Chesapeake Energy (CHK)

Legal Matters

For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be estimated, we record the estimated liability. As new information becomes available, or other relevant developments occur, we adjust our estimates accordingly.

In 2003, a class action complaint was filed in the Circuit Court of Roane County, West Virginia by a number of gas royalty owners against Columbia Natural Resources, Inc. (now known as Columbia Natural Resources, LLC, a wholly owned subsidiary of Columbia Energy Resources, LLC), NiSource Inc., and Columbia Energy Group. The complaint alleges, among other claims, that CNR wrongfully deducted post-production expenses from the plaintiffs’ royalty payments. CNR filed a Motion for Partial Summary Judgment on the plaintiffs’ claim that CNR wrongfully deducted post-production expenses from the plaintiffs’ royalty payments. By Order entered on October 14, 2005, the Court denied CNR’s motion, but ruled that the issues were either undecided or partially decided in West Virginia and, thus, certified to the Supreme Court of Appeals two questions of law. The plaintiffs filed a Petition in Support of the Certified Questions on October 17, 2005, and CNR is in the process of filing a response. CNR is indemnified for any liability associated with this claim for periods prior to September 1, 2003. This matter is scheduled for trial on January 9, 2006. The parties are actively involved in discovery in this case as to other issues.

10

Columbia Energy Resources, LLC (a wholly owned

subsidiary of Triana Energy Holdings, LLC)

Notes to Consolidated Financial Statements (Unaudited)

Indemnification of Royalty Claims. Pursuant to its Stock Purchase Agreement dated July 3, 2003 (the SPA), the Company and its Affiliates are indemnified by Columbia Energy Group (CEG) for certain royalty claims made by royalty owners, provided that the Company does not alter the methodology of royalty payment calculation. Pursuant to a letter from CEG dated November 29, 2004, CEG has advised CNR that it believes it is relieved of its indemnification obligations concerning those certain royalty claims because CEG believes that CNR has altered its methodology. CNR has not altered the methodology and believes it has fully complied with the provisions of the SPA. Accordingly, we dispute these allegations and intend to vigorously defend ourselves in this matter.

In addition to the above matters, the Company is involved in various other legal actions and claims arising in the ordinary course of business. Management believes it has established sufficient reserves where a probable liability exists. Depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our business, future results of operations, financial position, or cash flows in a particular period.

Legal Matters

Collective Bargaining Agreement. A grievance has been filed by the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE) under its Collective Bargaining Agreement (CBA) with CNR alleging that, as a result of the acquisition, CNR is required to provide a defined (retirement) benefit plan. PACE and CNR are in the process of moving toward arbitration as provided for in the CBA. Approximately 141 employees, or 39% of the Company’s workforce, are covered by the current CBA, which is scheduled to expire in December 2006. The Company is unable to determine the potential exposure, if any, to increased benefit costs should it be required to modify its current defined contribution plan.

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Columbia Energy Resources, LLC (a wholly owned

subsidiary of Triana Energy Holdings, LLC)

Notes to Consolidated Financial Statements (continued)

10. Commitments and Contingencies (continued)

Indemnification of Royalty Claims. Pursuant to its Stock Purchase Agreement dated July 3, 2003 (the SPA), the Company is indemnified by Columbia Energy Group (CEG) for certain royalty claims made by royalty owners, provided that the Company does not alter the methodology of royalty payment calculation. Pursuant to a letter from CEG dated November 29, 2004, CEG has advised CNR that it believes it is relieved of its indemnification obligations concerning those certain royalty claims because CEG believes that the Company has altered its methodology. The Company has not altered the methodology, and the Company believes it has fully complied with the provisions of the SPA. The Company is unable to determine the ultimate impact any resolution of this matter may have on its financial statements.

In addition to the above matters, the Company is involved in various other legal actions and claims arising in the ordinary course of business. Management does not expect these matters to have a material effect on the Company’s financial position, results of operations, or cash flows.

For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be estimated, we record the estimated liability. As new information becomes available, or other relevant developments occur, we adjust our estimates accordingly. While there are still uncertainties related to the ultimate outcome of pending litigation, no liabilities for estimated losses were established at December 31, 2004 and 2003.