Chesapeake Energy 2012 Annual Report Download - page 31

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report expected to be released for public comment and peer review in late 2014. In addition, the Bureau of Land
Management (BLM) has announced its intention to publish, in the first quarter of 2013, a revised draft of proposed
rules that would impose new requirements on hydraulic fracturing operations conducted on federal lands, including
the disclosure of chemical additives used. The results of EPA's guidance, including its definition of diesel fuel, EPA's
study, BLM's proposed rules, and other analyses by federal and state agencies to assess the impacts of hydraulic
fracturing could each spur further action toward federal and/or state legislation and regulation of hydraulic fracturing
activities.
Restrictions on hydraulic fracturing could make it prohibitive to conduct our operations, and also reduce the amount
of oil, natural gas liquids and natural gas that we are ultimately able to produce in commercial quantities from our
properties. For further discussion, see Item 1A. Risk Factors - Federal and state legislative and regulatory initiatives
relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
Endangered Species
The Endangered Species Act (ESA) restricts activities that may affect areas that contain endangered or threatened
species or their habitats. While some of our assets and lease acreage may be located in areas that are designated as
habitats for endangered or threatened species, we believe that we are in substantial compliance with the ESA. However,
the designation of previously unidentified endangered or threatened species in areas where we intend to conduct
construction activity could materially limit or delay our plans. For example, as a result of a settlement reached in 2011,
the U.S. Fish and Wildlife Service has published a work plan for listing more than 450 species over the next several
years. Some of these species are included in the list of over 100 species that are currently proposed for listing as
endangered or threatened species. In addition, the imposition of seasonal restrictions on our construction or operational
activities could materially limit or delay our plans.
Global Warming and Climate Change
Various state governments and regional organizations 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. 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.
Title to Properties
Our title to properties is subject to royalty, overriding royalty, carried, net profits, working and other similar interests
and contractual arrangements customary in the natural gas and oil industry, to liens for current taxes not yet due and
to other encumbrances. As is customary in the industry in the case of undeveloped properties, only cursory investigation
of record title is made at the time of acquisition. Drilling title opinions are usually prepared before commencement of
drilling operations. We believe we have satisfactory title to substantially all of our active properties in accordance with
standards generally accepted in the natural gas and oil industry. Nevertheless, we are involved in title disputes from
time to time which result in litigation.
Operating Hazards and Insurance
The natural gas and oil business involves a variety of operating risks, including the risk of fire, explosions, blow-
outs, pipe failure, abnormally pressured formations and environmental hazards such as oil spills, natural gas leaks,
ruptures or discharges of toxic gases. If any of these should occur, Chesapeake could incur legal defense costs and
could suffer substantial losses due to injury or loss of life, severe damage to or destruction of property, natural resources
and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigation and
penalties, and suspension of operations. Our horizontal and deep drilling activities involve greater risk of mechanical
problems than vertical and shallow drilling operations.
Chesapeake maintains a $75 million control of well policy that insures against certain sudden and accidental risks
associated with drilling, completing and operating our wells. This insurance may not be adequate to cover all losses
or exposure to liability. Chesapeake also carries a $425 million comprehensive general liability umbrella policy and a
$150 million pollution liability policy. We provide workers' compensation insurance coverage to employees in all states