Chesapeake Energy 1998 Annual Report Download - page 30

business in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of
Operations Year 2000" later in this Form 10-K for additional information.
Regulation
General
Numerous departments and agencies, federal, state and local, issue rules and regulations binding on the oil and
gas industry, some of which carry substantial penalties for failure to comply. The regulatory burden on the oil and
gas industry increases the Company's cost of doing business and, consequently, affects its profitability.
Exploration and Production
The Company's operations are subject to various types of regulation at the federal, state and local levels. Such
regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or
operate wells and regulating the location of wells, the method of drilling and casing wells, the surface use and
restoration of properties upon which wells are drilled, the plugging and abandoning of wells and the disposal of
fluids used or obtained in connection with operations. The Company's operations are also subject to various
conservation regulations. These include the regulation of the size of drilling and spacing units and the density of
wells which may be drilled and the unitization or pooling of oil and gas properties. In this regard, some states (such
as Oklahoma) allow the forced pooling or integration of tracts to facilitate exploration while other states (such as
Texas) rely on voluntary pooling of lands and leases. In areas where pooling is voluntary, it may be more difficult
to form units and, therefore, more difficult to develop a prospect if the operator owns less than 100% of the
leasehold. In addition, state conservation laws establish maximum rates of production from oil and gas wells,
generally prohibit the venting or flaring of gas and impose certain requirements regarding the ratabiity of
production. The effect of these regulations is to limit the amount of oil and gas the Company can produce from its
wells and to l tthe number of wells or the locations at which the Company can drill. The extent of any impact on
the Company of such restrictions cannot be predicted.
Environmental and Occupational Regulation
General. The Company's activities are subject to existing federal, state and local laws and regulations governing
environmental quality and pollution control. It is anticipated that, absent the occurrence of an extraordinary event,
compliance with existing federal, state and local laws, rules and regulations concerning the protection of the
environment and human health will not have a material effect upon the operations, capital expenditures, earnings or
the competitive position of the Company. The Company cannot predict what effect additional regulation or
legislation, enforcement policies thereunder and claims for damages for injuries to property, employees, other
persons and the environment resulting from the Company's operations could have onits activities.
Activities of the Company with respect to the exploration, development and production of oil and natural gas are
subject to stringent environmental regulation by state and federal authorities including the United States
Environmental Protection Agency ("EPA"). Such regulation has increased the cost of planning, designing, drilling,
operating and in some instances, abandoning wells. In most instances, the regulatory requirements relate to the
handling and disposal of drilling and production waste products and waste created by water and airpollution control
procedures. Although the Company believes that compliance with environmental regulations will not have a
material adverse effect on operations or earnings, risks of substantial costs and liabilities are inherent in oil and gas
operations, and there can be no assurance that significant costs and liabilities, including criminal penalties, will not
be incurred. Moreover, it is possible that other developments, such as stricter environmental laws and regulations,
and claims for damages for injuries to property or persons resulting from the Company's operations could result in
substantial costs and liabilities.
Waste Disposal. The Company currently owns or leases, and has in the past owned or leased, numerous
properties that for many years have been used for the exploration and production of oil and gas. Although the
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