Chesapeake Energy 2013 Annual Report Download - page 102

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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A related federal consolidated derivative action and an Oklahoma state court derivative action are stayed pursuant
to the parties' stipulation pending resolution of the appeal in the federal securities class action.
On May 8, 2012, a derivative action was filed in the District Court of Oklahoma County, Oklahoma against the
Company's directors alleging, among other things, breaches of fiduciary duties and corporate waste related to the
Company's officers and directors' use of the Company's fractionally owned corporate jets. On August 21, 2012, the
District Court granted the Company's motion to dismiss for lack of derivative standing, and the plaintiff appealed the
ruling on December 6, 2012.
Regulatory Proceedings. On May 2, 2012, Chesapeake and Mr. McClendon received notice from the U.S.
Securities and Exchange Commission that its Fort Worth Regional Office had commenced an informal inquiry into,
among other things, certain of the matters alleged in the foregoing 2012 securities and shareholder lawsuits. On
December 21, 2012, the SEC’s Fort Worth Regional Office advised Chesapeake that its inquiry is continuing as an
investigation. The Company is providing information and testimony to the SEC pursuant to subpoenas and otherwise
in connection with this matter and is also responding to related inquiries from other governmental and regulatory
agencies and self-regulatory organizations.
The Company has received, from the Antitrust Division of the U.S. Department of Justice (DOJ) and certain state
governmental agencies, subpoenas and demands for documents, information and testimony in connection with
investigations into possible violations of federal and state laws relating to our purchase and lease of oil and gas rights
in various states. Chesapeake has engaged in discussions with the DOJ and state agencies and continues to respond
to such subpoenas and demands, including a subpoena issued by the Michigan Department of Attorney General
relating to its investigation of possible violations of that state’s criminal solicitation law.
Business Operations. Chesapeake is involved in various other lawsuits and disputes incidental to its business
operations, including commercial disputes, personal injury claims, royalty claims, property damage claims and contract
actions. With regard to contract actions, various mineral or leasehold owners have filed lawsuits against us seeking
specific performance to require us to acquire their natural gas and oil interests and pay acreage bonus payments,
damages based on breach of contract and/or, in certain cases, punitive damages based on alleged fraud. The Company
has successfully defended a number of these cases in various courts, has settled others and believes that it has
substantial defenses to the claims made in those pending at the trial court and on appeal. Regarding royalty claims,
Chesapeake and other natural gas producers have been named in various lawsuits alleging royalty underpayment.
The suits allege that we used below-market prices, made improper deductions, used improper measurement techniques
and/or entered into arrangements with affiliates that resulted in underpayment of royalties in connection with the
production and sale of natural gas and NGL. The Company is defending against certain pending claims, has resolved
a number of claims through negotiated settlements of past and future royalties and has prevailed in various other
lawsuits.
Based on management’s current assessment, we are of the opinion that no pending or threatened lawsuit or
dispute relating to the Company’s business operations is likely to have a material adverse effect on its consolidated
financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts
accrued, however, and actual results could differ materially from management’s estimates.
Environmental Proceedings
The nature of the natural gas and oil business carries with it certain environmental risks for Chesapeake and its
subsidiaries. Chesapeake has implemented various policies, procedures, training and auditing to reduce and mitigate
such environmental risks. Chesapeake conducts periodic reviews, on a company-wide basis, to assess changes in
our environmental risk profile. Environmental reserves are set for environmental liabilities for which economic losses
are probable and reasonably estimable. We manage our exposure to environmental liabilities in acquisitions by using
an evaluation process that seeks to identify pre-existing contamination or compliance concerns and addressing the
potential liability. Depending on the extent of an identified environmental concern, Chesapeake may, among other
things, exclude a property from the transaction, require the seller to remediate the property to our satisfaction in an
acquisition or agree to assume liability for the remediation of the property.