Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Commitments and Contingencies Disclosure [Abstract]

Note 11. 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.

Colorado Air Matter In April 2015, we entered into a joint consent decree (Consent Decree) with the US Environmental Protection Agency (EPA), 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 US District Court for the District of Colorado 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 corrective actions, to complete mitigation projects, to complete supplemental environmental projects (SEP), and to pay a civil penalty. Costs associated with the settlement consist of $5 million in civil penalties which were paid in 2015. Mitigation costs of $4 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. Since 2015, we have incurred approximately $84 million, of which $77 million was incurred to undertake corrective actions 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, plugging and abandonment activities, and mitigation expenditures that result from this settlement, based on currently available information will not have, a material adverse effect on our financial position, results of operations or cash flows. See Note 8. Asset Retirement Obligations.

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. In October 2018, we met with enforcement staff at the Colorado Department of Public Health and Environment (CDPHE) to discuss a potential settlement of the alleged violations. Given the ongoing status of such settlement discussions, 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 Oil and Gas Conservation Commission Administrative Order on Consent In July 2018, we resolved by Administrative Order on Consent (AOC) with the Colorado Oil and Gas Conservation Commission (COGCC) allegations of noncompliance associated with site preparation and stabilization at an oil and gas location in Weld County, Colorado. The AOC required us to pay an administrative penalty of $135 thousand ($41 thousand of which is deferred subject to a nine-month compliance schedule) and to complete certain corrective actions at five oil and gas locations in Weld County, Colorado. We have concluded that the resolution of this action did not have a material adverse effect on our financial position, results of operations or cash flows.

Colorado Mechanical Integrity Testing Matter In September 2018, we resolved by AOC with the COGCC administrative claims for allegations of noncompliance of State mechanical integrity testing rules at eight shut-in wells in Weld County, Colorado. The AOC includes an administrative penalty of $1.6 million, of which $1.4 million of the total penalty is to be offset by our commensurate contribution to two public projects and our requirement to repair or plug and abandon each of the eight wells and to submit to COGCC certain environmental data. We have concluded that the resolution of this action did not have a material adverse effect on our financial position, results of operations or cash flows.

Colorado Clean Water Act Referral Notice In September 2018, we received a letter from the US Department of Justice providing notification of referral from the EPA of alleged Clean Water Act violations at an upstream production facility and a midstream gathering facility in Weld County, Colorado. The letter requests an opportunity to discuss settlement of the alleged violations. Given the uncertainty associated with enforcement 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.

Marcellus Shale Firm Transportation Obligations As part of our Marcellus Shale upstream divestiture, we retained certain transportation and gathering obligations to flow Marcellus Shale natural gas production to various markets inside and outside of the Marcellus Basin. See Note 10. Marcellus Shale Firm Transportation Commitments.

Other Transportation and Gathering Obligations We have transportation and gathering obligations to flow US onshore production, primarily in the DJ Basin, to various markets. Certain of these contracts require us to make payments for any

shortfalls in delivering or transporting minimum volumes under the commitments. As properties are undergoing development activities, we may experience temporary shortfalls until production volumes increase to meet or exceed the minimum volume commitments and will incur expense related to volume deficiencies and/or unutilized commitments. We expect to continue to incur expense related to deficiency and/or unutilized commitments in the near-term. These amounts are recorded as marketing expense in our consolidated statements of operations.

Our total financial commitment for these agreements, which have remaining terms of two to ten years, is approximately $612 million, undiscounted. The commitment is included in the table below.

Non-Cancelable Leases and Other Commitments We hold leases and other commitments for drilling rigs, buildings, equipment and other property. Rental expense for office buildings and oil and gas operations equipment was $90 million in 2018, $69 million in 2017, and $76 million in 2016.

Minimum commitments as of December 31, 2018 consist of the following:



(millions)	Purchase and Service Obligations		Marcellus Shale Firm Transportation and Other Obligations⁽¹⁾		Gathering, Transportation & Processing Obligations		Operating Lease Obligations ⁽²⁾		Capital Lease Obligations ⁽²⁾		Total
2019	$	197	$	123	$	151	$	91	$	52	$	614
2020	29		122		129		74		46		400
2021	13		121		103		59		31		327
2022	6		118		67		62		22		275
2023	21		113		66		50		20		270
2024 and Thereafter	5		934		285		176		104		1,504
Total	$	271	$	1,531	$	801	$	512	$	275	$	3,390


⁽¹⁾	Amount includes exit cost obligations resulting from a permanent capacity assignment. See Note 10. Marcellus Shale Firm Transportation Commitments.

⁽²⁾

Annual lease payments, net to our interest, exclude regular maintenance and operational costs. See Note 9. Long-Term Debt.