and Summary of Significant Accounting Policies Principles of Consolidation The accompanying unaudited condensed consolidated financial statements of Chesapeake Energy Corporation and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission (SEC). Chesapeakes annual report on Form 10-K for the year ended December31, 2009 (2009 Form 10-K) includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods have been reflected. The results for the three months ended March31, 2010 are not necessarily indicative of the results to be expected for the full year. This Form 10-Q relates to the three months ended March31, 2010 (the Current Quarter) and the three months ended March31, 2009 (the Prior Quarter). Cumulative Effect of Accounting Change Beginning January1, 2010, in accordance with new authoritative guidance for variable interest entities, we no longer consolidate our midstream joint venture, Chesapeake Midstream Partners, L.L.C. (CMP). Because we have shared control with our 50% partner, Global Infrastructure Partners, our investment in CMP is now accounted for under the equity method (See Note 9). Adoption of this new guidance resulted in an after-tax charge of $142 million, which is reflected in our condensed consolidated statement of operations as the cumulative effect of accounting change for the quarter ended March31, 2010. This charge reflects the difference between the carrying value of our initial investment in the joint venture, which was recorded at carryover basis as an entity under common control, and the fair value of our equity in the joint venture as of the formation date. Critical Accounting Policies We consider accounting policies related to hedging, natural gas and oil properties and income taxes to be critical policies. These policies are summarized in Managements Discussion and Analysis of Financial Condition and Results of Operations in our 2009 Form 10-K.

Financial Instruments and Hedgi

Financial Instruments and Hedging Activities
	3 Months Ended Mar. 31, 2010
Financial Instruments and Hedging Activities	2. Financial Instruments and Hedging Activities Natural Gas and Oil Derivatives Our results of operations and operating cash flows are impacted by changes in market prices for natural gas and oil. To mitigate a portion of the exposure to adverse market changes, we have entered into various derivative instruments. These instruments allow us to predict with greater certainty the effective natural gas and oil prices to be received for our hedged production. Although derivatives often fail to achieve 100% effectiveness for accounting purposes, we believe our derivative instruments continue to be highly effective in achieving our risk management objectives. As of March31, 2010 and December31, 2009, our natural gas and oil derivative instruments were comprised of the following types of instruments: Swaps: Chesapeake receives a fixed price and pays a floating market price to the counterparty for the hedged commodity. Collars: These instruments contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, Chesapeake receives the fixed price and pays the market price. If the market price is between the put and the call strike price, no payments are due from either party. Three-way collars include an additional put option in exchange for a more favorable strike price on the collar. This eliminates the counterpartys downside exposure below the second put option. Call options: Chesapeake sells call options in exchange for a premium from the counterparty. At the time of settlement, if the market price exceeds the fixed price of the call option, Chesapeake pays the counterparty such excess and if the market price settles below the fixed price of the call option, no payment is due from either party. Put options: Chesapeake receives a premium from the counterparty in exchange for the sale of a put option. At the time of settlement, if the market price falls below the fixed price of the put option, Chesapeake pays the counterparty such shortfall, and if the market price settles above the fixed price of the put option, no payment is due from either party. Knockout swaps: Chesapeake receives a fixed price and pays a floating market price. The fixed price received by Chesapeake includes a premium in exchange for the possibility to reduce the counterpartys exposure to zero, in any given month, if the floating market price is lower than certain pre-determined knockout prices. Basis protection swaps: These instruments are arrangements that guarantee a price differential to NYMEX for natural gas from a specified delivery point. For non-Appalachian Basin basis protection swaps, which typically have negative differentials to NYMEX, Chesapeake receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract. For Appalachian Basin basis protection swaps, which typically have positive differentials to NYMEX, Chesapeake receives a payment from the counterparty

Contingencies and Commitments

Contingencies and Commitments
	3 Months Ended Mar. 31, 2010
Contingencies and Commitments	3. Contingencies and Commitments Litigation On February25, 2009, a putative class action was filed in the U.S. District Court for the Southern District of New York against the company and certain of its officers and directors along with certain underwriters of the companys July 2008 common stock offering. Following the appointment of a lead plaintiff and counsel, the plaintiff filed an amended complaint on September11, 2009 alleging that the registration statement for the offering contained material misstatements and omissions and seeking damages under Sections 11, 12 and 15 of the Securities Act of 1933 of an unspecified amount and rescission. The action was transferred to the U.S. District Court for the Western District of Oklahoma on October13, 2009. The company has filed a motion to dismiss which has been fully briefed. A derivative action was also filed in the District Court of Oklahoma County, Oklahoma on March10, 2009 against the companys directors and certain of its officers alleging breaches of fiduciary duties relating to the disclosure matters alleged in the securities case. The derivative action is stayed pending resolution of the motion to dismiss in the class action. On March26, 2009, a shareholder filed a petition in the District Court of Oklahoma County, Oklahoma seeking to compel inspection of company books and records relating to compensation of the companys CEO. On August20, 2009, the court denied the inspection demand, dismissed the petition and entered judgment in favor of Chesapeake. The shareholder is appealing the courts ruling in the Civil Court of Appeals of the State of Oklahoma. Three derivative actions were filed in the District Court of Oklahoma County, Oklahoma on April28,May7, and May20, 2009 against the companys directors alleging breaches of fiduciary duties relating to compensation of the companys CEO and alleged insider trading, among other things, and seeking unspecified damages, equitable relief and disgorgement. These three derivative actions were consolidated and a Consolidated Derivative Shareholder Petition was filed on June23, 2009. Chesapeake is named as a nominal defendant. Chesapeake has filed a motion to dismiss which was heard on February1, 2010. On February28, 2010, the court ordered that plaintiffs claims be dismissed and granted plaintiffs leave to file an amended petition within 90 days. Plaintiffs chose not to amend and on April9, 2010, at plaintiffs request, the court entered an order certifying that the February28, 2010 dismissal was a final, appealable order. Plaintiffs are appealing the dismissal in the Supreme Court of the State of Oklahoma. It is inherently difficult to predict the outcome of litigation, and we are currently unable to estimate the amount of any potential liabilities associated with the foregoing cases, which are all in preliminary stages. Chesapeake is also involved in various other lawsuits and disputes incidental to its business operations, including commercial disputes, personal injury claims, claims for underpayment of royalties, property damage claims and contract actions. With regard to the latter, various mineral or leasehold owners have

Net Income Per Share

Net Income Per Share
	3 Months Ended Mar. 31, 2010
Net Income Per Share	4. Net Income Per Share Accounting guidance for Earnings Per Share (EPS), requires presentation of basic and diluted earnings per share on the face of the statements of operations for all entities with complex capital structures as well as a reconciliation of the numerator and denominator of the basic and diluted EPS computations. For the Current Quarter, no securities were antidilutive in the calculation of diluted EPS. The following securities and associated adjustments to net income comprised of dividends and loss on conversions/exchanges were not included in the calculation of diluted EPS for the Prior Quarter, as the effect was antidilutive. Shares Net Income Adjustments (inmillions) ($inmillions) Three Months Ended March31, 2009: Outstanding stock options 1 $ Unvested restricted stock 2 $ Common stock equivalent of our preferred stock outstanding: 4.50% cumulative convertible preferred stock 6 $ 3 5.00% cumulative convertible preferred stock (series 2005B) 5 $ 3 6.25% mandatory convertible preferred stock 1 $ 1 A reconciliation of basic EPS and EPS assuming dilution for the Current Quarter is as follows: Income (Numerator) Weighted Average Shares (Denominator) PerShare Amount (in millions, except per share data) Three Months Ended March31, 2010: Basic EPS income available to Chesapeake common stockholders $ 590 630 $ 0.94 Effect of Dilutive Securities Assumed conversion as of the beginning of the period of preferred shares outstanding during the period: Common shares assumed issued for 5.00% cumulative convertible preferred stock (series 2005B) 3 5 Common shares assumed issued for 4.50% cumulative convertible preferred stock 3 6 Employee stock options 1 Restricted stock 5 Diluted EPS income available to Chesapeake common stockholders and assumed conversions $ 596 647 $ 0.92 For the Prior Quarter, both basic weighted average shares outstanding, which are used in computing basic EPS, and diluted weighted average shares, which are used in computing EPS assuming dilution, were 597million shares as a result of the net loss to common stockholders. The basic and diluted loss per common share was $9.63.

Stockholders' Equity, Restricte

Stockholders' Equity, Restricted Stock and Stock Options
	3 Months Ended Mar. 31, 2010
Stockholders' Equity, Restricted Stock and Stock Options	5. Stockholders Equity, Restricted Stock and Stock Options Common Stock The following is a summary of the changes in our common shares issued for the three months ended March31, 2010 and 2009: 2010 2009 (in thousands) Shares issued at January1 648,549 607,953 Stock option exercises 133 100 Restricted stock issuances (net of forfeitures) 2,843 2,858 Convertible note exchanges 298 Preferred stock conversions/exchanges 183 Common stock issued for the purchase of leasehold and unproved properties 14,361 Shares issued at March31 651,823 625,455 In the Current Quarter, we privately exchanged approximately $11 million in aggregate principal amount of our 2.25% Contingent Convertible Senior Notes due 2038 for an aggregate of 298,500 shares of our common stock valued at approximately $9 million. Through these transactions, we were able to retire this debt for common stock valued at approximately 80% of the face value of the notes. Associated with these exchanges, we recorded a loss of $2 million. In connection with accounting guidance for debt with conversion and other options, we are required to account for the liability and equity components of our convertible debt instruments separately. Of the $11 million principal amount of convertible notes exchanged in the Current Quarter, $7 million was allocated to the debt component and the remaining $4 million was allocated to the equity conversion feature and was recorded as an adjustment to paid-in-capital. The difference between the debt component and value of the common stock exchanged in these transactions resulted in the $2 million loss. In addition, we expensed a nominal amount of deferred charges associated with the exchanges. During the Prior Quarter, we issued 14,360,642 shares of common stock, valued at $240 million, for the purchase of proved and unproved properties and leasehold pursuant to an acquisition shelf registration statement. Preferred Shares The following is a summary of the changes in our preferred shares outstanding for the three months ended March31, 2010 and 2009: 4.50% 5.00% (2005B) 5.00% (2005) 6.25% 4.125% (in thousands) Shares outstanding at January1, 2010 and March31, 2010 2,559 2,096 5 Shares outstanding at January1, 2009 2,559 2,096 5 144 3 Conversion/exchange of preferred for common stock (3 ) Shares outstanding at March31, 2009 2,559 2,096 5 144 On March31, 2009, we converted all of our outstanding 4.125% Cumulative Convertible Preferred Stock (3,033 shares) into 182,887 shares of common stock pursuant to the companys mandatory conversion rights. Dividends Dividends declared on our common stock and preferred stock are reflected as adjustments to retained earnings to the extent a surplus of retained earnings will exist after giving effect to the dividends. To the extent retained earnings are insufficient to fund the distributions, such payments constitute a r

Debt

Debt
	3 Months Ended Mar. 31, 2010
Debt	6. Debt Our total debt consisted of the following at March31, 2010 and December31, 2009: March31, 2010 December31, 2009 ($ in millions) 7.5% senior notes due 2013 $ 364 $ 364 7.625% senior notes due 2013 500 500 7.0% senior notes due 2014 300 300 7.5% senior notes due 2014 300 300 6.375% senior notes due 2015 600 600 9.5% senior notes due 2015 1,425 1,425 6.625% senior Notes due 2016 600 600 6.875% senior notes due 2016 670 670 6.25% Euro-denominated senior notes due 2017(a) 811 860 6.5% senior notes due 2017 1,100 1,100 6.25% senior notes due 2018 600 600 7.25% senior notes due 2018 800 800 6.875% senior notes due 2020 500 500 2.75% contingent convertible senior notes due 2035(b) 451 451 2.5% contingent convertible senior notes due 2037(b) 1,378 1,378 2.25% contingent convertible senior notes due 2038(b) 752 763 Corporate revolving bank credit facility 1,835 1,892 Midstream revolving bank credit facility 37 Midstream joint venture revolving bank credit facility(c) 44 Discount on senior notes(d ) (894 ) (921 ) Interest rate derivatives(e ) 75 69 Total notes payable and long-term debt $ 12,204 $ 12,295 (a) The principal amount shown is based on the dollar/euro exchange rate of $1.3526 to 1.00 and $1.4332 to 1.00 as of March31, 2010 and December31, 2009, respectively.See Note 2 for information on our related foreign currency derivatives. (b) The holders of our contingent convertible senior notes may require us to repurchase, in cash, all or a portion of their notes at 100% of the principal amount of the notes on any of four dates that are five, ten, fifteen and twenty years before the maturity date. The notes are convertible, at the holders option, prior to maturity under certain circumstances into cash and, if applicable, shares of our common stock using a net share settlement process. One such triggering circumstance is when the price of our common stock exceeds a threshold amount during a specified period in a fiscal quarter. Convertibility based on common stock price is measured quarter by quarter. In the first quarter of 2010, the price of our common stock was below the threshold level for each series of the contingent convertible senior notes during the specified period and, as a result, the holders do not have the option to convert their notes into cash and common stock in the second quarter of 2010 under this provision. The notes are also convertible, at the holders option, during specified five-day periods if the trading price of the notes is below certain levels determined by reference to the trading price of our common stock. In general, upon conversion of a contingent convertible senior note, the holder will receive cash equal to the principal amount of the note and common stock for the notes conversion value in excess of such princip

Segment Information

Segment Information
	3 Months Ended Mar. 31, 2010
Segment Information	7. Segment Information In accordance with accounting guidance for disclosures about segments of an enterprise and related information, we have two reportable operating segments. Our exploration and production operational segment and natural gas and oil midstream segment are managed separately because of the nature of their products and services. The exploration and production segment is responsible for finding and producing natural gas and oil. The midstream segment is responsible for marketing, gathering and compression of natural gas and oil primarily from Chesapeake-operated wells. We also have drilling rig and trucking operations which are responsible for providing drilling rigs primarily used on Chesapeake-operated wells and trucking services utilized in the transportation of drilling rigs on both Chesapeake-operated wells and wells operated by third parties. Our drilling rig and trucking service operations are presented in Other Operations in the table below. Management evaluates the performance of our segments based upon income (loss) before income taxes. Revenues from the midstream segments sale of natural gas and oil related to Chesapeakes ownership interests are reflected as exploration and production revenues. Such amounts totaled $1.006 billion and $671 million for the Current Quarter and the Prior Quarter. The following table presents selected financial information for Chesapeakes operating segments. Exploration and Production Midstream Other Operations Intercompany Eliminations Consolidated Total ($ in millions) Three Months Ended March31, 2010: Revenues $ 1,898 $ 1,850 $ 88 $ (1,038 ) $ 2,798 Intersegment revenues (1,006 ) (32 ) 1,038 Total revenues $ 1,898 $ 844 $ 56 $ $ 2,798 Income (loss) before income taxes and cumulative effect of accounting change $ 1,177 $ 33 $ (11 ) $ 1 $ 1,200 Three Months Ended March31, 2009: Revenues $ 1,397 $ 1,223 $ 154 $ (779 ) $ 1,995 Intersegment revenues (671 ) (108 ) 779 Total revenues $ 1,397 $ 552 $ 46 $ $ 1,995 Income (loss) before income taxes $ (9,193 ) $ 18 $ (20 ) $ 11 $ (9,184 ) As of March31, 2010: Total assets $ 27,086 $ 3,248 $ 686 $ (732 ) $ 30,288 As of December31, 2009: Total assets $ 25,637 $ 4,323 $ 660 $ (706 ) $ 29,914

Natural Gas and Oil Properties

Natural Gas and Oil Properties
	3 Months Ended Mar. 31, 2010
Natural Gas and Oil Properties	8. Natural Gas and Oil Properties Joint Ventures In January 2010, Chesapeake and Total EP USA, Inc., a wholly owned subsidiary of Total S.A. (NYSE: TOT, FP: FP) (Total), closed a $2.25 billion Barnett Shale joint venture transaction, whereby Total acquired a 25% interest in our upstream Barnett Shale assets.Total paid us approximately $800 million in cash at closing and will pay a further $1.45 billion over time by funding 60% of our share of future drilling and completion expenditures.We expect this drilling carry to be fully utilized by year-end 2012. In March 2010, as part of our joint venture agreement with Statoil, we sold approximately 50,000 net acres of leasehold in the Marcellus Shale for approximately $245 million. During the Current Quarter, we received the benefit of approximately $281 million in drilling carries associated with the Barnett ($189 million) and Marcellus ($92 million) joint ventures. Volumetric Production Payment On February5, 2010, we sold certain Chesapeake-operated long-lived producing assets in East Texas and the Texas Gulf Coast in our sixth volumetric production payment (VPP) transaction for proceeds of $180 million.

Investments

Investments
	3 Months Ended Mar. 31, 2010
Investments	9. Investments At March31, 2010, investments accounted for under the equity method totaled $971 million and investments accounted for under the cost method totaled $34 million. Following is a summary of our investments: Carrying Value Approximate% Owned Accounting Method March31, 2010 December31, 2009 ($ in millions) Chesapeake Midstream Partners, L.L.C. 50% Equity $ 614 $ Private oilfield services company 20% Equity 235 239 Chaparral Energy, Inc. 32% Equity 96 103 Gastar Exploration Ltd. 14% Cost 33 32 Other Cost/Equity 27 30 $ 1,005 $ 404 Chesapeake Midstream Partners, L.L.C. On September30, 2009, we formed a joint venture with Global Infrastructure Partners (GIP), a New York-based private equity fund, to own and operate natural gas midstream assets. As part of the transaction, Chesapeake contributed certain natural gas gathering and processing assets to a new entity, Chesapeake Midstream Partners, L.L.C. (CMP), and GIP purchased a 50% interest in CMP. The assets we contributed to the joint venture were substantially all of our midstream assets in the Barnett Shale and also the majority of our non-shale midstream assets in the Arkoma, Anadarko, Delaware and Permian Basins. During the fourth quarter of 2009, CMP was consolidated within our financial statements. Effective January1, 2010, in accordance with new authoritative guidance for variable interest entities, we no longer consolidate our midstream joint venture, CMP. Because we have shared control with our 50% partner, GIP, our investment in CMP is now accounted for under the equity method. Adoption of this new guidance resulted in an after-tax charge of $142 million in the Current Quarter, recorded as a cumulative effect of accounting change. This charge reflects the difference between the carrying value of our initial investment in the joint venture, which was recorded at carryover basis as an entity under common control, and the fair value of our equity in the joint venture as of the formation date. The carrying value of our investment in CMP is less than our underlying equity in net assets by approximately $287 million as of March31, 2010. This difference is being accreted over 20 years. Private oilfield services company. The carrying value of our investment in a private oilfield services company is in excess of our underlying equity in net assets by approximately $163 million as of March31, 2010. This excess amount is attributed to certain intangibles associated with the specialty services provided by the private oilfield services company and is being amortized over the estimated life of the intangibles. Chaparral Energy, Inc. The carrying value of our investment in Chaparral is in excess of our underlying equity in net assets by approximately $39 million as of March31, 2010. This excess is attributed to the natural gas and oil reserves held by Chaparral and is being amortized over the estimated life of these reserves based on a unit of production rate.

Fair Value Measurements

Fair Value Measurements
	3 Months Ended Mar. 31, 2010
Fair Value Measurements	10. Fair Value Measurements Certain financial instruments are reported at fair value on the condensed consolidated balance sheets. Under fair value measurement accounting guidance, fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants, i.e., an exit price. To estimate an exit price, a three-level hierarchy is used. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or a liability, into three levels. Level 1 inputs are unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the financial asset or liability and have the lowest priority. Chesapeake uses a market valuation approach based on available inputs, which may or may not be observable in the market, to measure the fair values of its assets and liabilities. The following table provides fair value measurement information for financial assets (liabilities) measured at fair value on a recurring basis as of March31, 2010 ($ in millions): Quoted Pricesin Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total FairValue Financial Assets (Liabilities): Cash equivalents $ 516 $ $ $ 516 Investments 33 33 Other long-term assets 36 36 Long-term debt (1,258 ) (1,258 ) Other long-term liabilities (36 ) (36 ) Derivatives: Commodity assets 1,377 144 1,521 Commodity liabilities (18 ) (804 ) (822 ) Interest rate liabilities (97 ) (97 ) Foreign currency liabilities (3 ) (3 ) Total derivatives 1,359 (760 ) 599 Total $ 549 $ 1,359 $ (2,018 ) $ (110 ) The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above. Cash Equivalents. The fair value of cash equivalents is based on quoted market prices. Investments. The fair value of Chesapeakes investment in Gastar Exploration Ltd. common stock is based on a quoted market price. Other Long-Term Assets and Liabilities. The fair value of other long-term assets and liabilities, consisting of obligations under our Deferred Compensation Plan, is based on quoted market prices. Derivatives. The fair values of our commodity derivatives are based on a third-party pricing model which utilizes inputs that are either readily available in the public market, such as natural gas and oil forward curves and discount rate

Condensed Consolidating Financi

Condensed Consolidating Financial Information
	3 Months Ended Mar. 31, 2010
Condensed Consolidating Financial Information	11. Condensed Consolidating Financial Information Chesapeake Energy Corporation is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. Our obligations under our outstanding senior notes and contingent convertible notes listed in Note 6 are fully and unconditionally guaranteed, jointly and severally, by certain of our wholly owned subsidiaries on a senior unsecured basis. Our midstream subsidiary, CMD, is not a guarantor and is subject to covenants in the midstream revolving credit facility referred to in Note 6 that restricts it from paying dividends or distributions or making loans to Chesapeake. Set forth below are condensed consolidating financial statements for Chesapeake Energy Corporation (the parent) on a stand-alone, unconsolidated basis, and its combined guarantor and combined non-guarantor subsidiaries as of March31, 2010 and December31, 2009 and for the three months ended March31, 2010 and 2009. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the subsidiaries operated as independent entities. CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2010 ($ in millions) Parent Guarantor Subsidiaries Non- Guarantor Subsidiaries Eliminations Consolidated CURRENT ASSETS: Cash and cash equivalents $ $ 516 $ $ $ 516 Other 8 2,694 134 (17 ) 2,819 Total Current Assets 8 3,210 134 (17 ) 3,335 PROPERTY AND EQUIPMENT: Natural gas and oil properties, at cost based on full-cost accounting 20,846 469 21,315 Other property and equipment, net 3,016 1,324 4,340 Total Property and Equipment 23,862 1,793 25,655 Other assets 152 526 620 1,298 Investments in subsidiaries and intercompany advance 658 4 (662 ) TOTAL ASSETS $ 818 $ 27,602 $ 2,547 $ (679 ) $ 30,288 CURRENT LIABILITIES: Current liabilities $ 184 $ 2,799 $ 156 $ (16 ) $ 3,123 Intercompany payable (receivable) from parent (22,329 ) 19,967 2,394 (32 ) Total Current Liabilities (22,145 ) 22,766 2,550 (48 ) 3,123 LONG-TERM LIABILITIES: Long-term debt, net 10,332 1,835 37 12,204 Deferred income tax liabilities 264 1,044 (44 ) 31 1,295 Other liabilities 151 1,299 1,450 Total Long-Term Liabilities 10,747 4,178 (

Recently Issued and Proposed Ac

Recently Issued and Proposed Accounting Standards
	3 Months Ended Mar. 31, 2010
Recently Issued and Proposed Accounting Standards	12. Recently Issued and Proposed Accounting Standards The Financial Accounting Standards Board (FASB) recently issued the following standards which were reviewed by Chesapeake to determine the potential impact on our financial statements upon adoption. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. The guidance was effective upon issuance. We adopted this guidance in the Current Quarter. The FASB also issued new guidance requiring additional disclosures about fair value measurements, adding a new requirement to disclose transfers in and out of Levels 1 and 2 measurements and gross presentation of activity within a Level 3 roll forward. The guidance also clarified existing disclosure requirements regarding the level of disaggregation of fair value measurements and disclosures regarding inputs and valuation techniques. We adopted this guidance effective first quarter 2010. Adoption had no impact on our financial position or results of operations. Required disclosures for the reconciliation of purchases, sales, issuance and settlements of financial instruments valued with a Level3 method are effective beginning on January1, 2011 and we do not expect the implementation to have a material impact on our financial position or results of operations. See Note10 for discussion regarding fair value measurements.

Subsequent Events

Subsequent Events
	3 Months Ended Mar. 31, 2010
Subsequent Events	13. Subsequent Events On May3, 2010, we converted all 5,000 shares of our outstanding 5.00% Cumulative Convertible Preferred Stock (Series 2005) into 20,774 shares of common stock pursuant to the companys mandatory conversion rights. In September 2009, we formed a joint venture with Global Infrastructure Partners (GIP), a New York-based private equity fund, to own and operate natural gas midstream assets. As part of the transaction, we contributed certain natural gas gathering and processing assets into a new entity, Chesapeake Midstream Partners, L.L.C. (CMP), and GIP purchased a 50% interest in CMP for $588 million in cash. In May 2010, we received a $75 million cash distribution from CMP. Chesapeake Midstream Partners, L.P., which was formed by Chesapeake and GIP to own, operate, develop and acquire midstream assets, has filed a registration statement on Form S-1 with the SEC relating to a proposed underwritten initial public offering of common units, representing limited partnership interests in the partnership. Upon the closing of the offering, Chesapeake and GIP will contribute CMPs interests to the partnership and the partnership will continue CMPs business. Subsequent to March31, 2010, we entered into an additional transportation service agreement extending through 2026 which will add a total of $1.8 billion to our existing commitments disclosed in Note 3. On May10, 2010, we announced a private placement of $600 million of 5.75% cumulative non-voting convertible preferred stock with two investors. The closing of the transaction is scheduled for May 17, 2010 and is subject to customary conditions. We also granted a 30-day option to the two purchasers to place up to $500 million in additional preferred stock of the same series with investors in Asia. We intend to use the net proceeds from the offerings to repay senior indebtedness.