Chesapeake Energy 2012 Annual Report Download - page 43

33
Potential legislative and regulatory actions could increase our costs, reduce our revenue and cash flow
from natural gas and oil sales, reduce our liquidity or otherwise alter the way we conduct our business.
The activities of exploration and production companies operating in the U.S. are subject to extensive regulation
at the federal, state and local levels. Changes to existing laws and regulations or new laws and regulations such as
those described below could, if adopted, have an adverse effect on our business.
Federal Taxation of Independent Producers
Recent federal budget proposals would potentially increase and accelerate the payment of federal income taxes
of independent producers of natural gas and oil. Proposals that would significantly affect us would repeal the expensing
of intangible drilling costs, repeal the percentage depletion allowance and increase the amortization period of geological
and geophysical expenses. These changes, if enacted, will make it more costly for us to explore for and develop our
natural gas and oil resources.
OTC Derivatives Regulation
In July 2010, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act), which contains measures aimed at migrating over-the-counter (OTC) derivative markets to exchange-
traded and cleared markets. Certain companies that use swaps to hedge commercial risk, referred to as end-users,
are permitted to continue to use OTC derivatives under newly adopted regulations. We maintain an active price and
basis protection hedging program related to the natural gas and oil we produce to manage the risk of low commodity
prices and to predict with greater certainty the cash flow from our hedged production. We have used the OTC market
exclusively for our natural gas and oil derivative contracts. The Dodd-Frank Act and the rules and regulations
promulgated thereunder should permit us, as an end user, to continue to utilize OTC derivatives, but could cause
increased costs and reduce liquidity in such markets. Such changes could materially reduce our hedging opportunities
and negatively affect our revenues and cash flow during periods of low commodity prices.
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.
Even without federal legislation or regulation of greenhouse gas emissions, states may pursue the issue either directly
or indirectly. Restrictions on emissions of methane or carbon dioxide that may be imposed in various states could
adversely affect the oil and gas industry. Moreover, incentives to conserve energy or use alternative energy sources
could reduce demand for natural gas and oil.
The current worldwide economic uncertainty may have a material adverse effect on our results of
operations, liquidity and financial condition.
The recovery from the global economic crisis of 2008 and resulting recession has been slow and uneven.
Continuing concerns regarding the worldwide economic outlook and sovereign debt crisis in Europe have contributed
to increased economic uncertainty and diminished expectations for the global economy. A slowdown in the current
economic recovery or a return to a recession would negatively impact demand for petroleum products and prices for
natural gas, oil and NGL. These circumstances could adversely impact our results of operations, liquidity and financial
condition.