Chesapeake Energy 2015 Annual Report Download - page 38

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A portion of our oil, natural gas and NGL production may be subject to interruptions that could adversely
affect our cash flow.
A portion of our oil, natural gas and NGL production in any region may be interrupted, or shut in, from time to time
for numerous reasons, including weather conditions, accidents, loss of pipeline or gathering system access, field labor
issues or strikes, or we might voluntarily curtail production in response to market conditions. If a substantial amount
of our production is interrupted at the same time, it could materially adversely affect our cash flow.
Cyber-attacks targeting systems and infrastructure used by the oil and gas industry may adversely impact
our operations.
Our business has become increasingly dependent on digital technologies to conduct certain exploration,
development and production activities. We depend on digital technology to estimate quantities of oil, natural gas and
NGL reserves, process and record financial and operating data, analyze seismic and drilling information, and
communicate with our employees and third-party partners. We have been the subject of cyber-attacks on our internal
systems and through those of third parties, but these incidents did not have a material adverse impact on our results
of operations. Nevertheless, unauthorized access to our seismic data, reserves information or other proprietary or
commercially sensitive information could lead to data corruption, communication interruption, or other disruptions in
our exploration or production operations or planned business transactions, any of which could have a material adverse
impact on our results of operations. Further, as cyber-attacks continue to evolve, we may be required to expend
significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate
any vulnerabilities to cyber-attacks.
In the event of a bankruptcy of SSE, our spin-off of SSE may be challenged. In addition, SSE may not
perform its obligations under the agreements entered into with us in connection with the spin-off.
In June 2014 we completed the spin-off of our oilfield services business into Seventy Seven Energy Inc. (“SSE”),
an independent, publicly traded company. The substantial decline in oil and natural gas prices since the completion
of the spin-off has significantly and adversely affected SSE’s business, and in January 2016 SSE publicly announced
that it was exploring opportunities in its capital structure that may involve reducing debt and enhancing liquidity. If SSE
were to become subject to a case under the federal Bankruptcy Code or other insolvency laws, certain aspects of the
spin-off could be challenged under fraudulent conveyance and transfer laws, in addition to other potential claims. Such
a claim could seek to avoid transfers of assets to us or obligations incurred by SSE in connection with the spin-off and
to impose other remedies, such as a judgment for the value of assets so transferred. Defending against such claims
could be costly and could distract our management from other priorities. Although no assurance can be given as to
the outcome of any claim, we believe we have a number of defenses to any such claim and any such claim would be
without merit. In addition, SSE may not perform its indemnity and other obligations under its agreements with us, in
which case we would be entitled to a general unsecured claim for damages, which may not be paid in full in the event
of SSE’s bankruptcy.
An interruption in operations at our headquarters could adversely affect our business.
Our headquarters are located in Oklahoma City, Oklahoma, an area that experiences severe weather events,
including tornadoes and earthquakes. Our information systems and administrative and management processes are
primarily provided to our various drilling projects throughout the United States from this location, which could be
disrupted if a catastrophic event, such as a tornado, power outage or act of terror, destroyed or severely damaged our
headquarters. Any such catastrophic event could harm our ability to conduct normal operations and could adversely
affect our business.
We do not anticipate paying dividends on our common stock or preferred stock in the near future.
In July 2015, our Board of Directors determined to eliminate quarterly cash dividends on our common stock, and
in January 2016, our Board of Directors determined to suspend dividend payments on our preferred stock. Accordingly,
we do not intend to pay cash dividends on our common stock or preferred stock in the foreseeable future. We currently
intend to retain any earnings for the future operation and development of our business, including exploration,
development and acquisition activities. Any future dividend payments will require approval by the Board of Directors.
In addition, dividends may be restricted by the terms of our debt agreements. If we fail to pay dividends on our preferred
stock with respect to six or more quarterly periods (whether or not consecutive), the holders of our preferred stock,
voting as a single class, will be entitled at the next regular or special meeting of shareholders to elect two additional
directors of the Company.