Chesapeake Energy 2012 Annual Report Download - page 42

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described above, our insurance may not be adequate to cover casualty losses or liabilities, and our insurance does
not cover penalties or fines that may be assessed by a governmental authority. Also, in the future we may not be able
to obtain insurance at premium levels that justify its purchase.
Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in
increased costs and additional operating restrictions or delays.
It is customary in our industry to recover natural gas and oil from deep shale and other formations through the
use of horizontal drilling combined with hydraulic fracturing. Hydraulic fracturing is the process of creating or expanding
cracks, or fractures, in deep formations using water, sand and other additives pumped under high pressure into the
formation. We use hydraulic fracturing as a means to increase the productivity of almost every well that we drill and
complete.
The hydraulic fracturing process is typically regulated by state oil and natural gas commissions. Several states,
including Pennsylvania, Texas, Colorado, Montana, Ohio, New Mexico and Wyoming, have adopted, and other states
are considering adopting, regulations that could impose more stringent permitting, public disclosure, and/or well
construction requirements on hydraulic fracturing operations. New York has placed a permit moratorium on high volume
fracturing activities combined with horizontal drilling pending the results of a study regarding the safety of hydraulic
fracturing. In addition to state laws, some local municipalities have adopted or are considering adopting land use
restrictions, such as city ordinances, that may restrict or prohibit the performance of well drilling in general and/or
hydraulic fracturing in particular.
Additionally, the EPA has asserted federal regulatory authority over hydraulic fracturing activities involving diesel
fuel (specifically, when diesel fuel is utilized in the stimulation fluid) under the Safe Drinking Water Act and is drafting
guidance documents related to this newly asserted regulatory authority. There are also certain governmental reviews
either underway or being proposed that focus on deep shale and other formation completion and production practices,
including hydraulic fracturing. Depending on the outcome of these studies, federal and state legislatures and agencies
may seek to further regulate such activities.
Certain environmental and other groups have suggested that additional federal, state and local laws and
regulations may be needed to more closely regulate the hydraulic fracturing process. We cannot predict whether
additional federal, state or local laws or regulations will be enacted in the future and, if so, what actions any such laws
or regulations would require or prohibit. If additional levels of regulation or permitting requirements were imposed
through the adoption of new laws and regulations, our business and operations could be subject to delays, increased
operating and compliance costs and process prohibitions.
Federal regulatory initiatives relating to air emissions could result in increased costs and additional
operating restrictions or delays.
The EPA has published New Source Performance Standards (NSPS) and National Emissions Standards for
Hazardous Air Pollutants (NESHAP) that amended existing NSPS and NESHAP standards for oil and gas facilities
and created new NSPS standards for oil and gas production, transmission and distribution facilities. The Agency has
indicated that it will reexamine and reissue these rules over the next three years, but the outcome of this process
remains uncertain. In addition, the EPA has issued rules requiring monitoring and reporting of greenhouse gas emissions
from petroleum and natural gas systems. We, along with other industry groups, filed suit challenging certain provisions
of these rules, but the outcome of the challenge is uncertain and may impact our reporting obligations. The EPA is
also conducting a review of the National Ambient Air Quality Standards (NAAQS) for ozone, which is expected to be
completed in 2013 and could result in more stringent air emissions standards applicable to our operations.
Federal regulatory initiatives relating to the protection of threatened or endangered species could result
in increased costs and additional operating restrictions or delays.
The designation of previously unidentified endangered or threatened species pursuant to the ESA 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 is required to make a determination on the listing of
more than 250 species as endangered or threatened 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.