Chesapeake Energy (NYSE:CHK)

Wed, 2013-07-03 06:00Sharon Kelly
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Growing Doubts on the Numbers from Fracking Giant Chesapeake Energy

America is in the midst of the biggest onshore oil and gas rush in recent history, with excitement spreading across the U.S. Oil and gas companies have cashed in on this frenzied excitement by courting huge investment domestically and abroad.

But a growing chorus of independent analysts and law enforcement agencies have their doubts and have questioned whether shale drillers are overhyping their financial prospects and overestimating how much oil or gas they can profitably pull from the ground. Just this week, one of America's biggest agricultural lenders, the Netherlands-based Rabobank, announced that it would no longer lend money to companies that invest in shale gas extraction (nor to farmers worldwide who lease their land to these drillers).

The way that oil and gas companies describe their prospects in their financial statements matters because investors – and not just the uber-wealthy ones but also pension funds, university endowments, average folks with retirement savings or 401(k)s – can lose catastrophically if the information they rely on is faulty.

This matters to taxpayers too, since lawmakers need accurate information when making long-term decisions about the industry subsidies and tax breaks granted to encourage the drilling boom. The shale fracking rush could prove to be an expensive bust for taxpayers if oil and gas wells do not perform as promised.

Concern that companies have been over-exuberant about shale led Wall Street's two top cops, the Securities and Exchange Commission (SEC) and the New York Attorney General to investigate whether oil and gas companies have been “overbooking” their reserves (translation: inflating their appeal by promising investors more fossil fuels than their wells can actually deliver).

One company in particular – Chesapeake Energy – has attracted the most attention from these investigators.

Thu, 2013-03-28 05:00Sharon Kelly
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More Financial Worries Coming to Light in Domestic Shale Drilling Industry

Virtually anyone who has followed the onshore drilling bonanza knows the name Aubrey McClendon and the company he co-founded, Chesapeake Energy.

McClendon was the hard-driving CEO and chairman of one of America’s most aggressive drilling companies, but he was brought down earlier this year after a string of financial scandals and potential conflicts of interest came to light. It turned out that at the heart of the natural gas industry’s poster child lay financial practices that drew the ire of investors, the attention of SEC investigators and the fixation of the news media.

But in the past several months there have been a series of largely under-reported events that demonstrate that Mr. McClendon's problems are by no means distinct.

Might the drilling industry have broader financial issues?

Tue, 2013-01-08 11:30Sharon Kelly
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Shale Gas Uncertainty: How an Industry Talking Point Misses the Mark

When oil and gas executives gathered in Pittsburgh, Pennsylvania to discuss the state of the industry shortly after Obama won re-election, they raised a recurring complaint.

“We now face four more years of regulatory uncertainty,” said Randy Alpert, an official with Consol energy told gathered shale gas executives.

Penny Seipel, Vice President of the Ohio Oil and Gas Association hit a similar note the very next day.

“Unfortunately, we have had quite a bit of uncertainty regarding our fiscal situation,” she said as she described proposed regulation and taxation of drilling companies in her state.

This uncertainty mantra has been trotted out by many industries facing potential oversight and is now being picked up by oil and gas: “We are not against regulation, we are against regulatory uncertainty,” the line goes. “We don’t care what the rules are,” companies say, “just tell us ahead of time and then we will follow them gladly.”

This well-worn trope gives the impression that drillers do not view regulators as adversaries. All they’re asking for is common-sense fairness. Who could be against someone asking to know what the rules are? Predictability is a reasonable request.

It's a shrewd position for the shale industry. But it’s also deeply misleading and worth flagging now since it is likely to get amplified in coming months as more attention turns to whether federal officials should step up their oversight of oil and gas drilling.

Wed, 2012-08-01 08:05Brendan DeMelle
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A "War on Shale Gas"?

Since late 2009, there’s been a slowly-growing wave of attacks from the unconventional oil and gas industry on media outlets that cover the controversies surrounding hydraulic fracturing (fracking) and other shale gas practices. Reporters who write for publications ranging from Rolling Stone to Reuters to the New York Times have had their professional bona fides called into question after unearthing documents and facts that challenge claims that fracked shale gas is cheap, abundant, and clean.

These industry attacks on media occur against the backdrop of a larger campaign to establish unconventional oil and gas at the forefront of the nation’s energy options.

Only a few years ago, it seemed likely that gas would increasingly be a mainstay of power generation, especially in the wake of high profile disasters like the Massey Upper Big Branch coal mine disaster and the BP oil gusher in the Gulf of Mexico. The industry (at the time) received support from surprising allies like the Sierra Club and the Center for American Progress. Fukushima tarnished the nuclear industry, further shifting momentum towards shale gas for utility-scale electricity generation.

But a popular movement fueled by growing concerns about water contamination and public health impacts posed by fracking, coupled with a clearer look by press and by Wall Street analysts at the industry’s claims, has threatened to derail the ascendency of unconventional gas.

Quite often, rather than responding to the issues raised in a responsible fashion, industry PR shops have questioned the motives and qualifications of journalists who investigate the problems with shale gas development, and especially those who delve into the industry’s economic prospects.

Wed, 2012-06-27 22:09Brendan DeMelle
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Fracking Industry Enjoyed Privileged Access To Controversial New York DEC Environmental Review

Documents obtained by the Environmental Working Group (EWG) show that bureaucrats within the New York Department of Environmental Conservation (NY DEC) granted the oil and gas industry premature access to highly controversial draft regulations for shale gas fracking in the state. New York placed a moratorium on hydraulic fracturing for gas in order to evaluate the science on the risks posed to drinking water, air quality and the health of New York's citizens and the environment. 

The documents, obtained by EWG through New York's Freedom of Information Law, show that the fracking industry received an unfair advantage thanks to DEC officials who provided detailed summaries of their proposed rules exclusively to oil and gas industry representatives. This allowed industry a six-week head start to lobby state officials to weaken the proposed standards before the public was granted access to the plan.

Of particular concern, a lobbyist for scandal-ridden gas giant Chesapeake Energy used the exclusive access to the draft Supplemental Generic Environmental Impact Statement (SGEIS) to attempt to weaken the proposed rules restricting discharges of radioactive wastewater.

Thomas West, a prominent oil and gas industry lobbyist representing Chesapeake and other industry clients, made “one last pitch” – in an email to DEC Deputy Commissioner and General Counsel Steven Russo – to “reduce or eliminate radionuclide testing” of fluids that could migrate from drilling sites during storms, according to the documents.

NY DEC has previously found concentrations of cancer-causing radioactive pollution at shale gas drilling sites that exceeded safe drinking water standards by hundreds of times or more, according to EWG's report “Inside Track: Cuomo Team Gives Drillers Jump Start to Influence Fracking Rules.” 

“This is like giving the drilling industry three laps around the track while everyone else was left waiting on the starting block,” said Thomas Cluderay, EWG assistant general counsel. “The public needs to know whether New York regulators compromised the integrity of the state's drilling plan months ago, despite promises of keeping the process fair and transparent.”

Wed, 2012-05-30 08:35Brendan DeMelle
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What Chesapeake Energy's Financial Scandals Mean For The Rest of Us

Given radioactive wastewater, earthquakes, and flammable tap water, one might think that drilling and fracking could not possibly have any more dirty secrets. But here’s the biggest secret of all: it’s expensive.

With natural gas at historic low prices – the Wall Street Journal ran a column recently suggesting that the price of gas might even sink to negative numbers, so that producers would need to pay buyers to take it off their hands – it may seem odd to think that fracking is costly. But it’s true. Not just in terms of its environmental footprint, but also in terms of its financial costs.

And everyone should care about how expensive gas is, especially those concerned about energy security and the environment, because the answer will determine the fate of renewables, the way we use land and water, and whether our nation’s energy policies are fundamentally sound.

To understand what’s going on, you need to look at Chesapeake Energy, the second largest producer of natural gas in the US, the company described by its founder and CEO Aubrey McClendon as the “biggest frackers in the world.”

For 19 of the past 21 years, the company has operated at what investors call “cash flow negative” – last year by $8.547 billion dollars – meaning that Chesapeake has consistently spent a whole lot more than it earned. For decades.

To fund all that fracking, the company has been flipping land, engaging in so many financial transactions that it’s been said to resemble a hedge fund more than a gas driller.

McClendon's company has become the environmental Enron, with Chesapeake's accountants creating some of the most labyrinthine and impenetrable books since Enron, according to some investors.

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