Climate Change

Climate change has become the subject of significant global focus. The impact of human activity on the climate remains a complex issue. Numerous governments around the world have concluded that it poses an urgent threat that requires the reduction of greenhouse gas emissions and other governments are responding with similar policies. Crude oil and natural gas exploration and production operations are a direct source of certain GHGs, namely carbon dioxide and methane, and an indirect source of GHGs from the combustion of crude oil and natural gas products.

We believe there are both risks and opportunities arising from the global climate change initiatives. In terms of opportunities, the regulation of GHGs and introduction of formal technology incentives, such as enhanced oil recovery, carbon sequestration and low carbon fuel standards, could benefit us in a variety of ways.

First, sales of natural gas comprised approximately 57% of our 2016 total sales volumes. The burning of natural gas produces lower levels of GHG emissions as compared to fuels such as liquid hydrocarbons and coal. In addition, public concern about nuclear safety has increased. These factors could increase the demand for natural gas as fuel for power generation. Also, should renewable resources, such as wind or solar power, become more prevalent, natural gas-fired electric plants may provide an alternative backup to maintain consistent electricity supply.

Further, future GHG standards for vehicles could result in the use of natural gas as transportation fuel. This may also increase the market demand for natural gas.

However, future restrictions on emissions of GHGs, or related measures to encourage use of renewable energy, could have a significant impact on our future operations and reduce demand for our products.

(Excerpted from our 2016 Annual Report and 10-K. For full discussion, see pages 65-66 of the 10-K)