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may result in decreased rates in a given year. Every five years, the FERC must
examine the relationship between the annual change in the applicable index and
the actual cost changes experienced in the oil pipeline industry. The second of
these reviews was commenced in July 2005, during which the FERC proposed to continue
the use of a similar indexing methodology for a further five-year period. Another
FERC proceeding, that may impact oil pipeline transportation costs, relates to
an ongoing proceeding to determine whether and to what extent oil pipelines should
be permitted to include in their transportation rates an allowance for income
taxes attributable to noncorporate partnership interests. Following a court remand,
the FERC has established a policy that a pipeline structured as a master limited
partnership or similar noncorporate entity is entitled to a tax allowance with
respect to income for which there is an “actual or potential income tax liability,”
to be determined on a case by case basis. We are not able at this time to predict
the effects, if any, of these regulations on the transportation costs associated
with oil production from our oil-producing operations. Environmental
Regulations Our operations are subject to numerous
federal, state and local laws and regulations governing the discharge of materials
into the environment or otherwise relating to environmental protection. These
laws and regulations may require the acquisition of a permit before drilling commences,
restrict the types, quantities and concentration of various substances that can
be released into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on specified lands within wilderness, wetlands
and other protected areas, require remedial measures to mitigate pollution from
former operations, such as pit closure and plugging abandoned wells, and impose
substantial liabilities for pollution resulting from production and drilling operations.
The failure to comply with these laws and regulations may result in the assessment
of administrative, civil and criminal penalties, imposition of investigatory or
remedial obligations or the issuance of injunctions prohibiting or limiting the
extent of our operations. Public interest in the protection of the environment
has increased dramatically in recent years. The trend of applying more expansive
and stricter environmental legislation and regulations to the natural gas and
oil industry could continue, resulting in increased costs of doing business and
consequently affecting our profitability. To the extent laws are enacted or other
governmental action is taken that restricts drilling or imposes more stringent
and costly waste handling, disposal and cleanup requirements, our business and
prospects could be adversely affected. We generate
waste that may be subject to the federal Resource Conservation and Recovery Act
(“RCRA”) and comparable state statutes. The U.S. Environmental Protection Agency
(“EPA”) and various state agencies have limited the approved methods of disposal
for certain hazardous and nonhazardous waste. Furthermore, certain waste generated
by our natural gas and oil operations that are currently exempt from treatment
as “hazardous waste” may in the future be designated as “hazardous waste” and
therefore become subject to more rigorous and costly operating and disposal requirements.
We currently own or lease numerous properties that
for many years have been used for the exploration and production of natural gas
and oil. Although we believe that we have implemented appropriate operating and
waste disposal practices, prior owners and operators of these properties may not
have used similar practices, and hydrocarbons or other waste may have been disposed
of or released on or under the properties we own or lease or on or under locations
where such waste have been taken for disposal. In addition, many of these properties
have been operated by third parties whose treatment and disposal or release of
hydrocarbons or other waste was not under our control. These properties and the
waste disposed thereon may be subject to the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), RCRA and analogous state laws as well
as state laws governing the management of natural gas and oil waste. Under these
laws, we could be required to remove or remediate previously disposed waste (including
waste disposed of or released by prior owners or operators) or property contamination
(including groundwater contamination) or to perform remedial plugging operations
to prevent future contamination. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Risk Factors— We are subject to
various governmental regulations and environmental risks.” CERCLA,
also known as the “Superfund” law, and analogous state laws impose liability,
without regard to fault or the legality of the original conduct, on specified
classes of persons that are considered to have contributed to the release of a
“hazardous substance” into the environment. These classes of persons include the
owner or operator of the disposal site or sites where the release occurred and
companies that disposed or arranged for the disposal of the hazardous substances
found at the site. Persons who are or were responsible for releases of hazardous
substances under CERCLA may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources and for the costs of certain health
studies, and it is not uncommon for neighboring landowners and other third parties
to file claims for personal injury and property damage allegedly caused by the
hazardous substances released into the environment. Our
operations may be subject to the Clean Air Act (“CAA”) and comparable state and
local requirements. In 1990 Congress adopted amendments to the CAA containing
provisions that have resulted in the gradual imposition of certain pollution control
requirements with respect to air emissions from our operations. The EPA and states
have developed and continue to develop regulations to implement these requirements.
We may be required to incur certain capital expenditures in the next several years
for air pollution control equipment in connection with maintaining or obtaining
operating permits and approvals addressing other air | |
