Chesapeake Energy 1998 Annual Report Download - page 38

The Company's mterest used in calculatmg proved reserves and the estimated future net revenue therefrom was
determined after giving effect to the assumed maximum participation by other parties to the Company's farmout and
participation agreements The pnces used m calculating the estimated future net revenue attributable to proved
reserves do not reflect market pnces for oil and gas production sold subsequent to December 31, 1998 There can
be no assurance that all of the estimated proved reserves will be produced and sold at the assumed prices or that
existing contracts will be honored or judicially enforced.
There are numerous uncertamties inherent in estimating quantities of proved reserves and m projecting future
rates of production and timing of development expenditures, including many factors beyond the control of the
Company. The reserve data set forth herein represent only estimates. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that cannot be measured m an exact way, and the accuracy of
any reserve estimate is a function of the quality of available data and of engmeermg and geological mterpretation
and judgment. As a result, estimates made by different engineers often vary. In addition, results of drilling, testing
and production subsequent to the date of an estimate may justif' revision of such estimates, and such revisions may
be material. Accordingly, reserve estimates are often different from the actual quantities of oil and gas that arc
ultimately recovered. Furthennore, the estimated future net revenue from proved reserves and the present value
thereof are based upon certain assumptions, including prices, future production levels and cost, that may not prove
correct. Predictions about prices and future production levels are subject to great uncertainty, and the foregoing
uncertainties are particularly true as to proved undeveloped reserves, which are inherently less certain than proved
developed reserves and which comprise a significant portion of the Company's proved reserves.
See Item 1 and Note 11 of Notes to Consolidated Financial Statements included in Item 8 for a description of the
Company's priniaty and other operating areas, production and other informationregarding its oil and gas properties.
ITEM 3. Legal Proceedings
The Company is subject to ordinary routine litigation incidental to its business. In addition, the following matters
are pending:
Securities Litigation. On January 13, 1998, a consolidated class action complaint styled In re Chesapeake Energy
Corporation Securities Litigation was filed in the U.S. District Court for the Western District of Oklahoma. It
consolidated 12 pending purported class actions filed in August and September 1997. The action is brought on behalf
of purchasers of the Company's common stock and common stock options between January 25, 1996 and June 27,
1997. The defendants are the Company and the following officers and directors: Aubrey K. McClendon, Tom L.
Ward, Marcus C. Rowland. Shannon T. Self, Walter C. Wilson Henry J. Hood, Steven C. Dixon, J. Mark Lester and
Ronald A. Lefaive. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule lob-S thereunder.
The plaintiffs assert that the defendants made material misrepresentations and failed to disclose material facts about
the success of the Company's exploration and drilling activities in the Louisiana Trend. The complaint alleges the lack
of disclosure artificially inflated the price of the Company's common stock during the period beginning January 25,
1996 and ending on June 27, 1997, when the Company issued a press release announcingdisappointing drilling results
in the Louisiana Trend and a full-cost ceiling writedown to be reflected in its June 30, 1997 financial statements. The
plaintiffs further allege that certain of the named individual defendants sold the Company's common stock during the
class period when they knew or should have known adverse nonpublic information. The plaintiffs seek a determination
that the suit is a proper class action and damages in an unspecified amount, together with interest and costs of litigation,
including attorneys' fees The Company and the individual defendants believe that these claims are without merit and
on March 16, 1998 filed a motion to dismiss. To date, the U.S. District Court has not ruled on this motion. No estimate
of loss or range of estimate of loss, if any, can be made at this time.
Bayard Drilling Technologies, Inc. ("Bayard"). On July 30, 1998, the plaintiffs in Yuan, et al. v. Bayard, etd!. filed
an Amended Class Action Complaint in the U.S. District Court for the Western District of Oklahoma alleging violations
of Sections 11 and 12 of the Securities Act of 1933 and Section 408 of the Oklahoma Securities Act by the Company
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