Chesapeake Energy 2013 Annual Report Download - page 38

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experienced since 2008. Concerns about global economic growth have had a significant adverse impact on global
financial markets and commodity prices. If the economic climate in the U.S. or abroad deteriorates, worldwide demand
for petroleum products could diminish, which could impact the price at which we can sell our production, affect the
ability of our vendors, suppliers and customers to continue operations and ultimately adversely impact our results of
operations, liquidity and financial condition.
Our operations may be adversely affected by oilfield services shortages, pipeline and gathering system
capacity constraints and various transportation interruptions.
From time to time, we experience delays in drilling and completing our natural gas and oil wells. In developing
plays, the demand for equipment such as pipe and compressors can exceed the supply, and it can be challenging to
attract and retain qualified oilfield workers. We have also recently announced that we are pursuing strategic alternatives
for our oilfield services division, including a possible spin-off or outright sale. If we are successful in effecting the
separation of oilfield services from Chesapeake, we will no longer control these services and may experience increased
costs and be subject to increased competition with third parties for drilling rigs, hydraulic fracturing, equipment and
other products and services we now source internally. Delays in developing our natural gas and oil assets for these
and other reasons could negatively affect our revenues and cash flow.
In certain shale plays, the capacity of gathering systems and transportation pipelines is insufficient to
accommodate potential production from existing and new wells. We rely heavily on third parties to meet our natural
gas, oil and NGL gathering needs following the sale of substantially all of our midstream business and most of our
gathering assets in 2012 and 2013. Capital constraints could limit the construction of new pipelines and gathering
systems by third parties, and we may experience delays in building intrastate gathering systems necessary to transport
our natural gas to interstate pipelines. Until this new capacity is available, we may experience delays in producing and
selling our natural gas, oil and NGL. In such event, we might have to shut in our wells awaiting a pipeline connection
or capacity and/or sell natural gas, oil or NGL production at significantly lower prices than those quoted on NYMEX or
than we currently project, which would adversely affect our results of operations.
A portion of our natural gas, oil and NGL production in any region may be interrupted, or shut in, from time to time
for numerous reasons, including weather conditions, accidents, loss of pipeline or gathering system access, field labor
issues or strikes, or we might voluntarily curtail production in response to market conditions. If a substantial amount
of our production is interrupted at the same time, it could temporarily adversely affect our cash flow.
There are significant costs associated with pending legal and governmental proceedings, and the ultimate
outcome of these matters is uncertain.
The Company and current and former directors and officers are the subject of a number of shareholder lawsuits,
and there are ongoing governmental and regulatory investigations and inquiries. The Company cannot predict the
outcome or impact of these pending matters, but the lawsuits could result in judgments against the Company and
directors and officers named as defendants and there could be one or more enforcement actions in respect of the
governmental investigations. For example, we could be exposed to enforcement or other actions with respect to the
continuing SEC investigation into certain disclosure, accounting and financial reporting matters. Our legal expenses
increased in 2013 and 2012 compared to 2011 due primarily to defending the shareholder lawsuits, responding to
governmental investigations and inquiries, and conducting the Board's review of certain matters involving our former
Chief Executive Officer, and such expenses in the future may be significant. In addition, attention to these matters by
members of our senior management has been required, reducing the time they have available to devote to managing
the Company's business. In other litigation, the Company is defending against claims by royalty owners alleging that
we used below-market prices, made improper deductions, used improper measurement techniques and/or entered
into arrangements with affiliates that resulted in underpayment of royalties in connection with the production and sale
of natural gas and NGL. Adverse results in pending cases would cause our obligations to royalty owners to increase
and would negatively impact our future results of operations.
Cyber attacks targeting systems and infrastructure used by the oil and gas industry may adversely impact
our operations.
Our business has become increasingly dependent on digital technologies to conduct certain exploration,
development and production activities. We depend on digital technology to estimate quantities of natural gas, oil and
NGL reserves, process and record financial and operating data, analyze seismic and drilling information, and
communicate with our employees and third party partners. We have been the subject of cyber attacks on our internal
systems and through those of third parties, but these incidents did not have a material adverse impact on our results