Gathering Pipeline Regulation
Section 1(b) of the NGA exempts natural gas gathering facilities from the jurisdiction of FERC under the
NGA. We believe that our natural gas gathering facilities meet the traditional tests FERC has used to establish a
pipeline’s status as a gatherer not subject to FERC jurisdiction. However, the distinction between FERC-
regulated transmission services and federally unregulated gathering services continues to be a current issue in
various FERC proceedings with respect to facilities that interconnect gathering and processing plants with
nearby interstate pipelines, so the classification and regulation of our gathering facilities are subject to change
based on future determinations by FERC and the courts. State regulation of gathering facilities generally
includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements, and in
some instances complaint-based rate regulation.
Our purchasing, gathering and intrastate transportation operations are subject to ratable take and common
purchaser statutes in the states in which they operate. The ratable take statutes generally require gatherers to
take, without undue discrimination, natural gas production that may be tendered to the gatherer for handling.
Similarly, common purchaser statutes generally require gatherers to purchase without undue discrimination as
to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer
over another producer or one source of supply over another source of supply. These statutes have the effect of
restricting our right as an owner of gathering facilities to decide with whom we contract to purchase or transport
natural gas.
Natural gas gathering may receive greater regulatory scrutiny at both the state and federal levels where
FERC has recognized a jurisdictional exemption for the gathering activities of interstate pipeline transmission
companies and a number of such companies have transferred gathering facilities to unregulated affiliates. Many
of the producing states have adopted some form of complaint-based regulation that generally allows natural gas
producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to
natural gas gathering access and rate discrimination. Our gathering operations could be adversely affected
should they be subject in the future to the application of state or federal regulation of rates and services.
Additional rules and legislation pertaining to these matters are considered or adopted from time to time. We
cannot predict what effect, if any, such changes might have on our operations, but the industry could be
required to incur additional capital expenditures and increased costs depending on future legislative and
regulatory changes.
Sales of Natural Gas
The price at which we buy and sell natural gas currently is not subject to federal regulation and, for the
most part, is not subject to state regulation. However, with regard to our physical purchases and sales of these
energy commodities, and any related hedging activities that we undertake, we are required to observe anti-
market manipulation laws and related regulations enforced by FERC and/or the Commodity Futures Trading
Commission, or CFTC. Should we violate the anti-market manipulation laws and regulations, we could also be
subject to related third party damage claims by, among others, market participants, sellers, royalty owners and
taxing authorities.
Our sales of natural gas are affected by the availability, terms and cost of pipeline transportation. As noted
above, the price and terms of access to pipeline transportation are subject to extensive federal and state
regulation. FERC is continually proposing and implementing new rules and regulations affecting those
segments of the natural gas industry, most notably interstate natural gas transmission companies that remain
subject to FERC jurisdiction. These initiatives also may affect the intrastate transportation of natural gas under
certain circumstances. The stated purpose of many of these regulatory changes is to promote competition
among the various sectors of the natural gas industry. We cannot predict the ultimate impact of these regulatory
changes to our natural gas marketing operations.
Interstate NGL Pipeline Regulation
The Black Lake and Wattenberg pipelines are interstate NGL pipelines subject to FERC regulation. FERC
regulates interstate NGL pipelines under its Oil Pipeline Regulations, the Interstate Commerce Act of 1887, as
amended, or ICA, and the Elkins Act of 1903, as amended. FERC requires that interstate NGL pipelines file
22