Chesapeake Energy 2000 Annual Report Download - page 24

properties and drilling prospects, maximizing production from oil and gas properties and marketing oil and gas
production. Our ability to retain our officers and key employees is important to our continued success and
growth. The unexpected loss of the services of one or more of these individuals could have a detrimental effect
on our business. We have maintained $20 million key man life insurance policies on each of our chief
executive officer and chief operating officer but do not intend to renew these policies when they expire on
June 1, 2001.
Transactions with executive officers may create conflicts of interest.
Our chief executive officer and chief operating officer, Aubrey K. McClendon and Tom L. Ward, have
the right to participate in wells we drill subject to limitations in their employment contracts. As a result of
their participation, they routinely have significant accounts payable to us for joint interest billings and other
related advances. As of December 31, 2000, Messrs. McClendon and Ward had payables to us of $2.0 million
and $2.3 million, respectively, in connection with such participation.
Regulation
General. Numerous departments and agencies, foreign, 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.
This regulatory burden increases our cost of doing business and, consequently, affects our profitability.
Exploration and Production. Our domestic operations are subject to various types of regulation at the
federal, state and local levels. Such regulation includes requirements for permits to drill and to conduct other
operations, and for provision of financial assurances (such as bonds) covering drilling and well operations.
Other domestic activities subject to regulation are:
the location of wells,
the method of drilling and completing wells,
the surface use and restoration of properties upon which wells are drilled,
the plugging and abandoning of wells,
the disposal of fluids used or other wastes obtained in connection with operations,
the marketing, transportation and reporting of production, and
the valuation and payment of royalties.
Our Canadian operations are subject to similar regulations.
Our operations are also subject to various conservation regulations. These include the regulation of the
size of drilling and spacing units (regarding the density of wells which may be drilled in a particular area), 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 dilhicult to form
units and, therefore, more difficult to fully develop a project 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 ratability of
production. The effect of these regulations is to limit the amount of oil and gas we can produce and to limit the
number of wells or the locations at which we can drill.
We do not anticipate that compliance with existing laws and regulations governing exploration and
production will have a significantly adverse effect upon our capital expenditures, earnings or competitive
position.
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