(9) COMMITMENTS AND CONTINGENCIES

Operating Commitments and Contingencies

As of December 31, 2018, 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 $8.8 billion, $3.1 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 $463 million of that amount. As of December 31, 2018, future payments under non-cancelable firm transportation and gathering agreements are as follows:


	Payments Due by Period
(in millions)	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		5 to 8 Years		More than 8 Years
Infrastructure currently in service	$	5,715	$	637	$	1,060	$	876	$	1,123	$	2,019
Pending regulatory approval and/or construction (1)		3,079		136		348		392		621		1,582
Total transportation charges	$	8,794	$	773	$	1,408	$	1,268	$	1,744	$	3,601

(1)

Based on the estimated in-service dates as of December 31, 2018.

In December 2018, the Company closed on the Fayetteville Shale sale. The Company retained certain contractual commitments related to firm transportation, with the buyer obligated to pay the transportation provider directly for these charges. As of December 31, 2018, approximately $221 million of these contractual commitments remain of which the Company will reimburse the buyer for certain of these potential obligations up to approximately $102 million through 2020 depending on the buyer’s actual use, and has recorded an $88 million liability for the estimated future payments. The buyer will also assume future asset retirement obligations related to the operations sold.

The Company leases pressure pumping equipment for its E&P operations under a single lease that expires in 2021. The current aggregate annual payment under this lease is approximately $7 million. The Company has seven leases for drilling rigs for its E&P operations that expire through 2024 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.

The Company leases compressors, aircraft, vehicles, office space and equipment under non-cancelable operating leases expiring through 2028. As of December 31, 2018, future minimum payments under these non-cancelable leases accounted for as operating leases are approximately $38 million in 2019, $28 million in 2020, $14 million in 2021, $6 million in 2022, $5 million in 2023 and $4 million thereafter.

The Company also has commitments for compression services and rentals related to its E&P segment. As of December 31, 2018, future minimum payments under these non-cancelable agreements are approximately $3 million in 2019 and $1 million in each of 2020 and 2021.

Subsequent to December 31, 2018, the Company agreed to purchase firm transportation with pipelines in the Appalachian Basin starting in 2021 and running through 2032 totaling $357 million in total contractual commitments of which the seller has agreed to reimburse $133 million of this commitment.

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, results of operations or cash flows 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, employment matters, traffic accidents, pollution, contamination, encroachment on others’ property or nuisance. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. It is not possible at this time to estimate the amount of any additional loss, or range of loss that is reasonably possible, but based on the nature of the claims, management believes that current 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, for the period in which the effect of that outcome becomes reasonably estimable. 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.

Arkansas Royalty Litigation

The Company has been a defendant in three certified class actions alleging that the Company underpaid lessors of lands in Arkansas by deducting from royalty payments costs for gathering, transportation and compression of natural gas in excess of what is permitted by the relevant leases. Two of these class actions were filed in Arkansas state courts and the third in the United States District court for the Eastern District of Arkansas. The Company denied liability in all three cases. Under the agreement for the sale of the Company’s properties in the Fayetteville Shale, the Company retained responsibility for these class actions.

In June 2017, the jury returned a verdict in favor of the Company on all counts in Smith v. SEECO, Inc. et al., the class action in the federal court, whose plaintiff class comprises the vast majority of the lessors in these cases. The plaintiff had asserted claims for, among other things, breach of contract, fraud, civil conspiracy, unjust enrichment and violation of certain Arkansas statutes. Following the verdict, the court entered judgment in favor of the Company on all claims. The trial court denied the plaintiff’s motion for a new trial, and the plaintiff appealed to the United States Court of Appeals for the Eighth Circuit. Independent of the plaintiff’s appeal, several different parties sought to intervene in the Smith case prior to or shortly after trial, and have appealed the trial court’s order denying their request to intervene. Oral argument occurred in January 2019. The Court of Appeals has not yet issued its decision.

In the second quarter of 2018, the company entered into an agreement to settle another of the class actions, which has been pending in the Circuit Court of Conway County, Arkansas under the caption Snow, et al v. SEECO, Inc., et al. The settlement received final approval by the court during the third quarter, and the deadline to appeal the order approving the settlement passed without any appeals filed. The amount of the settlement is reflected in the Company’s consolidated statement of operations for 2018 and has been paid. The third class action was dismissed in the second quarter of 2018.

The Smith and the Snow cases cover all affected lessors, except a small percentage who opted out. Most of these have filed separate actions. The Company does not expect those cases to have a material adverse effect on the results of operations, financial position or cash flows of the Company. Additionally, it is not possible at this time to estimate the amount of any additional loss, or range of loss, that is reasonably possible.

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. The Company likewise obtains indemnification for future matters when it sells assets, although there is no assurance the buyer will be capable of performing those obligations. No material liabilities have been recognized in connection with these indemnifications.