Chesapeake Energy Shale Operations Overview Pennsylvania

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Natural Gas Uses

Residential and Commercial

Cooking, washing, drying, warming water, heating and air conditioning

Industrial

Pulp and paper, metals, chemicals, stone, clay, glass, process foods, treat waste,

incineration, drying, dehumidification, heating and cooling

Power Generation

Electric utilities and independent producers increasingly using natural gas to provide

energy for power plants because: lower capital costs, built faster, work more efficiently,

emit less pollution than fossil fuel plants.

Transportation

Compressed natural gas (CNG) for smaller to

mid-size vehicles and fleets

Liquefied natural gas (LNG) for mid-size to

large vehicles and fleets

12 Million CNG Vehicles Worldwide:

2.7MM in Pakistan, 1.9MM in Iran and Argentina,

1.6MM in Brazil, only 112,000 in US

Fuel cost is 50% less than gasoline

and 30% less CO2

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Chesapeake’s Key Operating Areas

Transition toward greater development of unconventional oil and NGL resources in the U.S.

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Characteristics of the Marcellus Shale

• Deep geologic formation stretching over 95,000

square miles in parts of Ohio, West Virginia,

Pennsylvania and New York

• 4,000-8,500 feet below ground surface

• Between 50 and 200 feet thick

• Potential to be the largest natural gas field in

the U.S., second largest in the world behind

South Pars/North Field off-shore in the Persian

Gulf shared by Qatar and Iran

• Estimated to hold more than 500 trillion cubic

feet of natural gas (estimated value >$1 trillion)

• Low permeability

• Requires combination of horizontal drilling and

hydraulic fracturing

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Chesapeake Energy Overview

Founded in 1989

Headquartered in Oklahoma City, Oklahoma

Offices regionally located in West Virginia (Charleston and Jane Lew) and in Pennsylvania (Mt. Morris, Canonsburg, Harrisburg and Towanda)

Exclusive U.S. onshore focus

Second-largest producer of U.S. natural gas and a Top 15 producer of U.S. liquids

3Q’11 natural gas production of ~2.8 Bcf/d

3Q’11 liquids production of ~94 mbbls/d

22 consecutive years of sequential production growth

Nation’s most active explorer 1993-2012

~ 11,500 producing wells

44,100 total producing natural gas and oil wells (includes legacy wells)

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Chesapeake Energy Overview

#1 driller in the world of horizontal wells Over the past 20 years: ~5,000 wells

Nation’s most active horizontal driller 1993-2012 ~165 operated rigs nationwide

― 29 rigs currently drilling in Eastern Division

» 17 in Marcellus North

» 7 in Marcellus South

» 5 in Utica

― 40+ rigs projected in Eastern Division in 2012

― ~350 wells drilled in Eastern Division in 2011

― ~380 wells projected in Eastern Division in 2012

Unparalleled inventory of U.S. onshore leasehold and 3-D seismic

Higher production rates, less risk

Exceptional drilling success rate – 98%

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Marcellus and Utica Shale Overview

Top leaseholder in U.S. shale plays #1 in Marcellus Shale: 1,780,000 net acres

#1 Utica Shale: 1,360,000 net acres

#1 Haynesville Shale: 460,000 net acres

#2 Barnett Shale: 220,000 net acres

Advantageous JV arrangements Marcellus: StatoilHydro (STO)

Utica: Total (TOT)

Barnett: Total (TOT)

Haynesville: Plains Exploration and Production Company (PXP)

Eagle Ford and Niobrara: Chinese National Offshore Oil Corporation (CNOOC)

CHK the largest producer in the

Marcellus 3Q’11 average production of 723 Mmcf/d

Estimated Ultimate Recovery (EUR) per

well of 5.75 Bcfe (Marcellus Shale)

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Chesapeake’s Marcellus Production Growth

Producing Wells

71 at year end 2009

183 at year end 2010

286 at year end 2011

Average Daily Production

63 Mmcf/day in 2009

272 Mmcf/day in 2010

695 Mmcf/day in 2011

Cumulative Production

23 Bcf in 2009

119 Bcf in 2010

371 Bcf in 2011

0

100

200

300

400

500

600

700

800

2009 2010 2011

Producing

Wells

Average

Daily

Production

(Mmcf/d)

Cumulative

Production

per Year

(Bcf)

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Oil and Gas Regulation

Myth: “..... the U.S. oil and gas production industry….. Has enjoyed

loopholes in federal laws that allow it to pollute the land, air and

water, and release toxic substances into the environment.”

NRDC Press Release, October 31, 2007

Fact: Development of natural gas is regulated under a system of

interrelated, interdependent, and overlapping federal, state and

local laws that address exploration and operation.

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What Applies to Oil and Gas Operations?

Clean Water Act (CWA)

Regulates surface discharges of water associated with drilling and production

Storm water runoff from drilling and production sites

Underground Injection Control (UIC) program of the Safe Drinking Water Act (SDWA)

Regulates the underground injection of wastes from all industries including oil and gas

Clean Air Act (CAA)

Limits air emissions from engines, gas processing equipment and other sources associated

with drilling and production

Resource Conservation and Recovery Act (RCRA)

Requires industry to handle and dispose of its waste or refuse according to specific guidelines

National Environmental Policy Act (NEPA)

Requires that exploration and production on federal lands be thoroughly analyzed for

environmental impacts

Occupational Safety and Health Act (OSHA)

Protects the health and safety of oil and gas workers, as well as other industries

State and local regulations must be as stringent, and often are more

stringent, than federal rules and regulations.

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Issues Regulated

Employee Safety

Public Safety

Erosion and Sediment Control

Waste Handling Disposal

Well Density/Spacing

Well Testing

Floodplains

Fluid Handling/Disposal

Incident Reporting

Wetlands

Stream Crossings

Threatened and Endangered Species

Air Quality

Groundwater Protection

(Surface Casing Programs)

Noise

Placement/Construction of Wellbores

Well Production

Surface Water Protection

Water Use

Road Use

Spill Response & Remedial Measures

Chemical Handling & Transportation

Cultural Resources

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Findings and Reports

Among large counties (75,000 or more employees), Washington County, Pa. had the

third highest percent increase (4.3%) in employment in the nation between March

2010 and March 2011 according to the U.S. Bureau of Labor Statistics. “Most of the

job growth there is tied to Marcellus Shale gas drilling.”

― Scott Fergus, Washington County Director of Administration, 9/30/11

“We have not seen any impacts to groundwater as a result of hydraulic fracturing.”

― Robert Abbey, Director of U.S. Bureau of Land Management, 7/8/11

“The screening results found to date do not indicate a potential for major air related

health issues associated with Marcellus Shale drilling activities.”

― PA DEP air quality studies in southwest and northeast PA, 11/1/10

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The Production Process

Four basic steps to production:

1. Site selection and well pad preparation

2. Drilling the well

3. Completing the well

4. Marketing the gas and reclaiming the site

Plus:

Best Management Practices (BMPs)

Economic Impact of the Marcellus Shale

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Safety Is a Top Priority

Wells are drilled and constructed to recover the natural resources while protecting

the environment and providing for the safety of workers and area residents

SAFE: Stay Accident Free Everyday

Employees attend two-day SAFE workshops

SAFE program focuses on developing safe behaviors, promoting a safety-conscious culture and

reducing risk in all operating areas

Reward and recognize employees for contributing to safe working environments

Protecting the community

Establish road guidelines for Chesapeake traffic

Use staging areas when necessary

Dispatch roving patrol vehicle to monitor Chesapeake traffic

Maintain and restore damaged roads

Coordinate with school transportation departments

Communicate with local emergency response personnel and provide weekly operational updates

Inform and update local officials on status of operations and residents’ concerns

Work with operations personnel to report issues to 911 office, including non-emergency situations

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Site selection

and well pad preparation

Step 1

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Site Selection

A number of factors are considered in

selecting a drilling site:

Leasehold

Favorable geology

Topography

Access Roads

Routes for pipelines and utilities

Environmental factors such as

wetlands and sensitive wildlife habitat

Available water source(s)

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Well Pad Preparation

Well pads can be located in rural or urban areas

Pad preparation requires approximately 4-6 weeks

Typical horizontal well pad requires ~5 acres to construct (not including

fresh water impoundments and access roads)

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Drilling the well using

horizontal drilling

Step 2

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Advanced Drilling Technologies Reduce Surface Footprint

Vertical drilling patterns required:

Up to 32 well pads needed to

recover the natural resources from

1280 acres (an average unit size)

Multiple roads with pipelines and

utilities required to access the

wells

Total surface disturbance was ~45

acres

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Extraordinary Technology Advances Extract Natural Gas More Effectively

Horizontal drilling substantially reduces

surface footprint

6-8 horizontal wells anticipated

drilled from each 5 acre pad

Each independent well is

individually permitted and

regulated by the state’s DEP

Only one road with pipeline and

utilities to well pad

Approximately 85% less surface

disturbance compared to vertical

wells

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Drilling the Well Using Today’s New Technology

Drilling is a 24/7 operation

Reduces rig time on location

Drilling typically lasts 3-4 weeks per

wellbore

“Closed-loop” drilling system

All drilling materials are contained

No materials collected in earthen pits

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Drilling the Well-Groundwater Protection

4 or more layers of protection are

installed in the well to isolate the

well from the surrounding strata and

protect groundwater supplies and

the environment

Surface casing and cement seal

Production casing and cement seal

Production tubing

On some wells, an intermediate

string of casing and cement is

installed

Formation Integrity Test performed

and Cement Bond Logs Recorded

Pre-Drill Water Well Testing

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How Deep?

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Completing the well:

hydraulic fracturing or

well completion

Step 3

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Well Completion

After the drilling rig is removed, hydraulic

fracturing (“fracing”) begins

Fracing is a process to stimulate natural

resource production from the hard shale

Impoundments, if necessary, hold

freshwater only

The shale is fractured in stages using a

perforating tool

Water is mixed with proppant (such as

sand) and pumped into the shale

reservoir under pressure

Generally takes several days per wellbore

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What does it look like?

Typical Site Layout

Chemical Storage

Frac Head

Data Monitoring Van

Frac Pumps

Working Tanks –

stage fresh water

Sand Storage Units

Blender

Frac Tanks – hold produced water

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Process

Currently recycling/reusing nearly 100% of produced

water

Produced water is collected and stored in holding

tanks onsite.

Then pumped from the tanks through 20-micron

filter

Blended with fresh water during the next

fracturing job

Benefits

Reduces or eliminates need for water to be sent

off-site for disposal

Reduces impact on local supplies

Reduces truck traffic, lowers impact on roads, noise

and air

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Other: 0.5%

Acid

Friction Reducer

Surfactant

Gelling Agent

Scale Inhibitor

pH Adjusting Agent

Breaker

Crosslinker

Iron Control

Corrosion Inhibitor

Antibacterial Agent

Clay Stabilizer

Water and Sand: 99.5%

Typical Deep Shale Gas Fracturing Mixture

Not ALL of the chemicals are used in every well.

Chesapeake actively participates in a national publicly accessible web-based

registry to report the additives used in the process on a well-by-well basis.

www.fracfocus.org

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Fracturing Fluid Additives

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Water Use Efficiency in Natural Gas Plays

Chesapeake Energy Three Major Deep Shale Plays

Shale Play Average Water Use Per

Well 1

CHK Est. Avg. Natural

Gas Production Over

Well Lifetime 2

Resulting Energy From

Natural Gas Production

Per Well

(based on 1,028 Btu per Cubic Feet )3

Water Use Efficiency (in gallons per MMBtu)

Haynesville 5.6 million gallons 6.50 billion cubic feet 6.68 trillion Btu 0.84

Marcellus 5.6 million gallons 5.75 billion cubic feet 5.91 trillion Btu 0.95

Barnett 4.8 million gallons 3.30 billion cubic feet 3.39 trillion Btu 1.32

Source: 1Chesapeake Energy 2009b, 2Chesapeake Energy 2011c, 3USDOE

2007

British Thermal Unit (Btu)

Million British Thermal Units (MMBtu)

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Raw Fuel Source Water Use Efficiency

Energy resource Range of gallons of water used per MMBtu of energy

produced

Chesapeake deep shale natural gas* 0.84-1.32

Conventional natural gas 1-3

Coal (no slurry transport)

(with slurry transport)

2-8

13-32

Nuclear (processed uranium ready to use in plant) 8-14

Conventional oil 8-20

Synfuel – coal gasification 11-26

Oil shale petroleum 22-56

Tar sands petroleum 27-68

Synfuel – Fisher Tropsch (Coal) 41-60

Enhanced oil recovery (Coal) 21-2,500

Biofuels (Irrigated Corn Ethanol, Irrigated Soy

Biodiesel)

>2,500

Source: USDOE 2006 (other than CHK data)

*Does not include processing which can add from 0 - 2 gallons per MMBtu

Solar and wind not included in table (require virtually no water for processing)

Values in table are location independent (domestically produced fuels are more

water efficient than imported fuels)

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Marketing the gas

and reclaiming the site

Step 4

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Marketing /Production to Sales

Gas and produced water reach surface

Gas and water are separated by the

“Separator”

Gas travels through sales meter to pipeline

Pipeline carries gas to market

Produced water is retained on location in

tanks until removed via truck

CHK has its own MidStream and Marketing

(CEMI) Company

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Reclaiming the Site

Site is reclaimed and landscaped

Pad site is reduced to the space

needed for necessary production

equipment, which will vary based on

gas analytics

Production equipment could include,

but is not limited to, compressor units

(not stations), vapor destruction units

and storage tanks

All access roads remain and are

maintained by Chesapeake

Occurs when all work on the site is

complete

Company returns regularly

Maintain equipment/monitor

production rate, empty tanks

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Exceeding

State and Federal Regulation

Best Management Practices

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BMPs

Pre-job safety meetings

Erosion and sediment controls follow New York

State Department of Environmental Conservation

Standards

Berms and trenching on all sites

Pre-drill testing of water wells out to 2,500 feet

from the wellhead

Closed-loop drilling system

Use of air drilling through freshwater aquifers

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BMPs Continued

Equipment staged for visual inspection of potential leak

points

Chemical containers, tanks and process vessels placed

inside lined containment

Hoses and fittings utilize drip pots and troughs under

connections

Use of freshwater impoundments only

Aqua Renew Program

Condensate Management Plan

Personal and fixed vapor monitoring

All employees authorized to stop work activity

Wells shut in with remote shut-off

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Internal Auditing Program

Commenced in 2009 in the Marcellus Play

Performed by a third-party firm

40-50 audits/week

Sites audited:

Pad construction, drilling, completions

(including impoundments), production

and temporarily inactive sites

Elements that are audited:

E&S controls

Containment

Spill prevention

Residual waste management

Stream crossings

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Economic Impact

of the Marcellus Shale

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Penn State University Economic Study

The Marcellus industry generated $1.08 billion in state and local taxes in PA

in 2010. The industry is expected to generate $1.23 billion in state and local

taxes in PA in 2011.

The Marcellus industry accounted for nearly 140,000 jobs through 2010

Lease and bonus payments by Marcellus Shale producers totaled $2.06

billion in 2010, with over $1.6 billion paid to individual landowners

$11.5 billion total investment

For every $1 invested by Marcellus Shale producers, nearly $2 of total

economic output is generated as a result

Projected natural gas output of 3.5Bcf/day for 2011

6.7 Bcf/day for 2012

12.0 Bcf/day for 2015

17.5 Bcf/day for 2020

Study released 7/2011

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PSU Study Continued

2011 2012

Economic value added: - Value added:

$12.844 billion $14.531 billion

State and local taxes: - State and local taxes:

$1.231 billion $1.402 billion

Jobs: 156,695 - Jobs: 181,335

2015 2020

Value added: -Value added:

$17.195 billion $20.246 billion

State and local taxes: - State and local taxes:

$1.677 billion $2.003 billion

Jobs: 215,979 - Jobs: 256,420

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Chesapeake Energy Impact/PA

Currently has drilled over 350 Marcellus wells

First well drilled in February 2009

Nearly 1,500 employees in PA

Fewer than 250 employees in January 2009

Over $1.5 billion for leases paid to landowners since 2008

Over $400 million in contracts to vendors since 2009

Community Investment in PA

Over $1.3 million in community investment in 2010

Over $822,000 in community investment in 2011*

* As of July 2011

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Natural Gas Advantages

Clean

Cleanest burning hydrocarbon on the planet

No SO2, no Mercury, negligible particulates

80% less NOx than coal

50% less CO2 than coal, 30% less CO2 than oil

Abundant

North America has 200-year supply

Marcellus Shale has 40-year supply

Affordable

Natural gas is attractively priced relative to oil

American

98% of the natural gas Americans use comes from the

U.S. and Canada

Reduce our oil addiction

Improve our energy budget, national security and the U.S.

Dollar

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Thank You! Contact Info: Corporate Development Southpointe Office 724-873-5059 AskChesapeake.com