12. Commitments and Contingencies

Legal Proceedings We are involved in various legal proceedings in the ordinary course of business. These proceedings are subject to the uncertainties inherent in any litigation. We are defending ourselves vigorously in all such matters and we believe that the ultimate disposition of such proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

Marcellus Shale Firm Transportation Contracts In connection with the Marcellus Shale upstream divestiture, we reduced our firm transportation commitment through transfer of certain contracts to the acquirer.

We retained certain other firm transportation contracts representing a total financial commitment of approximately $1.6 billion, undiscounted, primarily with remaining contract terms of 15 years. Of this amount, approximately $627 million, undiscounted, relates to two pipeline projects which are currently under construction and targeted to be placed in service mid-to-late fourth quarter 2017. We are in negotiations with third parties for the commercialization and permanent assignment or release of a portion of our capacity under these contracts which would reduce our undiscounted financial commitment. As these pipeline projects become commercially available to us and our commitment begins, we will evaluate our position, commercialization activities and ability to utilize retained capacity. If we determine that we will not utilize a portion, or all, of the contracted and retained pipeline capacity, we will accrue a liability, at fair value, for the net amount of the estimated remaining financial commitment and include the related expense in operating expense in our consolidated statements of operations. At this time, we are unable to predict with certainty the outcome of our commercialization activities, our ability to utilize retained capacity and the timing of when we may recognize a non-cash exit cost in line with accounting for exit costs associated with these two pipeline projects. See Note 2. Basis of Presentation.

The remaining commitments relate to two additional pipeline projects that are targeted to be placed in service late 2018, one of which has not yet been approved by the FERC. We continue to monitor and assess the status of these pipeline projects, including regulatory approval and construction progress, and are evaluating commercialization options.

We cannot guarantee our commercialization efforts will be successful and we may recognize substantial future liabilities, at fair value, for the net amount of the estimated remaining commitments under these contracts. These financial commitments are included in the table below consistent with expected future cash payments associated with the underlying agreements. See Note 4. Acquisitions and Divestitures.

Non-Cancelable Leases and Other Commitments We hold leases and other commitments for drilling rigs, buildings, equipment and other property and have entered into numerous long-term contracts for gathering, processing and transportation services. Minimum commitments have been updated to give effect to the Clayton Williams Energy Acquisition, the Marcellus Shale upstream divestiture, as well as commitments related to Leviathan development activities, and consist of the following as of September 30, 2017:



(millions)	Drilling, Equipment, and Purchase Obligations		Transportation and Gathering Obligations⁽¹⁾		Operating Lease Obligations		Capital Lease Obligations⁽²⁾		Total
October - December 2017	$	136	$	53	$	12	$	20	$	221
2018	425		247		43		74		789
2019	148		276		32		45		501
2020	26		249		32		42		349
2021	7		213		32		29		281
2022 and Thereafter	36		1,499		189		145		1,869
Total	$	778	$	2,537	$	340	$	355	$	4,010


⁽¹⁾	Includes approximately $1.6 billion of future cash payments related to retained Marcellus Shale firm transportation contracts. See discussion above.


⁽²⁾	Annual lease payments, net to our interest, exclude regular maintenance and operating costs. See Note 6. Debt.

Colorado Air Matter In April 2015, we entered into a joint consent decree (Consent Decree) with the US Environmental Protection Agency, US Department of Justice, and State of Colorado to improve emission control systems at a number of our condensate storage tanks that are part of our upstream crude oil and natural gas operations within the Non-Attainment Area of the DJ Basin. The Consent Decree was entered by the court on June 2, 2015.

The Consent Decree, which alleges violations of the Colorado Air Pollution Prevention and Control Act and Colorado’s federal approved State Implementation Plan, specifically Colorado Air Quality Control Commission Regulation Number 7, requires us to perform certain injunctive relief activities and to complete mitigation projects and supplemental environmental projects (SEP), and pay a civil penalty. Costs associated with the settlement consist of $4.95 million in civil penalties which were paid in 2015. Mitigation costs of $4.5 million and SEP costs of $4 million are being expended in accordance with schedules established in the Consent Decree. Costs associated with the injunctive relief are also being expended in accordance with schedules established in the Consent Decree. During 2015 and 2016, we spent approximately $54.7 million to undertake injunctive relief at certain tank systems following the outcome of adequacy of design evaluations and certain operation and maintenance activities to handle potential peak instantaneous vapor flow rates. Future costs associated with injunctive relief are not yet precisely quantifiable as we are continually evaluating various approaches to meet the ongoing obligations of the Consent Decree.

Overall compliance with the Consent Decree has resulted in the temporary shut-in and permanent plugging and abandonment of certain wells and associated tank batteries. Consent Decree compliance could result in additional temporary shut-ins and permanent plugging and abandonment of certain wells and associated tank batteries. The Consent Decree sets forth a detailed compliance schedule with deadlines for achievement of milestones through early 2019 that may be extended depending on certain situations. The Consent Decree contains additional obligations for ongoing inspection and monitoring beyond that which is required under existing Colorado regulations.

We have concluded that the penalties, injunctive relief, and mitigation expenditures that resulted from this settlement did not have, and based on currently available information will not have, a material adverse effect on our financial position, results of operations or cash flows.

Colorado Water Quality Control Division Matter In January 2017, we received a Notice of Violation/Cease and Desist Order (NOV/CDO) advising us of alleged violations of the Colorado Water Quality Control Act (Act) and its implementing regulations as it relates to our Colorado Discharge Permit System General Permit for construction activities associated with oil and gas exploration and /or production within our Wells Ranch Drilling and Production field located in Weld County, Colorado (Permit). The NOV/CDO further orders us to cease and desist from all violations of the Act, the regulations and the Permit and to undertake certain corrective actions. Given the uncertainty associated with administrative actions of this nature, we are unable to predict the ultimate outcome of this action at this time but believe that the resolution of this action will not have a material adverse effect on our financial position, results of operations or cash flows.

Colorado Air Compliance Order on Consent In April 2017, we received a proposed Compliance Order on Consent (COC) from the Colorado Department of Public Health and Environment’s Air Pollution Control Division (APCD) to resolve allegations of noncompliance associated with compliance testing of certain engines subject to various General Permit 02 conditions and/or individual permit conditions. In May 2017, we reached a final resolution with the APCD and executed the COC, which requires payment of a civil penalty of $24,710 and an expenditure of no less than $98,840 on an approved SEP(s). This resolution is not believed to have a material adverse effect on our financial position, results of operations or cash flows.