Annual Report

View 2015 Annual ​Report
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Dear Fellow Shareholders:

In 2013, Chesapeake Energy began a transformation process to become a top-performing E&P company through our strategies of financial discipline and profitable and efficient growth. We have made significant progress operationally, financially and culturally — building a company based on value and competitive performance, despite the challenging commodity price environment.

While 2015 presented extremely difficult challenges for the entire energy industry, Chesapeake’s portfolio of diverse, high-quality unconventional assets and talented employees provided — and continues to provide — strength, stability and optionality to successfully combat the depressed commodity price environment. We remain dedicated and focused on improving the financial and long-term strength of the company through creative and innovative efficiencies, lowering costs and reducing debt.

In 2015, our improved capital efficiency enabled us to reduce our capital program, yet still increase production year over year by 8% (adjusted for asset sales). We invested approximately $3.6 billion — a reduction of 46% in our capital expenditures compared to 2014. We also generated significant savings in our controllable cash costs. We reduced general and administrative costs by 27%, or $87 million, and reduced production costs by 13%, or $162 million. In addition, we renegotiated gathering agreements in the Haynesville and Utica shales that significantly improved our per-unit gathering rates, drilling economics and operational efficiency. We expect to secure further improvements in our midstream gathering and transportation costs in 2016. We have already successfully renegotiated certain midstream agreements in the first quarter that will enhance our annualized EBITDA by approximately $50 million through lower transportation volume commitments and lower fees on pipelines in the Haynesville, Barnett and Eagle Ford shales.

We made significant progress towards debt reduction by reducing our total principal debt balances from approximately $11.8 billion at year-end 2014 to approximately $9.5 billion as of February 2016. We privately exchanged certain existing senior unsecured notes for new 8.00% senior second lien secured notes, reducing our debt by approximately $1.5 billion. We also took advantage of the significant discounts in debt security pricing and repurchased a portion of our debt in the open market. Since September 2015, we have exchanged or repurchased approximately $600 million of debt maturing in 2017. In aggregate, we have reduced our annual interest payments by approximately $34 million. We are continuing these efforts in 2016.

While we are pleased with our progress over the last few years, the Board of Directors and management team recognize that much work remains ahead. In 2016, we are focusing on: maximizing liquidity through reducing our capital budget; optimizing our portfolio through divestitures of assets; increasing our EBITDA by continuing to improve our gathering and transportation agreements and reducing our production and G&A expenses; and continuing to reduce our debt, focusing primarily on our 2017 and 2018 maturities. To further improve our near-term liquidity, we closed or signed approximately $700 million in asset divestitures in the first quarter of 2016 and we intend to pursue additional, non-core divestitures in the range of $500 million to $1 billion by the end of the year.

On behalf of the Board of Directors and the entire management team, we would like to thank you for your trust and investment as we continue the transformation of Chesapeake Energy into a top-performing E&P company. We remain committed and focused on creating long-term shareholder value, while demonstrating leadership in safety and environmental stewardship in all aspects of our business.

R. Brad Martin
Chairman of the Board

Robert D. Lawler
President, Chief Executive Officer and Director