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(c) Includes the effects of realized (gains) losses from interest rate derivatives, but excludes the effects of
unrealized (gains) losses and is net of amounts capitalized.
We manage our business as three separate operational segments: exploration and production; marketing,
gathering and compression; and service operations, which is comprised of our wholly owned drilling and
trucking operations. We refer you to Note 16 of the notes to our consolidated financial statements appearing in
Item 8 of this report, which summarizes by segment our net income and capital expenditures for 2010, 2009
and 2008 and our assets as of December 31, 2010, 2009 and 2008.
Executive Summary
We are the second-largest producer of natural gas and a top 20 producer of oil and natural gas liquids in
the U.S. We own interests in approximately 46,000 producing natural gas and oil wells that are currently
producing approximately 3.0 bcfe per day, 87% of which is natural gas. Our strategy is focused on discovering
and developing unconventional natural gas and oil fields onshore in the U.S., primarily in the Barnett Shale in
the Fort Worth Basin of north-central Texas, the Haynesville and Bossier Shales in northwestern Louisiana and
East Texas, the Fayetteville Shale in the Arkoma Basin of central Arkansas, and the Marcellus Shale in the
northern Appalachian Basin of West Virginia and Pennsylvania. We also have substantial operations in the
liquids-rich plays of the Eagle Ford Shale in South Texas, the Granite Wash, Cleveland, Tonkawa and
Mississippian plays in the Anadarko Basin in western Oklahoma and the Texas Panhandle, the Niobrara Shale,
Frontier and Codell plays in the Powder River and DJ Basins of Wyoming and Colorado and the Avalon, Bone
Spring, Wolfcamp and Wolfberry plays in the Permian and Delaware Basins of West Texas and southern New
Mexico, as well as various other plays, both conventional and unconventional, in the Mid-Continent, Williston
Basin, Appalachian Basin, South Texas, Texas Gulf Coast and Ark-La-Tex regions of the U.S. We have also
vertically integrated our operations and own substantial midstream, compression, drilling and oilfield service
assets. As described below, we have agreed to sell our Fayetteville Shale assets in a transaction expected to
close in the first half of 2011.
Chesapeake began 2010 with estimated proved reserves of 14.254 tcfe and ended the year with 17.096
tcfe, an increase of 2.842 tcfe, or 20%. During 2010, we replaced 1.035 tcfe of production with an estimated
3.877 tcfe of new proved reserves, for a reserve replacement rate of 375%. The 2010 proved reserve
movement included 5.098 tcfe of extensions, 0.006 tcfe of downward performance revisions and 0.189 tcfe of
positive revisions resulting from an increase in the twelve-month trailing average natural gas and oil prices
between December 31, 2009 and December 31, 2010. During 2010, we acquired 0.089 tcfe of estimated
proved reserves and divested 1.493 tcfe of estimated proved reserves.
Chesapeake continued the industry’s most active drilling program in 2010 and drilled 1,445 gross (938 net)
operated wells and participated in another 1,586 gross (211 net) wells operated by other companies. The
company’s drilling success rate was 98% for both company-operated and non-operated wells. Also during
2010, we invested $4.6 billion in operated wells (using an average of 131 operated rigs) and $815 million in
non-operated wells (using an average of 123 non-operated rigs) for total drilling and completion costs of $5.4
billion, net of drilling and completion cost carries of $1.2 billion.
Our average daily production for 2010 of 2.836 bcfe consisted of 2.534 bcf (89% on a natural gas
equivalent basis) and 50,397 bbls (11% on a natural gas equivalent basis) and was an increase of 355 mmcfe,
or 14%, over the 2.481 bcfe of daily production for 2009. Total production for 2010 was 1,035 tcfe, an increase
of 129.7 bcfe, or 14%, over 2009 total production of 905.5 bcfe. This was our 21st consecutive year of
sequential production growth.
Since 2000, Chesapeake has built the largest combined inventories of onshore leasehold (13.3 million net
acres) and 3-D seismic (27.9 million acres) in the U.S. This position includes the largest inventory of U.S.
natural gas shale play leasehold (2.5 million net acres) as well as the largest combined leasehold position in
two of the three largest new unconventional liquids-rich plays in the U.S. – the Eagle Ford Shale and the
Niobrara Shale. We are currently using 157 operated rigs to further develop our inventory of approximately
37,800 net drillsites.
Implementing Our Strategy
In recognition of the value gap between oil and natural gas prices, during the past two years Chesapeake
has directed a significant portion of its technological, geo-scientific, leasehold acquisition and drilling expertise
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