The United States District Court for the Western District ofOklahoma has dismissed the securities litigation filed in late 1997against Chesapeake Energy and its officers and directors and ruledin their favor, the company said yesterday. The litigation, whichoriginally consisted of 12 lawsuits but which was consolidated intoone class action suit in 1998, charged that Chesapeake hadmisstated or omitted facts concerning its activities in theLouisiana Austin Chalk Trend from Jan. 25, 1996 through June 25,1997.

The shareholder suits alleged that they had been mislead byChesapeake into thinking that the company expected to operatesuccessfully in the entire Austin Chalk area, including the areaoutside Masters Creek, resulting in an inflated share price (see DailyGPI, Feb. 5, 1998). Shareholders saidrather than disclosing unsuccessful drilling results in the outerMasters Creek area, company insiders disposed of nearly 200,000company shares with a market value of about $2.2 million. In June1997, Chesapeake announced it expected to take a full-cost write-downof its investment in areas of Louisiana outside of Masters Creektotaling $150 million to $200 million. Following that, Chesapeake’sstock price plummeted.

Chesapeake’s 1998 year-end results were hammered by non-cashimpairment charges of $881 million. Due mainly to “the severedecline in oil and natural gas prices during 1998,” Chesapeake lost$934 million on revenues of $382 million. The impairment chargesincluded $826 million to write down the value of gas and oilproperties, $25 million to write down the company’s LA midstreamgas gathering assets, and $30 million for Chesapeake’s investmentin Goth Energy Corp. preferred stock. In 1997 the company hadimpairment charges of $346 million and a net loss of $233 millionon revenues of $390 million.

In dismissing the plaintiffs’ amended complaint on March 3, theCourt found that throughout the alleged class period, Chesapeakehad disclosed to its investors the “precise risks” associated withits investments and activities in the Louisiana Trend. The courtalso determined that the plaintiffs had provided no factual supportfor their allegations of misstatements or omissions by Chesapeake.

“Chesapeake is pleased to have eliminated the uncertainty causedby this lawsuit,” said Chesapeake CEO Aubrey K. McClendon. “We nowbelieve Chesapeake’s present and prospective shareholders canevaluate the company and its value-added natural gas developmentprogram without distraction in what is likely to be a long-termtrend of significant profitability in our sector.”

For 1999, Chesapeake generated net income of $33.3 million($0.17 per common share after preferred dividends), cash flow fromoperations of $137.9 million ($1.42 per common share), EBITDA of$218.9 million, revenue of $354.9 million and 133.5 Bcfe ofproduction. Average prices realized during the year were $16.01/bblof oil and $1.97/Mcf of natural gas, for a gas equivalent price of$2.10/Mcfe.

Chesapeake’s stock remained flat yesterday at $2.81 after havingreached a 52-week low of $1 about one year ago. It’s stock hadtraded above $30/share in late 1996.

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