Chesapeake Energy 2010 Annual Report Download - page 66

Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, and analogous state
laws impose joint and several liability, without regard to fault or legality of the original conduct, on classes of
persons who are considered responsible for releases of a hazardous substance into the environment. These
persons include the owner or operator of the site where the release occurred, and persons that disposed of or
arranged for the disposal of hazardous substances at the site. CERCLA and analogous state laws also
authorize the U.S. Environmental Protection Agency (EPA), state environmental agencies and, in some cases,
third parties to take action to prevent or respond to threats to human health or the environment and to seek to
recover from responsible classes of persons the costs of such actions.
Other federal and state laws, in particular the federal Resource Conservation and Recovery Act, regulate
hazardous and non-hazardous wastes. Under a longstanding legal framework, certain wastes generated by our
natural gas and oil operations are not subject to federal regulations governing hazardous wastes, though they
may be regulated under other federal and state laws. These wastes may in the future be designated as
hazardous wastes and may thus become subject to more rigorous and costly compliance and disposal
requirements.
Vast quantities of natural gas and oil deposits exist in deep shale and other formations. It is customary in
our industry to recover natural gas and oil from these deep shale formations through the use of hydraulic
fracturing, combined with sophisticated horizontal drilling. Hydraulic fracturing is the process of creating or
expanding cracks, or fractures, in formations underground where water, sand and other additives are pumped
under high pressure into a shale formation. These formations are generally geologically separated and isolated
from fresh ground water supplies by protective rock layers. Our well construction practices include installation
of multiple layers of protective steel casing surrounded by cement that are specifically designed and installed to
protect freshwater aquifers by preventing the migration of fracturing fluids into aquifers. Legislative and
regulatory efforts at the federal level and in some states have sought to render permitting and compliance
requirements more stringent for hydraulic fracturing. If passed into law, such efforts could have an adverse
effect on our operations.
Federal and state occupational safety and health laws require us to organize and maintain information
about hazardous materials used, released or produced in our operations. Certain portions of this information
must be provided to employees, state and local governmental authorities and local citizens. We are also
subject to the requirements and reporting set forth in federal workplace standards.
We have made and will continue to make expenditures to comply with environmental, health and safety
regulations and requirements. These are necessary business costs in the natural gas and oil industry. Although
we are not fully insured against all environmental, health and safety risks, and our insurance does not cover
any penalties or fines that may be issued by a governmental authority, we maintain insurance coverage which
we believe is customary in the industry. Moreover, it is possible that other developments, such as stricter and
more comprehensive environmental, health and safety laws and regulations, as well as claims for damages to
property or persons, resulting from company operations, could result in substantial costs and liabilities,
including civil and criminal penalties, to Chesapeake. We believe that we are in material compliance with
existing environmental, health and safety regulations. We believe that the cost of maintaining compliance with
these existing regulations will not have a material adverse effect on our business, financial position and results
of operation, but new or more stringent regulations could increase the cost of doing business.
Climate Change. Various state governments and regional organizations comprising state governments are
considering enacting new legislation and promulgating new regulations governing or restricting the emission of
greenhouse gases from stationary sources such as our equipment and operations. At the federal level, the
EPA has already made findings and issued regulations that require us to establish and report an inventory of
greenhouse gas emissions and that could lead to the imposition of restrictions on greenhouse gas emissions
from stationary sources such as ours. Legislative and regulatory proposals for restricting greenhouse gas
emissions or otherwise addressing climate change could require us to incur additional operating costs and
could adversely affect demand for the natural gas and oil that we sell. The potential increase in our operating
costs could include new or increased costs to obtain permits, operate and maintain our equipment and
facilities, install new emission controls on our equipment and facilities, acquire allowances to authorize our
greenhouse gas emissions, pay taxes related to our greenhouse gas emissions and administer and manage a
greenhouse gas emissions program. Moreover, incentives to conserve energy or use alternative energy
sources could reduce demand for natural gas and oil.
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