Environmental.
Our operations and properties are subject to extensive and increasingly
stringent federal, state and local laws and regulations relating to environmental protection, including
the generation, storage, handling, emission and transportation of materials and the discharge of
materials into the environment. Such statutes include, but are not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, Resource Conservation and Recovery Act,
Clean Air Act, Clean Water Act, Oil Pollution Act and Safe Drinking Water Act, or SDWA, and
analogous state laws. Statutes that specifically provide protection to animal and plant species and
which may apply to our operations include, but are not limited to, the Marine Mammal Protection Act,
the Marine Protection, Research and Sanctuaries Act, the Endangered Species Act, the Fish and
Wildlife Coordination Act, the Fishery Conservation and Management Act, the Migratory Bird Treaty
Act and the National Historic Preservation Act, and often their state and local counterparts. These laws
and regulations promulgated thereunder may require the acquisition of a permit or other authorization
before construction or drilling commences and limit or prohibit construction, drilling and other activities,
particularly on lands lying within wilderness or wetlands and other protected areas; and impose
substantial liabilities for pollution resulting from or related to our operations. If a person violates, or is
otherwise liable under these environmental laws and regulations and any related permits, they may be
subject to significant administrative, civil and criminal penalties, injunctions and construction bans or
delays. If we were to discharge hydrocarbons or hazardous substances into the environment or if such
is found to exist on properties we own or operated (regardless of who caused it), we could incur
substantial expense, including removal and/or remediation costs and other liability under applicable
laws and regulations, as well as claims made by neighboring landowners and other third parties for
personal injury and property damage.
Recent and future environmental regulations, including additional federal and state restrictions on
greenhouse gas emissions that may be passed in response to climate change concerns, may increase
our operating costs and also reduce the demand for the oil and natural gas we produce. Any laws or
regulations that may be adopted to restrict or reduce emissions of U.S. greenhouse gases could
require us to incur increased operating costs, and could have an adverse effect on demand for the oil
and natural gas we produce. The EPA adopted the so-called “Tailoring Rule” in May 2010, which
imposes permitting and best available control technology requirements on the largest greenhouse gas
stationary sources. In November 2010, the EPA also published mandatory reporting rules for certain oil
and gas facilities, with reports due later in 2012. Some of our facilities are subject to these
requirements. In addition, many states have already taken legal measures to reduce emissions of
greenhouse gases, primarily through the planned development of greenhouse gas emission
inventories and/or regional greenhouse gas cap and trade programs. In California, for example, the
California Global Warming Solutions Act of 2006 (Assembly Bill 32) requires the California Air
Resources Board to establish and adopt regulations by 2012 that will achieve an overall reduction in
greenhouse gas emissions from all sources in California of 25% by 2020. In October 2011, the
California Air Resources Board, or CARB, adopted the final cap and trade regulation, including a delay
in the start of the cap and trade rule’s compliance obligations until 2013. Because our operations emit
greenhouse gases, our operations in California are subject to regulations issued under the California
Global Warming Solutions Act of 2006, or Assembly Bill 32. These regulations increase our costs for
those operations and adversely affect our operating results.
Depending on the particular program, we could be required to purchase and surrender
allowances, either for greenhouse gas emissions resulting from our operations or from combustion of
crude oil or natural gas we produce. Although we would not be impacted to a greater degree than other
similarly situated oil and gas companies, a stringent greenhouse gas control program could
significantly increase our cost of doing business and could also reduce demand for the oil and natural
gas we produce.
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