Chesapeake Energy 2013 Annual Report Download - page 37

29
Potential legislative and regulatory actions affecting our industry could increase our costs, reduce
revenues 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.
Taxation of Independent Producers
A federal budget is expected to be proposed in early March 2014. The Company anticipates that this budget will
include similar proposals related to the oil and gas industry as have been included in the past several federal budgets.
These 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. In addition, legislative changes to increase the gross production tax rate have been proposed
in certain states in which we operate, including Ohio and Oklahoma. 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 derivatives 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 risk management program related to the natural gas and oil we produce for our own account in order to
manage the impact of low commodity prices and to predict future cash flows with greater certainty. We have used the
OTC market exclusively for our natural gas and oil derivative contracts, and we also use OTC derivatives to manage
risks arising from interest rate exposure. 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 which would negatively
affect our revenues and cash flow during periods of low commodity prices. New position limits rules proposed under
the Dodd-Frank Act could also impact our commodity hedging program and could, if enacted as proposed, affect our
ability to continue to use the full scope of OTC derivatives to hedge commodity price risk in the manner that we have
in the past.
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
as a means of addressing climate change could reduce demand for natural gas and oil.
A deterioration in general economic, business or industry conditions would have a material adverse effect
on our results of operations, liquidity and financial condition.
In recent years, concerns over global economic conditions, energy costs, geopolitical issues, the availability and
cost of credit, and the U.S. real estate and financial markets have contributed to economic uncertainty and reduced
expectations for the global economy. Meanwhile, political unrest in Ukraine and Venezuela, continued hostilities in the
Middle East and the occurrence or threat of terrorist attacks in the U.S. or other countries also could adversely affect
the global economy. These factors, combined with volatile commodity prices, tepid business and consumer confidence
levels and prolonged high unemployment rates, have hindered recovery from the global economic slowdown