CHESAPEAKE ENERGY CORP (CHK)

2015 Climate Risk Disclosure Analysis

Industry Group: Oil & Gas

Standard Industrial Classification: Crude Petroleum & Natural Gas

Index Membership: S&P 500, Russell 3000

Financial Year End: Dec 2014

Unless the context otherwise requires, references to 'Chesapeake', the 'Company', 'us', 'we' and 'our' in this report are to Chesapeake Energy Corporation together with its subsidiaries. Our principal executive offices are located at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118, and our main telephone number at that location is (405) 848-8000. Definitions of oil and gas industry terms appearing in this report can be found under Glossary of Oil and Gas Terms beginning on page 20. Our Business Chesapeake is currently the second-largest producer of natural gas and the 11th largest producer of oil and natural gas liquids (NGL) in the United States. We own interests in approximately 45,100 oil and natural gas wells that produced an average of approximately 729 mboe per day in the 2014 fourth quarter, net to our interest. We have a large and geographically diverse resource base of onshore U.S. unconventional liquids and natural gas assets. We have leading positions in the liquids-rich resource plays of the Eagle Ford Shale in South Texas; the Utica Shale in Ohio and Pennsylvania; the Granite Wash, Cleveland, Tonkawa and Mississippian Lime plays in the Anadarko Basin in northwestern Oklahoma and the Texas Panhandle; and the Niobrara Shale and Upper Cretaceous sands in the Powder River Basin in Wyoming... 10-K Filing (2015-02-27)

Disclosure Breakdown

Disclosure Rank

88th percentile in Russell 3000

Disclosure Abstract

item 1. Business
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In addition, some of our competitors may have a competitive advantage when responding to factors that affect demand for oil and natural gas production, such as changing prices, domestic and foreign political conditions, weather conditions, the price and availability of alternative fuels, the proximity and capacity of natural gas pipelines and other transportation facilities, and overall economic conditions. We also face indirect competition from alternative energy sources, including wind, solar and electric power.
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Air Emissions Our operations are subject to the federal Clean Air Act (CAA) and comparable state laws and regulations. Among other things, these laws and regulations regulate emissions of air pollutants from various industrial sources, including our compressor stations, and impose various control, monitoring and reporting requirements. Permits and related compliance obligations under the CAA, each state's development and promulgation of regulatory programs to comport with federal requirements, as well as changes to state implementation plans for controlling air emissions in regional non-attainment or near-non-attainment areas, may require oil and gas exploration and production operators to incur future capital expenditures in connection with the addition or modification of existing air emission control equipment and strategies. In 2012, the EPA published final New Source Performance Standards (NSPS) and National Emissions Standards for Hazardous Air Pollutants (NESHAP) that amended the existing NSPS and NESHAP standards for oil and gas facilities and created new NSPS standards for oil and gas production, transmission and distribution facilities with a compliance deadline of January 1, 2015. In 2013 and 2014, the EPA issued updated rules regarding storage tanks and made additional clarifications to these rules. In December 2014, the EPA issued additional amendments to these rules that, among other things, distinguish between multiple flowback stages during completion of hydraulically fractured wells and clarify that storage tanks permanently removed from service are not affected by any requirements. Further, in 2012, seven states sued the EPA to compel the agency to make a determination as to whether standards of performance limiting methane emissions from oil and gas sources are appropriate and, if so, to promulgate performance standards for methane emissions from existing oil and gas sources. In April 2014, the EPA released a set of five white papers analyzing methane emissions from the industry and, based on responses received, announced in January 2015 that it plans to issue a rule governing methane emissions from oil and gas sources in the summer of 2015. The Bureau of Land Management (BLM) is also expected to address methane emissions from oil and gas sources on federal lands in the summer of 2015. In 2010, the EPA published rules that require monitoring and reporting of greenhouse gas emissions from petroleum and natural gas systems.
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Global Warming and Climate Change At the federal level, EPA regulations 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, such as the President's Climate Action Plan which calls for reducing methane emissions, could require us to incur additional operating costs and could adversely affect demand for the oil and natural gas that we sell. The EPA announced it will propose new standards of performance limiting methane emissions from oil and gas sources in 2015. The potential increase in our operating costs could include new or increased costs to (i) obtain permits, (ii) operate and maintain our equipment and facilities (through the reduction or elimination of venting and flaring of methane), (iii) install new emission controls on our equipment and facilities, (iv) acquire allowances authorizing our greenhouse gas emissions, (v) pay taxes related to our greenhouse gas emissions and (vi) administer and manage a greenhouse gas emissions program. In addition to these federal actions, various state governments and/or regional agencies may consider enacting new legislation and/or promulgating new regulations governing or restricting the emission of greenhouse gases from stationary sources such as our equipment and operations Title to Properties Our title to properties is subject to royalty, overriding royalty, carried, net profits, working and other similar interests and contractual arrangements customary in the oil and natural gas industry, to liens for current taxes not yet due and to other encumbrances.
item 1a. Risk Factors
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Wide fluctuations in oil, natural gas and NGL prices may result from relatively minor changes in the supply of or demand for oil and natural gas, market uncertainty and other factors that are beyond our control, including:
 * domestic and worldwide supplies of oil, natural gas and NGL, including U.S. inventories of oil and natural gas reserves;
 * weather conditions;
 * changes
in the level of consumer and industrial demand;
 * the price and availability of alternative fuels;
 * the effectiveness of worldwide conservation measures;
 * the availability, proximity and capacity of pipelines, other transportation facilities and processing facilities;
 * the level and effect of trading in commodity futures markets, including by commodity price speculators and others;
 * potential U.S. exports of oil and/or liquefied natural gas;
 * the price and level of foreign imports;
 * the nature and extent of domestic and foreign governmental regulations and taxes;
 * the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
 * political instability or armed conflict in oil and natural gas producing regions; and domestic and global economic conditions.
29 Relevance:
45%
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.
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As a result, these competitors may be able to address these competitive factors more effectively than we can or weather industry downturns more easily than we can. We also face indirect competition from alternative energy sources, including wind, solar and electric power
Our performance depends largely on the talents and efforts of highly skilled individuals and on our ability to attract new employees and to retain and motivate our existing employees.
item 6. Selected Consolidated Financial Data
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In 2013, we sold all of our shares of Clean Energy Fuels Corp. (Clean Energy) for cash proceeds of $13 million and recorded a $3 million gain related to the sale. We also sold our $100 million investment in Clean Energy convertible notes for cash proceeds of $85 million and recorded a $15 million loss related to the sale.
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Factors that could cause actual results to differ materially from expected results are described under Risk Factors in Item 1A of Part I of this report and include:
 * the volatility of oil, natural gas and NGL prices;
 * write-downs of our oil and natural gas asset carrying values due to declines in prices;
 * the availability of operating cash flow and other funds to finance reserve replacement costs;
 * our ability to replace reserves and sustain production;
 * uncertainties inherent in estimating quantities of oil, natural gas and NGL reserves and projecting future rates of production and the amount and timing of development expenditures;
 * our ability to generate profits or achieve targeted results in drilling and well operations;
 * leasehold terms expiring before production can be established;
 * commodity derivative activities resulting in lower prices realized on oil, natural gas and NGL sales;
 * the need to secure derivative liabilities and the inability of counterparties to satisfy their obligations;
 * adverse developments or losses from pending or future litigation and regulatory proceedings, including royalty claims;
 * the limitations our level of indebtedness may have on our financial flexibility;
 * charges incurred in response to market conditions and in connection with actions to reduce financial leverage and complexity;
 * drilling and operating risks and resulting liabilities;
 * effects of environmental protection laws and regulation on our business;
 * legislative and regulatory initiatives further regulating hydraulic fracturing;
 * our need to secure adequate supplies of water for our drilling operations and to dispose of or recycle the water used;
 * federal and state tax proposals affecting our industry;
 * potential OTC derivatives regulation limiting our ability to hedge against commodity price fluctuations;
 * impacts of potential legislative and regulatory actions addressing climate change;
 * competition in the oil and gas exploration and production industry;
 * a deterioration in general economic, business or industry conditions;
 * negative public perceptions of our industry;
 * limited control over properties we do not operate;
 * pipeline and gathering system capacity constraints and transportation interruptions;
 * cyber attacks adversely impacting our operations; and an interruption in operations at our headquarters due to a catastrophic event.
item 7a. Quantitative and Qualitative Disclosures about Market Risk
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We recorded a $73 million gain related to the sale Clean Energy Fuels Corp. In 2013, we sold all of our shares of Clean Energy Fuels Corp. (Clean Energy) common stock for cash proceeds of approximately $13 million. We recorded a $3 million gain related to the sale. In 2013, we sold our $100 million investment in convertible notes of Clean Energy for cash proceeds of $85 million. The buyer also assumed our commitment to purchase the third and final $50 million tranche of Clean Energy convertible notes.
Not Classified
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'Basket' has the meaning specified in Section 10.7.1.Business Day' means any day other than Saturday or Sunday or a day on which banking institutions in Oklahoma City, Oklahoma or Houston, Texas are authorized by Law to close.Buyer Indemnified Parties' has the meaning specified in Section 10.2.Casualty' means volcanic eruptions, acts of God, terrorist acts, fire, explosion, gathering line failure, earthquake, wind storm, flood, drought, condemnation, the exercise of eminent domain, confiscation or seizure.Casualty Loss' has the meaning specified in Section 2.4.CEMI' means Chesapeake Energy Marketing, Inc. or other hydrocarbon marketing Affiliate of the Seller.Claimant' has the meaning specified in Section 13.2.Closing' means the closing and consummation of the transactions contemplated by this Agreement.Closing Date' means the date on which the Closing occurs, which will be the later of (a) December 9, 2014, and (b) the date that is ten (10) Business Days after the date on which all of the conditions to Closing set forth in Sections 6 and 7 (other than those that, by their nature, are satisfied at Closing) have been satisfied (or waived in writing), unless otherwise changed by the mutual written agreement of the Parties.Closing Statement' has the meaning specified in Section 2.7.

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