Chesapeake Energy 2014 Annual Report Download - page 37

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assess, among other things, the risks of groundwater contamination caused by hydraulic fracturing and other exploration
and production activities. Depending on the outcome of these studies, federal and state legislatures and agencies may
seek to further regulate or even ban such activities. Certain environmental and other groups have also 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 applicable to hydraulic fracturing
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 on hydraulic fracturing operations, our business and
operations could be subject to delays, increased operating and compliance costs and process prohibitions.
Our ability to produce oil, natural gas and NGL economically and in commercial quantities could be
impaired if we are unable to acquire adequate supplies of water for our drilling operations or are unable to
dispose of or recycle the water we use economically and in an environmentally safe manner.
Development activities require the use of water. For example, the hydraulic fracturing process that we employ to
produce commercial quantities of oil and natural gas from many reservoirs requires the use and disposal of significant
quantities of water. In certain areas, there may be insufficient local aquifer capacity to provide a source of water for
drilling activities. Water must be obtained from other sources and transported to the drilling site. Our inability to secure
sufficient amounts of water, or to dispose of or recycle the water used in our operations, could adversely impact our
operations in certain areas. Moreover, the imposition of new environmental initiatives and regulations could include
restrictions on our ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but
not limited to, produced water, drilling fluids and other materials associated with the exploration, development or
production of oil and natural gas.
Potential legislative and regulatory actions addressing climate change could significantly impact our
industry and the Company, causing increased costs and reduced demand for oil and natural gas.
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. There were attempts at comprehensive federal
legislation establishing a cap and trade program, but this legislation did not pass. The EPA also issued a final rule that
makes certain stationary sources and newer modification projects subject to permitting requirements for GHG
emissions, beginning in 2011, under the CAA. However, in June 2014, the U.S. Supreme Court, in UARG v. EPA,
limited the application of the GHG permitting requirements under the Prevention of Significant Deterioration and Title
V permitting programs to sources that would otherwise need permits based on the emission of conventional pollutants.
Additional legislative and/or 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 oil and
natural gas 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 oil and natural gas. Finally, we note that some scientists have concluded that increasing
concentrations of greenhouse gases in the Earth's atmosphere may produce climate changes that have significant
physical effects, such as higher sea levels, increased frequency and severity of storms, droughts, floods, and other
climatic events. If any such effects were to occur, they could have an adverse effect on our financial condition and
results of operations.
The taxation of independent producers is subject to change, and federal and state proposals being
considered could increase our cost of doing business.
The federal budget proposed in February 2015 includes provisions that would potentially increase and accelerate
the payment of federal income taxes of independent producers of oil and natural gas. 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