Dear Fellow Shareholders,

2010 was a very important year of transition and achievement for Chesapeake, a year in which we initiated three very important strategic shifts: from asset gathering to asset harvesting, from focusing exclusively on natural gas to a balanced focus on natural gas and liquids and from having a leveraged balance sheet to one worthy of an investment grade rating.

2010 also marked a truly transformative year for our industry. We and a handful of our peers enhanced our capabilities to find and produce significant new resources of oil and natural gas liquids (collectively, “liquids”) in unconventional formations. Chesapeake and these other companies combined creativity, innovation and technology to reinvent the way that our industry explores for and produces natural gas and liquids.

Furthermore, 2010 was the year when global energy companies more fully recognized the importance of these developments and the tremendous opportunities that have emerged in the U.S. Through a wide variety of transactions, including several led by Chesapeake, the global energy industry made it clear that the assets owned by Chesapeake and some of its peers are the most attractive in the world. This realization has already increased the value of high-quality unconventional assets in the U.S. and, in time, should lead to higher stock prices for the leading U.S. onshore E&P companies, especially Chesapeake. Simply put, the global energy industry is beating a path to our door, and we are welcoming it with open arms.

Before we move ahead, I want to emphasize that even though 2010 was a year of transition and achievement, our stock price was essentially unchanged. Nevertheless, it was still a very strong year for the company operationally and financially. Here are the year’s highlights for your review:

• Average daily natural gas and oil production increased 14% from 2.5 billion cubic feet of natural gas equivalent (bcfe) in 2009 to 2.8 bcfe in 2010;
• Proved natural gas and oil reserves increased 20% in 2010, from 14.3 trillion cubic feet of natural gas equivalent (tcfe) to 17.1 tcfe;
• Reserve replacement for 2010 reached 375% at a drilling, completion and net acquisition cost of only $0.76 per thousand cubic feet of natural gas equivalent (mcfe)(1);
• Realized hedging gains were $2.1 billion;
• Revenues increased 22% to $9.4 billion;
• Adjusted ebitda(2) increased 15% to $5.1 billion;
• Operating cash flow(2) increased 5% to $4.5 billion; and
• Adjusted earnings per fully diluted share(2) increased 16% to $2.95.