Chesapeake Energy 1999 Annual Report Download - page 26

attributable to proved reserves do not reflect market prices for oil and gas production sold subsequent to December
31, 1999. 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 uncertainties inherent in estimating quantities of proved reserves and in 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 in an exact way, and the accuracy of
any reserve estimate is a function of the quality of available data and of engineering and geological interpretation 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 justify 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 are
ultimately recovered. Furthermore, 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 provedreserves.
See Item 1 and Note 11 of Notes to Consolidated Financial Statements included in Item 8 for a description of the
Company's primary and other operating areas, production and other information regarding its oil andgas properties.
ITEM 3. Legal Proceedings
The Company is subject to ordinary routine litigation incidental to its business. In addition, the following
matters are pending or were recently terminated:
Securities Litigation. On March 3, 2000, the U.S. District Court for the Western District of Oklahoma
dismissed a consolidated class action complaint styled In re Chesapeake Energy Corporation Securities Litigation.
The complaint, which consolidated twelve purported class action suits filed in August and September 1997, alleged
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by the Company and certain of its
officers and directors. The action was brought on behalf of purchasers of the Company's common stock and
common stock options between January 25, 1996 and June 27, 1997. The complaint alleged that the defendants
made material misrepresentations and failed to disclose material facts about the Company's exploration and drilling
activities in the Louisiana Trend. The Court ruled that Chesapeake had disclosed the precise risks of its Louisiana
Trend activities.
Bayard Drilling Technologies, Inc. On July 30, 1998, the plaintiffs in Yuan, et al. v. Bayard, et al. 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
and others. The action, originally filed in February 1998, was brought purportedly on behalf of investors who
purchased Bayard common stock in, or traceable to, Bayard's initial public offering in November 1997. The
defendants include officers and directors of Bayard who signed the registration statement, selling shareholders
(including the Company) and underwriters of the offering. Total proceeds of the offering were $254 million, of
which the Company received net proceeds of $90 million.
Plaintiffs allege that the Company, which owned 30.1% of Bayard's outstanding common stock prior to the
offering, was a controlling person of Bayard. Plaintiffs also allege that the Company had established an interlocking
financial relationship with Bayard and was a customer of Bayard's drilling services under allegedly below-market
terms. Plaintiffs assert that the Bayard prospectus contained material omissions and misstatements relating to (i) the
Company's financial "problems" and their impact on Bayard's operating results, (ii) increased costs associated with
Bayard's growth strategy, (iii) undisclosed pending related-party transactions between Bayard and third parties other
than the Company, (iv) Bayard's planned use of offering proceeds and (v) Bayards capital expenditures and
liquidity. The alleged defective disclosures are claimed to have resulted in a decline in Bayard's share price
following the public offering. Plaintiffs seek a determination that the suit is a proper class action and damages in an
unspecified amount or rescission, together with interest and costs of litigation, including attorneys' fees.
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