Chesapeake Energy 1997 Annual Report Download - page 28

Title to Properties
Title to properties is subject to royalty, overriding royalty, carried, net profits, working and other similar
interests and contractual arrangements customary in the oil and gas industry, to liens for current taxes not yet
due and to other encumbrances. As is customary in the industry in the case of undeveloped properties, little
investigation of record title is made at the time of acquisition (other than a preliminary review of local
records). Drilling title opinions are always prepared before commencement of drilling operations. From time
to time the Company's title to oil and gas properties is challenged through legal proceedings. The Company is
routinely involved in litigation involving title to certain of its oil and gas properties, none of which management
believes will be materially adverse to the Company, individually or in the aggregate.
Operating Hazards and Insurance
The oil and gas business involves a variety of operating risks, including the risk of fire, explosions,
blow-outs, pipe failure, abnormally pressured formations and environmental hazards such as oil spills, gas
leaks, ruptures or discharges of toxic gases, the occurrence of any of which could result in substantial losses to
the Company due to injury or loss of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and
penalties and suspension of operations. The Company's horizontal drilling activities involve greater risk of
mechanical problems than conventional vertical drilling operations.
The Company maintains a $50 million oil and gas lease operator policy that insures the Company against
certain sudden and accidental risks associated with drilling, completing and operating its wells. There can be
no assurance that this insurance will be adequate to cover any losses or exposure to liability. The Company
also carries comprehensive general liability policies and a $60 million umbrella policy. The Company and its
subsidiaries carry workers' compensation insurance in all states in which they operate and a $35 million
employment practice liability policy. While the Company believes these policies are customary in the industry,
they do not provide complete coverage against all operating risks.
Employees
The Company had 362 full-time employees as of June 30, 1997. No employees are represented by
organized labor unions. The Company considers its employee relations to be good.
Facilities
The Company owns 12 buildings totaling approximately 80,000 square feet in an office complex in
Oklahoma City that comprise its headquarters' offices and also owns a field office in Lindsay, Oklahoma. The
Company leases field office space in College Station and Navasota, Texas, Lafayette, Louisiana and Calgary,
Canada.
Reincorporation
On December 31, 1996, the Company changed its state of incorporation from Delaware to Oklahoma by
the merger of Chesapeake Energy Corporation, a Delaware corporation, with and into its newly formed
wholly-owned subsidiary, Chesapeake Oklahoma Corporation. The surviving corporation changed its name to
Chesapeake Energy Corporation. Each outstanding share of Common Stock, par value $10, of the merged
Delaware corporation was converted into one share of Common Stock, par value $.Ol, of the surviving
corporation. As a result of the merger, the surviving corporation succeeded to all of the assets and is
responsible for all of the liabilities of the merged Delaware corporation. On matters of corporate governance,
the rights of the Company's security holders are now governed by Oklahoma Jaw, which is similar to the
corporate law of Delaware.
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