(8) COMMITMENTS AND CONTINGENCIES

Operating Commitments and Contingencies

As of December 31, 2016, the Company’s contractual obligations for demand and similar charges under firm transportation and gathering agreements to guarantee access capacity on natural gas and liquids pipelines and gathering systems totaled approximately $8.4 billion, $3.4 billion of which related to access capacity on future pipeline and gathering infrastructure projects that still require the granting of regulatory approvals and additional construction efforts. The Company also had guarantee obligations of up to $862 million of that amount. As of December 31, 2016, future payments under non-cancelable firm transportation and gathering agreements are as follows:


	Payments Due by Period
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		5 to 8 years		More than 8 Years
		(in millions)
Infrastructure Currently in Service	$	5,067	$	612	$	1,158	$	825	$	829	$	1,643
Pending Regulatory Approval and/or Construction (1)		3,362		15		326		450		678		1,893
Total Transportation Charges	$	8,429	$	627	$	1,484	$	1,275	$	1,507	$	3,536

(1)

Based on the estimated in-service dates as of December 31, 2016.

The Company has 13 leases for pressure pumping equipment for its E&P operations under leases that expire between December 2017 and January 2018. The Company’s current aggregate annual payment under the leases is approximately $8 million. Certain of these leases provide for a residual value guarantee for any deficiency if the equipment is sold for less than the sale option amount (recognized as a liability of approximately $4 million at December 31, 2016). The Company has 7 leases for drilling rigs for its E&P operations that expire through 2021 with a current aggregate annual payment of approximately $13 million. The lease payments for the pressure pumping equipment, as well as other operating expenses for the Company’s drilling operations, are capitalized to natural gas and oil properties and are partially offset by billings to third-party working interest owners for their share of fracture stage charges.

The Company leases compressors, aircraft, vehicles, office space and equipment under non-cancelable operating leases expiring through 2027. As of December 31, 2016, future minimum payments under these non-cancelable leases accounted for as operating leases are approximately $66 million in 2017, $52 million in 2018, $45 million in 2019, $35 million in 2020, $17 million in 2021 and $14 million thereafter.

The Company also has commitments for compression services related to its Midstream Services and E&P segments. As of December 31, 2016, future minimum payments under these non-cancelable agreements are approximately $16 million in 2017, $7 million in 2018 and $3 million in 2019.

Environmental Risk

The Company is subject to laws and regulations relating to the protection of the environment. Environmental and cleanup related costs of a non-capital nature are accrued when it is both probable that a liability has been incurred and when the amount can be reasonably estimated. Management believes any future remediation or other compliance related costs will not have a material effect on the financial position or results of operations of the Company.

Litigation

The Company is subject to various litigation, claims and proceedings that have arisen in the ordinary course of business, such as for alleged breaches of contract, miscalculation of royalties, and pollution, contamination or nuisance. Management believes that such litigation, claims and proceedings, individually or in aggregate and after taking into account insurance, are not likely to have a material adverse impact on the Company’s financial position, results of operations or cash flows. Many of these matters are in early stages, so the allegations and the damage theories have not been fully developed, and are all subject to inherent uncertainties; therefore, management’s view may change in the future. If an unfavorable final outcome were to occur, there exists the possibility of a material impact on the Company’s financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated.

Berry-Helfand (Tovah Energy)

In February 2009, one of the Company’s subsidiaries was added as a defendant in a case then styled Tovah Energy, LLC and Toby Berry-Helfand v. David Michael Grimes, et al., then pending in the 273rd District Court in Shelby County, Texas. The plaintiff alleged that the subsidiary used information provided by the plaintiff under a confidentiality agreement, which she claimed, among other things, breached the agreement and constituted a trade secret. Following a trial in December 2010, the court awarded approximately $11 million in actual damages and approximately $24 million in disgorgement of profits, along with interest and attorneys’ fees. Both sides appealed, and in July 2013 the Texas Court of Appeals for the Twelfth District reversed on all claims except misappropriation of trade secrets, reduced the judgment to the actual damages award, along with interest and attorneys’ fees, and ordered the case remanded for an award of attorneys’ fees to the Company’s subsidiary on one of the claims on which judgment was reversed. Both parties petitioned the Supreme Court of Texas for review. In June 2016, the Supreme Court ruled that insufficient evidence supported the damage award and remanded the case for a new trial. The parties subsequently reached a settlement, the amount of which is reflected in the Company’s financial statements as of, and for the period ended, December 31, 2016.

Arkansas Royalty Litigation

Certain of the Company’s subsidiaries are defendants in three cases, two filed in Arkansas state court in 2010 and 2013 and one in federal court in 2014, on behalf of putative classes of royalty owners on some of the Company’s leases located in Arkansas. The chief complaint in all three cases is that one of the Company’s subsidiaries underpaid the royalty owners by, among other things, deducting from royalty payments costs for gathering, transportation, and compression of natural gas in excess of what is permitted by the relevant leases. In September and October 2014 the judges in the two Arkansas state actions entered orders certifying classes of royalty owners who are citizens of Arkansas.

In November 2015, the court in the federal case denied the plaintiff’s motion to certify a class of royalty owners not included in either of the two state cases. In April 2016, the court certified a broader class that includes Arkansas residents and citizens. Class members were notified of the pending action in late 2016, and the period to “opt out” of the class has expired. The plaintiff in the federal case presented two alternative damages theories. Under one theory, plaintiffs have asserted that obligations to affiliates are not “incurred” and therefore the exploration and production subsidiary was not entitled to deduct any post-production costs; the federal court has granted partial summary judgment for the Company’s subsidiaries on this theory. Under another theory, plaintiffs assert that the gathering and treating rates the Company deducted from royalty payments exceeded the affiliates’ actual costs or otherwise were not reasonable. The plaintiffs have not disclosed a specific damage calculation for any putative class, but based on the class representative’s disclosure regarding the calculation of claimed damages, class-wide damages could exceed $100 million. The court has set a trial date in the second quarter of 2017. The Company has moved for summary judgment on all claims, which remains pending before the trial judge.

The Company’s subsidiaries appealed the class certification orders in the state cases. In December 2016 the Arkansas Supreme Court affirmed the certifications. These cases are now before the Arkansas trial judges. The precise configuration of the classes has not been determined, particularly in light of the overlapping composition of the class in the federal case. No date for trial has been set.

In addition, in September 2015 three cases were filed in Arkansas state court on behalf of a total of 248 individually named plaintiffs. Each case asserts complaints that are in substance virtually identical to the above-described case. The Company and its subsidiaries have removed two of the cases to federal court, and those cases have been assigned to the court in which the above-described federal case is pending. All three cases have been stayed.

Management believes that, in all of the above cases, the deductions from royalty payments as calculated are permitted and intends to defend the cases vigorously. The Company’s assessment may change in the future due to the occurrence of certain events, such as adverse judgments, and such a re-assessment could lead to the determination that the potential liability is probable and could be material to the Company’s results of operations, financial position or cash flows.

Indemnifications

The Company provides certain indemnifications in relation to dispositions of assets. These indemnifications typically relate to disputes, litigation or tax matters existing at the date of disposition. No liability has been recognized in connection with these indemnifications.