The Fayetteville Shale is currently the second most productive shale play in the U.S. and one of the nation’s 10 largest natural gas fields of any type. In the Fayetteville, Chesapeake is the second-largest leasehold owner in the Core area of the play with 445,000 net acres. During the 2009 third quarter, Chesapeake’s average daily net production of 248 mmcfe in the Fayetteville increased approximately 13% over the 2009 second quarter and approximately 49% over the 2008 third quarter. Chesapeake is currently producing approximately 260 mmcfe net per day (400 mmcfe gross operated) from the Fayetteville and anticipates reaching approximately 290 mmcfe net per day (445 mmcfe gross operated) by year-end 2009, approximately 300 mmcfe net per day (460 mmcfe gross operated) by year-end 2010 and approximately 330 mmcfe net per day (510 mmcfe gross operated) by year-end 2011. To further develop its 445,000 net acres of Core Fayetteville leasehold, Chesapeake anticipates operating an average of approximately 12 rigs in 2010 to drill approximately 100 net wells. During the first the first three quarters of 2009, 100% of Chesapeake’s $524 million of drilling costs in the Fayetteville were paid for by its joint venture partner BP America (NYSE:BP). During the fourth quarter 2009, nearly all of Chesapeake’s drilling costs, or approximately $75 million, will be paid for by BP, bringing to an end BP’s drilling carry obligations to Chesapeake.

Assuming flat NYMEX natural gas prices of $7.00 per mcf (compared to a recent 10-year NYMEX strip price of approximately $7.25 per mcf), the company’s estimated pre-tax rate of return from a 2.4 bcfe horizontal Fayetteville well drilled for $3.0 million is approximately 31% excluding the benefit of drilling carries and is infinite including the benefit of drilling carries. During the last few months of 2008 and throughout 2009, Chesapeake’s 100% drilling carry from BP has resulted in lower finding costs, higher returns on invested capital and higher production growth levels than other companies have been able to deliver from the Fayetteville. In addition, Chesapeake’s leasehold investment in the Fayetteville to date has been approximately $530 million. By selling a 25% interest in the company’s leasehold to BP for $883 million, the company has more than recouped its entire leasehold investment in the Fayetteville.
Two notable recent wells completed by Chesapeake in the Fayetteville are as follows:

• The Reva Deen 7-8 1-15H9 in White County, AR achieved a peak rate of 8.0 mmcf per day; and
• The Collinsworth 7-16 2-10H in Conway County, AR achieved a peak rate of 6.2 mmcf per day.