Dear Shareholders,

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, optimized our capital expenditures, reduced administrative and operating costs, improved safety across our operations and strengthened our overall financial position. Five new independent directors and a new independent, non-executive Chairman 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 Executive Officer and as a member of a newly created three-person Office of the Chairman. Additionally, we implemented governance reforms focused on enhancing financial and management oversight, Board accountability to shareholders and corporate 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 exceptionally 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 LIQUIDS

Chesapeake entered 2012 focused on continued growth of oil and natural gas liquids production to provide a more balanced 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 approximately 85% of our drilling and completion capital to liquids plays in 2013.

DRILLING THE CORE OF THE CORE

Chesapeake 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 SALES

As a part of our ongoing efforts to strengthen our financial position 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 achieving our target of $4 to $7 billion in asset sales.

OUR PATH FORWARD

Chesapeake has built one of the largest resource bases in the domestic exploration and production 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 chapter 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 environment 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 leadership 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 Chesapeake delivering strong results for our shareholders in 2013 and the years ahead.

Best regards,

Steven C. Dixon
Acting Chief Executive Officer
Chief Operating Officer
April 15, 2013​​