Non-GAAP Financial Measures

As a supplement to the financial results prepared in accordance with U.S. GAAP, Chesapeake’s quarterly earnings presentations contain certain financial measures that are not prepared or presented in accordance with U S GAAP These non-GAAP financial measures include Adjusted EBITDAX, Free Cash Flow, Adjusted Free Cash Flow, Net Debt, Net Leverage, and Return on Capital Employed The Company’s management believes that these measures provide useful information to external users of the Company’s consolidated financial statements, such as industry analysts, lenders and ratings agencies. Due to the forward-looking nature of projected Adjusted EBITDAX, projected Free Cash Flow, projected Adjusted Free Cash Flow, projected Return on Capital Employed, and projected Net Leverage used herein, management cannot reliably predict certain of the necessary components of the most directly comparable forward-looking GAAP measures. Accordingly, the Company is unable to present a quantitative reconciliation of such forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable effort Amounts excluded from these non-GAAP measures in future periods could be significant.

Chesapeake’s definitions of each non-GAAP measure presented herein are provided below. Because not all companies use identical calculations, Chesapeake’s non-GAAP measures may not be comparable to similar titled measures of other companies.

Adjusted EBITDAX: Adjusted EBITDAX is defined as net income (loss) before interest expense, income tax expense (benefit), depreciation, depletion and amortization expense, exploration expense, unrealized (gains) losses on natural gas and oil derivatives, separation and other termination costs, and (gains) losses on sales of assets, adjusted to exclude certain items management believes affect the comparability of operating results. Adjusted EBITDAX is a non-GAAP measure used by management to evaluate the Company’s operational trends and performance relative to other oil and natural gas producing companies Adjusted EBITDAX should not be considered an alternative to, or more meaningful than, net income (loss) as presented in accordance with GAAP

Free Cash Flow: Free Cash Flow is defined as net cash provided by (used in) operating activities less cash capital expenditures. Free Cash Flow should not be considered an alternative to, or more meaningful than, net cash provided by operating activities, or any other measure of liquidity presented in accordance with GAAP.

Adjusted Free Cash Flow: Adjusted Free Cash Flow is defined as net cash provided by (used in) operating activities less cash capital expenditures and cash contributions to investments, adjusted to exclude certain items management believes affect the comparability of operating results. Adjusted Free Cash Flow is a non-GAAP financial measure used by the Company’s management to assess liquidity, including the Company’s ability to generate cash flow in excess of its capital requirements and return cash to shareholders. Adjusted Free Cash Flow should not be considered an alternative to, or more meaningful than, net cash provided by operating activities, or any other measure of liquidity presented in accordance with GAAP.

Net Debt: Net Debt is defined as total GAAP debt excluding premiums, discounts, and deferred issuance costs less cash and cash equivalents. Net Debt is presented as a widely understood measure of liquidity, but should not be considered as an alternative to, or more meaningful than, total debt presented in accordance with GAAP.

Net Leverage: Net Leverage is defined as Net Debt divided by Adjusted EBITDAX. Net Leverage is a non-GAAP measure used by management to assess the borrowing capacity of the Company but should not be considered as an alternative to, or more meaningful than, total debt presented in accordance with GAAP

Return on Capital Employed (ROCE): Return on Capital Employed is defined as net income (loss) before interest and income tax expense (benefit) divided by capital employed. Capital employed is a non-GAAP measure defined as total assets less total current liabilities less cash and cash equivalents. ROCE is presented as a widely understood measure of profitability and capital efficiency, but should not be considered an alternative to, or more meaningful than, net income (loss) or any other measure of profitability or capital efficiency as presented in accordance with GAAP