Equity

Common Stock

The following is a summary of the changes in our common shares issued for the years ended December 31, 2015, 2014 and 2013:



	Years Ended December 31,
	2015		2014		2013
	(in thousands)
Shares issued as of January 1	664,944		666,192		666,468
Restricted stock issuances (net of forfeitures and cancellations)^(a)	(163	)	(2,529	)	(599	)
Stock option exercises	15		1,281		323
Shares issued as of December 31	664,796		664,944		666,192

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(a)	The amount for 2014 reflects forfeitures upon the June 2014 spin-off of our oilfield services business.

Preferred Stock

Following is a summary of our preferred stock, including the primary conversion terms as of December 31, 2015:



Preferred Stock Series	Issue Date	Liquidation Preference per Share		Holder's Conversion Right	Conversion Rate	Conversion Price		Company's Conversion Right From	Company's Market Conversion Trigger^(a)
5.75% cumulative convertible non-voting	May and June 2010	$	1,000	Any time	39.6526	$	25.2190	May 17, 2015	$	32.7847

5.75% (series A) cumulative convertible non-voting	May 2010	$	1,000	Any time	38.3186	$	26.0970	May 17, 2015	$	33.9261

4.50% cumulative convertible	September 2005	$	100	Any time	2.4561	$	40.7152	September 15, 2010	$	52.9298

5.00% cumulative convertible (series 2005B)	November 2005	$	100	Any time	2.7745	$	36.0431	November 15, 2010	$	46.8560

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(a)	Convertible at the Company's option if the trading price of the Company's common stock equals or exceeds the trigger price for a specified time period or after the applicable conversion date if there are less than 250,000 shares of 4.50% or 5.00% (Series 2005B) preferred stock outstanding or 25,000 shares of 5.75% or 5.75% (Series A) preferred stock outstanding.

The following reflects the shares outstanding of our preferred stock for the years ended December 31, 2015, 2014 and 2013:



	5.75%	5.75% (A)	4.50%	5.00% (2005B)
	(in thousands)
Shares outstanding as of January 1, 2015, 2014 and 2013 and shares outstanding as of December 31, 2015, 2014 and 2013	1,497	1,100	2,559	2,096

Dividends

Dividends declared on our common stock and preferred stock are reflected as adjustments to retained earnings to the extent a surplus of retained earnings exists after giving effect to the dividends. To the extent retained earnings are insufficient to fund the distributions, dividend declarations are accounted for as a reduction to paid-in capital.

In July 2015, our Board of Directors determined to eliminate quarterly cash dividends on our common stock. In January 2016, we announced that we were suspending payment of dividends on each series of our outstanding convertible preferred stock. Suspension of the dividends did not constitute an event of default under our revolving credit facility or bond indentures. We may pay dividends on our 5.00% Cumulative Convertible Preferred Stock (Series 2005B) and our 4.50% Cumulative Convertible Preferred Stock in cash, common stock or a combination thereof, at our option. Dividends on both series of our 5.75% Cumulative Convertible Non-Voting Preferred Stock are payable only in cash.

Accumulated Other Comprehensive Income (Loss)

For the years ended December 31, 2015 and 2014, changes in accumulated other comprehensive income (loss) by component, net of tax, are detailed below.



	Cash Flow Hedges			Investments			Net Change
	($ in millions)
Balance, December 31, 2014	$	(143	)	$	—		$	(143	)
Other comprehensive income before reclassifications	20			—			20
Amounts reclassified from accumulated other comprehensive income	24			—			24
Net other comprehensive income	44			—			44
Balance, December 31, 2015	$	(99	)	$	—		$	(99	)

Balance, December 31, 2013	$	(167	)	$	5		$	(162	)
Other comprehensive income before reclassifications	1			—			1
Amounts reclassified from accumulated other comprehensive income	23			(5		)	18
Net other comprehensive income	24			(5		)	19
Balance, December 31, 2014	$	(143	)	$	—		$	(143	)

For the years ended December 31, 2015 and 2014, amounts reclassified from accumulated other comprehensive income (loss), net of tax, into the consolidated statements of operations are detailed below.



Details About Accumulated Other Comprehensive Income (Loss) Components	Affected Line Item in the Statement Where Net Income is Presented	Amounts Reclassified
		($ in millions)
Year Ended December 31, 2015
Net losses on cash flow hedges:
Commodity contracts	Oil, natural gas and NGL revenues	$	23
Foreign currency derivative	Gain (loss) on purchases or exchanges of debt	1
Total reclassifications for the period, net of tax		$	24

Year Ended December 31, 2014
Net losses on cash flow hedges:
Commodity contracts	Oil, natural gas and NGL revenues	$	23
Investments:
Sale of investment	Net gain on sale of investment	(5		)
Total reclassifications for the period, net of tax		$	18

Noncontrolling Interests

Cleveland Tonkawa Financial Transaction. We formed CHK C-T in March 2012 to continue development of a portion of our oil and natural gas assets in our Cleveland and Tonkawa plays. In exchange for all of the common shares of CHK C-T, we contributed to CHK C-T approximately 245,000 net acres of leasehold and the existing wells within an area of mutual interest in the plays between the top of the Tonkawa and the top of the Big Lime formations covering Ellis and Roger Mills counties in western Oklahoma. In March 2012, in a private placement, third-party investors contributed $1.25 billion in cash to CHK C-T in exchange for (i) 1.25 million preferred shares, and (ii) our obligation to deliver a 3.75% overriding royalty interest (ORRI) in the existing wells and up to 1,000 future net wells to be drilled on the contributed play leasehold. We initially committed to drill and complete, for the benefit of CHK C-T in the area of mutual interest, a minimum cumulative total of 300 net wells. We ultimately drilled and completed 190 net wells, and the drilling commitment was suspended in January 2015.

During 2015, CHK C-T sold all of its oil and natural gas properties to FourPoint Energy, LLC (FourPoint) and immediately used the consideration received, plus other cash it had on hand, to repurchase and cancel all of the outstanding preferred shares in CHK C-T. Chesapeake is responsible for post-closing adjustments to the purchase price and has certain indemnity obligations in connection with the sale to FourPoint. In connection with the repurchase and cancellation of the CHK C-T preferred stock and related agreements with the CHK C-T investors, we eliminated quarterly preferred dividend payments and all related future drilling and ORRI commitments attributable to CHK C-T. The sale of the oil and natural gas properties was accounted for as a reduction of capitalized costs with no gain or loss recognized.

As of December 31, 2014, $1.015 billion of noncontrolling interests on our consolidated balance sheets was attributable to CHK C-T. For 2015, 2014 and 2013, income of $50 million, $75 million and $75 million, respectively, was attributable to the noncontrolling interests of CHK C-T.

Utica Financial Transaction. We formed CHK Utica, L.L.C. (CHK Utica) in October 2011 to develop a portion of our Utica Shale oil and natural gas assets. In exchange for all of the common shares of CHK Utica, we contributed to CHK Utica approximately 700,000 net acres of leasehold and the existing wells within an area of mutual interest in the Utica Shale play covering 13 counties located primarily in eastern Ohio. During November and December 2011, in private placements, third-party investors contributed $1.25 billion in cash to CHK Utica in exchange for (i) 1.25 million preferred shares, and (ii) our obligation to deliver a 3% ORRI in 1,500 net wells to be drilled on certain of our Utica Shale leasehold.

In July 2014, we repurchased all of the outstanding preferred shares of CHK Utica from third-party preferred shareholders for approximately $1.254 billion, or approximately $1,189 per share including accrued dividends. The $447 million difference between the cash paid for the preferred shares and the carrying value of the noncontrolling interest acquired was reflected in retained earnings and as a reduction to net income available to common stockholders for purposes of our EPS computations. Pursuant to the transaction, our obligation to pay quarterly dividends to third-party preferred shareholders was eliminated. In addition, the development agreement was terminated pursuant to the transaction, which eliminated our obligation to drill and complete a minimum number of wells within a specified period for the benefit of CHK Utica. Our repurchase of the outstanding preferred shares in CHK Utica did not affect our obligation to deliver a 3% ORRI in 1,500 net wells on certain Utica Shale leasehold.

The CHK Utica investors’ right to receive, proportionately, a 3% ORRI in the first 1,500 net wells drilled on our Utica Shale leasehold is subject to an increase to 4% on net wells earned in any year following a year in which we do not meet our net well commitment under the ORRI obligation, which runs through 2023. However, in no event are we required to deliver to investors more than a total ORRI of 3% in 1,500 net wells. If at any time we hold fewer net acres than would enable us to drill all then-remaining net wells on 150-acre spacing, the investors have the right to require us to repurchase their right to receive ORRIs in the remaining net wells at the then-current fair market value of the remaining ORRIs. We retain the right to repurchase the investors’ right to receive ORRIs in the remaining net wells at the then-current fair market value of the remaining ORRIs once we have drilled a minimum of 1,300 net wells. As of December 31, 2015, we had drilled 499 net wells. The obligation to deliver future ORRIs has been recorded as a liability which will be settled through the future conveyance of the underlying ORRIs to the investors on a net-well basis, at which time the associated liability will be reversed and the sale of the ORRIs reflected as an adjustment to the capitalized cost of our oil and natural gas properties. Because we did not meet our ORRI commitment in 2012, the ORRI increased to 4% for wells earned in 2013, and the ultimate number of wells in which we must assign an interest was reduced accordingly. We met our ORRI conveyance commitments as of December 31, 2013, 2014 and 2015.

In 2014 and 2013, income of approximately $43 million and $79 million, respectively, was attributable to the noncontrolling interests of CHK Utica.

Chesapeake Granite Wash Trust. In November 2011, Chesapeake Granite Wash Trust (the Trust) sold 23,000,000 common units representing beneficial interests in the Trust at a price of $19.00 per common unit in its initial public offering. The common units are listed on the New York Stock Exchange and trade under the symbol “CHKR”. We own 12,062,500 common units and 11,687,500 subordinated units, which in the aggregate represent an approximate 51% beneficial interest in the Trust. The Trust has a total of 46,750,000 units outstanding.

In connection with the Trust’s initial public offering, we conveyed royalty interests to the Trust that entitle the Trust to receive (i) 90% of the proceeds (after deducting certain post-production expenses and any applicable taxes) that we receive from the production of hydrocarbons from 69 then-producing wells, and (ii) 50% of the proceeds (after deducting certain post-production expenses and any applicable taxes) in 118 development wells that have been or will be drilled on approximately 45,400 gross acres (29,000 net acres) in the Colony Granite Wash play in Washita County in the Anadarko Basin of western Oklahoma. Pursuant to the terms of a development agreement with the Trust, we are obligated to drill and complete, or cause to be drilled and completed, the development wells at our own expense prior to June 30, 2016, and the Trust is not responsible for any costs related to the drilling and completion of the development wells or any other operating or capital costs of the Trust properties. In addition, we granted to the Trust a lien on our remaining interests in the undeveloped properties that are subject to the development agreement in order to secure our drilling obligation to the Trust, although the maximum amount recoverable by the Trust under the lien was limited to $263 million initially and is proportionately reduced as we fulfill our drilling obligation over time. As of December 31, 2015, we had drilled and completed or caused to be drilled and completed approximately 106 development wells, as calculated under the development agreement, and the maximum amount recoverable under the drilling support lien was approximately $27 million.

The subordinated units we hold in the Trust are entitled to receive pro rata distributions from the Trust each quarter if and to the extent there is sufficient cash to provide a cash distribution on the common units that is not less than the applicable subordination threshold for the quarter. If there is not sufficient cash to fund a distribution on all of the Trust units, the distribution to be made with respect to the subordinated units is reduced or eliminated for the quarter in order to make a distribution, to the extent possible, of up to the subordination threshold amount on the common units. The distribution made with respect to the subordinated units to Chesapeake was either reduced or eliminated for each of the most recent 14 quarters. In exchange for agreeing to subordinate a portion of our Trust units, and in order to provide additional financial incentive to us to satisfy our drilling obligation and perform operations on the underlying properties in an efficient and cost-effective manner, Chesapeake is entitled to receive incentive distributions equal to 50% of the amount by which the cash available for distribution on the Trust units in any quarter exceeds the applicable incentive threshold for the quarter. The remaining 50% of cash available for distribution in excess of the applicable incentive threshold is to be paid to Trust unitholders, including Chesapeake, on a pro rata basis. Through December 31, 2015, no incentive distributions had been made. At the end of the fourth full calendar quarter following our satisfaction of our drilling obligation with respect to the development wells, the subordinated units will automatically convert into common units on a one-for-one basis and our right to receive incentive distributions will terminate. After this time, the common units will no longer have the protection of the subordination threshold, and all Trust unitholders will share in the Trust’s distributions on a pro rata basis.

For the years ended December 31, 2015, 2014 and 2013, the Trust declared and paid the following distributions:



Production Period	Distribution Date	Cash Distribution per Common Unit		Cash Distribution per Subordinated Unit
June 2015 – August 2015	November 30, 2015	$	0.3232	$	—
March 2015 – May 2015	August 31, 2015	$	0.3579	$	—
December 2014 – February 2015	June 1, 2015	$	0.3899	$	—
September 2014 – November 2014	March 2, 2015	$	0.4496	$	—
June 2014 – August 2014	December 1, 2014	$	0.5079	$	—
March 2014 – May 2014	August 29, 2014	$	0.5796	$	—
December 2013 – February 2014	May 30, 2014	$	0.6454	$	—
September 2013 – November 2013	March 3, 2014	$	0.6624	$	—
June 2013 – August 2013	November 29, 2013	$	0.6671	$	—
March 2013 – May 2013	August 29, 2013	$	0.6900	$	0.1432
December 2012 – February 2013	May 31, 2013	$	0.6900	$	0.3010
September 2012 – November 2012	March 1, 2013	$	0.6700	$	0.3772

We have determined that the Trust is a variable interest entity (VIE) and that Chesapeake is the primary beneficiary. As a result, the Trust is included in our consolidated financial statements. As of December 31, 2015 and 2014, approximately $259 million and $287 million, respectively, of noncontrolling interests on our consolidated balance sheets were attributable to the Trust. In 2015 we had net income of a nominal amount and in 2014 and 2013 we had net income of $24 million and $20 million, respectively, attributable to the Trust’s noncontrolling interests in our consolidated statements of operations as income. See Note 15 for further discussion of VIEs.