−Removed: The risk factors in Item 1A of the Company’s 2023 Form 10-K have not materially changed other than as set forth below.
−Removed: The risk factors presented below supersede the corresponding risk factors in the 2023 Form 10-K and should otherwise be read in conjunction with all of the risk factors disclosed in the 2023 Form 10-K.
−Removed: STRATEGIC RISKS
−Removed: The regulatory, legislative, consumer behaviors and capital access developments related to climate change may adversely affect operations and financial results.
−Removed: The laws, regulations and other initiatives to address climate change, may impact the Company’s financial results.
−Removed: In early 2021, the U.S.
−Removed: rejoined the Paris Agreement, the international effort to establish emissions reduction goals for signatory countries.
−Removed: Under the Paris Agreement, signatory countries are expected to submit their nationally determined contributions to curb greenhouse gas emissions and meet the agreed temperature objectives every five years.
−Removed: On April 22, 2021, the federal administration announced the U.S.
−Removed: nationally determined contribution to achieve a fifty to fifty-two percent reduction from 2005 levels in economy-wide net greenhouse gas pollution by 2030.
−Removed: Executive orders from the federal administration, in addition to federal, state and local legislative and regulatory initiatives proposed or adopted in an attempt to limit the effects of climate change, including greenhouse gas emissions, could have significant impacts on the energy industry including government-imposed limitations, prohibitions or moratoriums on the use and/or production of natural gas, establishment of a carbon tax and/or methane fee, lack of support for system modernization, as well as accelerated depreciation of assets and/or stranded assets.
+Added: The risk factors in Item 1A of the Company’s 2023 Form 10-K, as amended by Item 1A of Part II of the Company's Form 10-Q for the quarter ended March 31, 2024, have not materially changed other than as set forth below.
+Added: The risk factor presented below supersedes the corresponding risk factor in the 2023 Form 10-K and should otherwise be read in conjunction with all of the risk factors disclosed in the 2023 Form 10-K and the March 31, 2024 Form 10-Q.
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−Removed: Federal and state legislatures have from time to time considered bills that would establish a cap-and-trade program, cap-and-invest program, methane fee or carbon tax to incent the reduction of greenhouse gas emissions.
−Removed: For example, in August 2022, the federal Inflation Reduction Act was signed into law, which includes a methane charge that will be applicable to the annual methane emissions of certain oil and gas facilities, above specified methane intensity thresholds, for emissions reported to the U.S.
−Removed: EPA for calendar year 2024.
−Removed: A number of states have also adopted energy strategies or plans with goals that include the reduction of greenhouse gas emissions.
−Removed: For example, Pennsylvania has a methane reduction framework for the natural gas industry which has resulted in permitting changes with the stated goal of reducing methane emissions from well sites, compressor stations and pipelines.
−Removed: In March 2024, Pennsylvania Governor Josh Shapiro proposed the Pennsylvania Climate Emissions Reduction Act that would establish a fee on emissions from power plants as part of a cap-and-invest program, and a companion proposal, the Pennsylvania Reliable Energy Sustainability Standard, which would require Pennsylvania to obtain fifty percent of its electricity from low carbon energy sources by 2035.
−Removed: Furthermore, in 2019, the New York State legislature passed the CLCPA, which created emission reduction and electrification mandates, and could ultimately impact the Utility segment’s customer base and business.
−Removed: Pursuant to the CLCPA, New York's Climate Action Council (“CAC”) approved a final scoping plan that includes recommendations to strategically downsize and decarbonize the natural gas system and curtail use of natural gas and natural gas appliances.
−Removed: The final scoping plan was approved on December 19, 2022 and includes detailed recommendations to meet the CLCPA’s emissions reduction targets in the transportation, buildings, electricity, industry, agriculture & forestry and waste sectors.
−Removed: The final scoping plan also recommends statewide and cross-sector policies relevant to gas system transition, economywide strategies, land use, local government and adaptation and resilience.
−Removed: Additionally, the scoping plan recommends the implementation of a cap-and-invest program in New York.
−Removed: In January 2023, New York’s Governor directed the NYDEC and the New York State Energy Research and Development Authority to advance an economywide cap-and-invest program that establishes a declining cap on greenhouse gas emissions, and invests in programs to drive emissions reductions.
−Removed: If this proposed program or a similar program becomes effective and the Company becomes subject to new or revised cap-and-trade programs, cap-and-invest programs, methane charges, fees for carbon-based fuels or other similar costs or charges, the Company may experience additional costs and incremental operating expenses, which would impact our future earnings and cash flows, and may also experience decreased revenue in the event that implementation of these policies leads to reduced demand for natural gas.
−Removed: In addition to the CLCPA scoping plan, legislation or regulation that aims to reduce greenhouse gas emissions could also include natural gas bans, greenhouse gas emissions limits and reporting requirements, carbon taxes and/or similar fees on carbon dioxide, methane or equivalent emissions, restrictive permitting, increased efficiency standards requiring system remediation and/or changes in operating practices, and incentives or mandates to conserve energy or use renewable energy sources.
−Removed: For example, in May 2023, New York State passed legislation that prohibits the installation of fossil fuel burning equipment and building systems in new buildings commencing on or after December 31, 2025, subject to various exemptions.
−Removed: While the Company does not currently expect that this legislation will have a substantial impact on its financial results or operations, future legislation or regulation that aims to reduce natural gas demand or to impose additional operations requirements or restrictions on natural gas facilities, if effectuated, could impact our future earnings and cash flows.
−Removed: Additionally, the trend toward increased energy conservation, change in consumer behaviors, competition from renewable energy sources, and technological advances to address climate change may reduce the demand for natural gas, which could impact our future earnings and cash flows.
−Removed: For further discussion of the risks associated with environmental regulation to address climate change, refer to Item 2, MD&A under the heading “Environmental Matters.”
−Removed: Further, recent trends directed toward a low-carbon economy could shift funding away from, or limit or restrict certain sources of funding for, companies focused on fossil fuel-related development or carbon-intensive investments.
−Removed: To the extent financial markets view climate change and greenhouse gas emissions as a financial risk, the Company’s cost of and access to capital could be negatively impacted.
FINANCIAL RISKS
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The Company accounts for its exploration and production activities under the full cost method of accounting.
−Removed: Each quarter, the Company must perform a "ceiling test" calculation, comparing the level of its unamortized investment in oil and natural gas properties to the present value of the future net revenue projected to be recovered from those properties according to methods prescribed by the SEC.
−Removed: In determining present value, the Company uses a 12-month historical average price for oil and
−Removed: Table of Content
−Removed: natural gas (based on first day of the month prices and adjusted for hedging) as well as the SEC mandated discount rate.
+Added: Each quarter, the Company must perform a "ceiling test" calculation, comparing the level of its unamortized investment in exploration and production properties to the present value of the future net revenue projected to be recovered from those properties according to methods prescribed by the SEC.
+Added: In determining present value, the Company uses a 12-month historical average price for commodity pricing (based on first day of the month prices and adjusted for hedging) as well as the SEC mandated discount rate.
If, at the end of any quarter, the amount of the unamortized investment exceeds the net present value of the projected future cash flows, such investment may be considered to be "impaired," and the full cost authoritative accounting and reporting guidance require that the investment must be written down to the calculated net present value.
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As a result, an impairment can impact the Company's ability to maintain compliance with the debt to capitalization covenant set forth in its committed credit facility.
−Removed: The Company last recognized non-cash, pre-tax impairment charges on its oil and natural gas properties in fiscal years 2020 and 2021, in the amounts of $449.4 million and $76.2 million, respectively.
−Removed: The Company did not record an impairment under the ceiling test during the quarter ended March 31, 2024.
−Removed: Looking ahead, the first day of the month Henry Hub spot price for natural gas in April 2024 was $1.56 per MMBtu.
−Removed: Given the April price, and the expected replacement of higher gas prices with lower gas prices in the historical 12-month average that will be used in the ceiling test calculation at June 30, 2024 and September 30, 2024, the Company expects to experience a ceiling test impairment in each of these quarters.
+Added: The Company recorded an impairment under the ceiling test during the quarter ended June 30, 2024 in the amount of $200.7 million.
+Added: Looking ahead, the first day of the month Henry Hub spot price for natural gas in July 2024 was $2.39 per MMBtu.
+Added: Given the July price, and the expected replacement of higher gas prices with lower gas prices in the historical 12-month average that will be used in the ceiling test calculation for the next two quarters, the Company could experience a ceiling test impairment for the quarter ending September 30, 2024 as well as the quarter ending December 31, 2024.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.