Aubrey McClendon, America's second-largest producer
of
natural gas, has never been afraid of a fight. He has become a
billionaire by directing his company,
Chesapeake Energy, to blast apart
gas-soaked rocks a mile underground and pump the fuel to the surface.
"We're the biggest
frackers in the world," he declares proudly over a
$400 bottle of French Bordeaux at a restaurant he co-owns in his
hometown of Oklahoma City. "We frack all the time. What's the big deal?"
McClendon dominates America's supply of natural gas the same way the
Tea Party-financing
Koch brothers control the nation's
pipelines and
refineries. Like them, McClendon is an influential right-wing power
broker – he helped fund the
Swift Boat attacks against
John Kerry in
2004, donated $250,000 to the presidential campaign of
Rick Perry, and
contributed more than $500,000 to stop gay marriage. But unlike his
fellow energy czars, McClendon knows how to tone down his politics and
present a friendlier, less ideological face to the public. He secretly
gave $26 million to the
Sierra Club to fight
Big Coal, and built a
Google-like campus for Chesapeake's 4,600 employees in Oklahoma City,
complete with a 63,000-square-foot day care center, a luxurious gym and
four cafes manned by cook-to-order chefs. He even voted for Barack Obama
because he thought the country needed "an inspirational figure."
At 52, McClendon still looks like the whip-smart accountant he once
aspired to be – crisp white shirt, polished shoes, a toss of white hair.
To hear him tell it, the cleaner-than-coal fuel he produces will revive
our faltering economy, free us from the tyranny of foreign oil and save
the planet from global warming. "I have a fossil fuel that makes other
fossil fuels obsolete," he boasts. By McClendon's estimate, the industry
has drilled
more than 1.2 million wells nationwide, yet so far there
have been only a few confirmed cases where things have gone wrong –
despite dire warnings from scientists and environmentalists that
fracking pollutes rivers and streams, contaminates drinking water and
turns large swaths of farmland into industrial moonscapes. "Where is the
mushroom cloud?" McClendon asks. "Where are the dogs with one leg?
Where are the people that have been maimed or hurt?"
He sips his Bordeaux; his own private wine cellar once boasted more
than 10,000 bottles. It's a good riff, with some truth to it. But what
McClendon leaves out is the real nature of the business he's in.
Fracking, it turns out, is about
producing cheap energy the same way the
mortgage crisis was about helping realize the dreams of middle-class
homeowners. For Chesapeake, the primary profit in fracking comes not
from selling the gas itself, but from
buying and flipping the land that
contains the gas. The company is now the
largest leaseholder in the
United States, owning the drilling rights to some 15 million acres – an
area more than twice the size of Maryland. McClendon has financed this
land grab with junk bonds and complex partnerships and future production
deals, creating a highly leveraged, deeply indebted company that has
more in common with
Enron than
ExxonMobil. As McClendon put it in a
conference call with Wall Street analysts a few years ago, "I can assure
you that buying leases for x and selling them for 5x or 10x is a lot
more profitable than trying to produce gas at $5 or $6 per million cubic
feet."
According to
Arthur Berman, a respected energy consultant in Texas
who has spent years studying the industry, Chesapeake and its lesser
competitors resemble
a Ponzi scheme, overhyping the promise of shale gas
in an effort to recoup their huge investments in leases and drilling.
When the wells don't pay off, the firms wind up scrambling to mask their
financial troubles with
convoluted off-book accounting methods. "This
is an industry that is caught in the grip of magical thinking," Berman
says. "In fact, when you look at the level of debt some of these
companies are carrying, and the questionable value of their gas
reserves, there is a lot in common with the
subprime mortgage market
just before it melted down." Like generations of energy kingpins before
him, it would seem, McClendon's primary goal is not to solve America's
energy problems, but to build a pipeline directly from your wallet into
his.
As
recently as a decade ago, many energy experts believed that America was
nearly pumped out – that the only oil and gas left here at home was too
difficult and too expensive to get out of the ground. Until we can
ferment synthetic fuels with genetically engineered yeast or develop
solar cells as cheap as Frisbees, the argument went, we would be stuck
buying oil from the Arabs.
Geologists had long known there was a lot more energy buried deep
underground – they called these subterranean rock layers
"the kitchen,"
because it was where the gas and oil were actually made, before they
bubbled up and gathered in reservoirs. But nobody knew how to extract
these deep reserves – at least, not in a way that made economic sense.
Then, in the 1980s, a Texas wildcatter named
George Mitchell began
working on a way to drill a mile down into the earth, turn the drill
sideways, and keep drilling horizontally into a thin layer of shale.
Next, he pumped in a few million gallons of water and sand under enough
pressure to shatter the rock. When he pumped the water out, gas and oil
flowed out of the rock's fractured pores.
The new technique ignited a boom in drilling for "unconventional"
sources of gas and oil: Shale gas now provides 25 percent of America's
gas supply, enabling the U.S. to pass Russia as the world's largest
producer of natural gas. Initially, even environmentalists were
enthusiastic.
Fred Krupp, who heads the
Environmental Defense Fund,
called the gas boom a "potential game changer" – a cleaner energy source
that could replace coal and oil for a few decades, until the cost of
wind and solar power dropped enough to put fossil fuels out of business.
But exactly how much gas and oil we can continue to squeeze out of deep
sources like shale rock is unclear. In his State of the Union address,
President Obama estimated that there's enough to fuel the country for
nearly 100 years.
T. Boone Pickens, the energy billionaire who has a
major stake in Chesapeake Energy, offers an even more sweeping
assessment. "Natural gas," he tells me point-blank, "is the solution to
America's energy problems."
At first, when oil and gas producers confined themselves to fracking
in the wide-open spaces of Texas and Oklahoma, nobody much gave a damn.
The trouble started in 2007, when drilling operators made a run on the
Marcellus Shale, a broad region of gas reserves that stretches through
Pennsylvania and up into Ohio and New York. Almost overnight, fracking's
technological miracle was recast as the next great environmental
menace. The Oscar-nominated film
Gasland exposed the dark
underbelly of fracking, interviewing residents who could literally
light
their faucets on fire, thanks to the gas that had contaminated their
drinking water. Last year,
The New York Times documented how
gas drillers were dumping millions of gallons of irradiated wastewater
loaded with toxic chemicals into Pennsylvania's rivers and streams,
largely without regulatory oversight.
At the same time, scientists began to conclude that America's
reserves of natural gas have been overhyped. In January, the Energy
Department cut its estimate of the amount of gas available in the
Marcellus Shale by nearly
70 percent, and a group affiliated with the
Colorado School of Mines warns that there may be only 23 years' worth of
economically recoverable gas left nationwide. Even worse, new studies
suggest that because of
fugitive emissions of methane from wellheads and
pipelines,
natural gas may actually be no better than coal when it
comes to global warming. "I was an early optimist about natural gas,"
says
Robert Kennedy Jr., who sits on a panel that's advising
Gov. Andrew
Cuomo on whether to allow drillers like McClendon to expand into New
York. "But after looking into it, I now believe that, without tighter
regulations and stricter oversight,
the shale-gas boom could turn out to
be an economic and environmental disaster."
The
oil and gas business is full of guys like T. Boone Pickens, self-made
men who rose from a hardscrabble life on the prairie to become titans of
the industry. McClendon, by contrast, grew up awash in oil money: He's
the great-nephew of
Robert S. Kerr, the influential Oklahoma governor
and senator who co-founded the
Kerr-McGee Corp. in 1929. Kerr-McGee was
the ExxonMobil of its time, an energy giant that eventually sold for $16
billion. McClendon's personal fortune is now estimated at $1.2 billion,
including a major stake in the NBA's Oklahoma City Thunder and a $20
million retreat in Bermuda.
By the time McClendon headed off to college, at Duke University, he
didn't have much interest in the family business. He majored in history,
joined a frat and listened to a lot of
Bruce Springsteen. But his real
passion was accounting. "I just wanted to be a businessman," he says,
"and to me, the best way to understand business was to be an
accountant." He might have gone on to a steady, solid career at
Arthur
Andersen had he not come across an article in
The Wall Street Journal
during his senior year. "It was about two guys who had drilled a big
well in the Anadarko Basin that had blown out, and it was alleged to be
the biggest blowout in the history of the country," McClendon recalls.
"They sold their stake to Washington Gas and Light and got a $100
million check. I thought, 'These are two dudes who just drilled a well
and it happened to hit.' So that really piqued my interest."
After graduation, McClendon married his college sweetheart and went
to work for a small Oklahoma City oil company owned by his uncle. He
worked in accounting for a few months, but quickly became what is known
in the industry as a "landman" – the person who finds and negotiates the
leases that allow drillers to extract oil and gas. "Landmen were always
the stepchild of the industry," he says. "Geologists and engineers were
the important guys – but it dawned on me pretty early that all their
fancy ideas aren't worth very much if we don't have a lease. If you've
got the lease and I don't, you win."
In 1982, McClendon struck out on his own as a landman. He was 23,
living in a modest house, making $24,000 a year. "I bought a typewriter,
rented an office, bought some maps and basically just started to follow
around other companies, trying to see what crumbs they would leave," he
says. He called his tiny outfit Chesapeake Investments – for no reason
except that "I always loved that region of the country." He soon forged a
partnership with another landman,
Tom Ward. "We worked together for six
years," Ward recalls, "doing deals for scraps of land in Oklahoma,
faxing each other in the middle of the night. Eventually, we got the
hang of it."
When the fracking revolution began, McClendon says, he and Ward
quickly realized that the new technique offered them an opening. In the
natural gas industry, the advantage had long gone to operators with the
geological and engineering expertise to pinpoint gas reservoirs. Now it
didn't matter where you drilled – the gas was pretty much evenly
distributed throughout the earth's deep shale layers. The edge suddenly
belonged to operators who could lock up as much land as quickly and as
cheaply as possible – precisely the skill that Ward and McClendon had
developed scraping around Oklahoma land deeds. In 1989, the two men
chipped in $50,000 to form a new company, Chesapeake Energy, to focus
primarily on shale gas. It grew like a Silicon Valley startup: By 1993,
when Chesapeake went public, the firm was valued at $25 million.
From the outset, financial risk-taking was as much a part of the
firm's success as technological innovation. Chesapeake was the first
gas-exploration company to issue high-yield junk bonds, which gave it a
steady cash flow to pay for leasing and drilling. "To be able to borrow
money for 10 years and ride out boom-and-bust cycles was almost as
important an insight as horizontal drilling," McClendon says. "For the
first time, we were able to build a company where, if something didn't
work for a little bit of time, we could regroup and find something that
did work."
By 2003, Chesapeake had expanded deeper into Oklahoma and Texas, as
well as Louisiana and Arkansas. "They became a land-acquisition
machine," says
Phil Weiss, an analyst at Argus Research who has followed
the firm for more than a decade. The key to success was discovering new
gas plays before other companies, then leasing vast tracts of land as
quickly and quietly as possible.
Chesapeake's land operation became almost as technologically
sophisticated as its drilling operation, with a huge databank of
property records and mineral-ownership rights across the country. "The
goal is not just to pump gas," explains Pickens. "It's also to lock up
future reserves." The company's financial statements estimate that it
currently holds drilling rights to as much as 100 trillion cubic feet of
gas – enough to supply the entire country for five years.
At Chesapeake, McClendon operated more like a land speculator than an
oilman. "Our approach is to go in early, quietly and big," says
Henry
Hood, who directs Chesapeake's land purchases. "We like to get our deals
signed before anybody knows what we're up to and tries to run up
prices." But buying up such huge swaths of land requires huge chunks of
cash – and the money often comes not from gas production, but from
selling off land or going into debt.
After Chesapeake drills a few wells
in a region and "proves up" the reserves, it hawks the leases to big
oil and gas companies looking to get into the shale-gas game. In 2010,
it pocketed $2.2 billion by selling land it bought in Texas for $2,000
an acre to one of China's largest oil companies for $11,000 an acre.
"That's a five-to-one return on investment," says
Jeff Mobley,
Chesapeake's senior vice president for investor relations.
In recent years, the company has also sold off the future proceeds it
expects to receive from thousands of wells – a complex financing deal
that enables it to borrow cash now without counting the debt it will owe
when it has to drill the wells later. The very first deal, made with
Deutsche Bank and a Swiss investment firm, brought Chesapeake more than
$1 billion in return for 15 years of future production from 4,000 wells.
"It's not illegal, but most gas and oil companies don't do it," says
Bob Brackett, an analyst with Sanford C. Bernstein & Co.
"Chesapeake's poor credit rating pushes them to turn to unconventional
financing."
To make its operations even riskier, leaseholders like Chesapeake are
required by law to drill on the land within three to five years after
acquiring the rights or wind up forfeiting the lease. "The more land
they acquire, the more capital they have to spend upfront," says
Deborah
Rogers, a former investment banker who learned just how precarious
Chesapeake's business model was when she looked into the firm's
financial statements after the company sunk wells near her property in
Texas. "Then they have to drill it or lose it, which further adds to
capital costs. And the more they drill, the more gas they produce, which
lowers the price of gas and further reduces their revenues. In the end,
this drilling treadmill is difficult to sustain for long – especially
if the wells underperform, or the resource turns out to not be as
valuable as they thought."
This sort of gambling suits McClendon, who is known for placing big
bets – and sometimes losing big. During the financial meltdown in 2008,
McClendon was forced to sell off 94 percent of his stock in Chesapeake –
some 33 million shares – for $550 million to meet a margin call on his
personal investments. (Only a few months earlier, the stock had been
worth $2 billion.) Despite the dramatic setback, Chesapeake's board
boosted McClendon's annual salary to $112 million, making him the
highest paid CEO at any S&P 500 company at the time. The pay hike,
which sparked a shareholder lawsuit, was scorned by Wall Street
analysts. "McClendon clearly thinks of Chesapeake as his own personal
piggy bank," says one. In the end, that piggy bank may prove to be
empty: In February, Chesapeake announced that, because of low gas
prices, its revenues will fall $3.5 billion short of its expenses this
year.
Until
a few years ago, Bradford County was a forgotten landscape of
struggling dairy farms and strip-mall nail salons dotting the
Susquehanna River in northeastern Pennsylvania. Then, in 2007, gas
speculators looking for the next big play zeroed in on the geologic
formation called the
Marcellus Shale, a 300-foot-thick layer of
gas-soaked rock that underlies much of Pennsylvania, as well as parts of
Ohio and New York. Chesapeake was one of the first operators to rush
into the region, buying up nearly two million acres of land in just a
few months. Since then, the company has drilled more than 600 wells
here, and it hopes to drill thousands more, virtually covering the
region with rigs. "In 10 years," McClendon says, "the Marcellus is
likely to become the most productive natural gas field in the world."
The county, population 62,000, has already been transformed from sleepy
farmland to industrial boomtown: the roads crowded with trucks hauling
water, the rail lines rumbling with trains hauling sand, the roadside
bars overflowing with drill hands from Oklahoma and Texas, the hotels
and motels booked for months in advance.
Chesapeake's operations in the region are run out of an old
department store in the county seat of Towanda, located on the banks of
the Susquehanna some 20 miles south of the New York state border. It
feels more like a military outpost than a corporate office, with dozens
of white SUVs emblazoned with the Chesapeake logo parked in rows out
front. Inside, offices are separated by thin walls thrown up in a hurry,
many of them decorated with arty shots of drilling rigs in pristine
landscapes. In these parts, the company's PR efforts are squarely aimed
at quelling any environmental fears. To underscore how safe fracking is,
Brian Grove, Chesapeake's director of corporate development in the
Marcellus region, explains that the layer of shale being drilled is
7,000 feet beneath the surface, whereas drinking water rarely runs
deeper than 1,000 feet. "That leaves 6,000 feet of rock in between," he
says. "There is no way that any fluids are going to migrate from the
shale rock up to the drinking-water aquifers."
Grove, an affable guy in a Chesapeake shirt, also points out that the
entire length of the well bore is encased in heavy steel, to prevent
gas from leaking into the drinking water. What's more, he adds, the top
750 feet of the well, where it's most likely to pass through aquifers,
gets a triple layer of steel – a precaution the company took after it
had some problems with methane near the surface getting into drinking
water. In short, he suggests, the fluids and gas traveling up the well
bore are completely isolated from the surrounding earth by up to three
layers of heavy steel. "It's a closed system," he says. "Done right,
drilling and fracking does not pollute drinking water." This, in
essence, is the mantra at Chesapeake:
Everything we do is safe and environmentally responsible. Trust us.
One afternoon, Grove drives me out to the Nomac 7 rig, which is
drilling about 15 miles east of Towanda. I climb up into the operations
box on the rig and watch as the driller guides a bit a mile down into
the earth through an eight-inch hole. Once the drilling is finished,
millions of gallons of fracking fluid – water and sand, mixed with a
host of chemicals that make the water "slippery" – will be injected deep
into the well to fracture the underground shale. The
wastewater, known
as
flowback, will then be pumped out, and gas production will begin.
The problem with all sophisticated technology, of course, is that
things inevitably go wrong.
Last April, a Chesapeake well in Bradford
County suffered a massive blowout. It was the onshore, natural gas
version of what happened to BP in the Gulf two years ago: A wellhead
flange failed, and
toxic water gushed uncontrollably from the well for
several days before workers were able to bring it under control. Seven
families were evacuated from their homes as 10,000 gallons of fracking
fluid spilled into surrounding pastures and streams. Pennsylvania fined
the company $250,000 – the highest penalty allowed under state law.
Well failures, in fact, are fairly common at drilling sites.
I ask
Anthony Ingraffea, an engineering professor at Cornell University and a
former consultant for oil-service firms, to look at the 141 violations
levied against Chesapeake in Pennsylvania last year. According to
Ingraffea, 24 of them involved failures of well integrity. "When a well
loses integrity, it means the seal is broken and something – usually
methane, but it could also be
flowback water – is
leaking out
underground," he says.
"And it's impossible to know where it is going,
or in what amounts."
It's also impossible to know what chemicals are flowing out of the
wells, or how toxic they are, because companies like Chesapeake are not
required to disclose the compounds they use in fracking operations.
Providers of fracking fluids, such as
Halliburton, claim that the
composition of such fluids can't be revealed without disclosing trade
secrets. In 2005, the industry lobbied hard for what's known as "the
Halliburton loophole," which exempts it from federal disclosure
requirements. In recent months, Colorado, Texas and Pennsylvania have
moved to tighten state regulations and require mandatory disclosure of
what's in the fracking fluids, but loopholes still remain. "We don't
know the chemicals that are involved,"
Vikas Kapil, chief medical
officer at the National Center for Environmental Health, admitted at a
recent conference. "We don't have a great handle on the toxicology of
fracking chemicals."
Whatever it is, there's a lot of it: Random data I sampled from five
wells that Chesapeake drilled in Pennsylvania and Ohio last year reveals
that the company injected between
24,000 pounds and 230,000 pounds of
chemicals into each well. Some of the chemicals are relatively harmless,
used in common household products. But others – such as
2-butoxyethanol
– are known to cause cancer in animals.
An even larger threat is the flowback waste that is pumped out after a
well is fracked. It's a salty brine,
mildly radioactive, and
laced not
just with toxic chemicals but with natural hydrocarbons and heavy metals
like barium and benzene, which are known carcinogens even in minute
quantities. In fracking operations out West, the flowback is generally
injected into underground sites that meet EPA standards. But in the
Marcellus, there are virtually no injection sites.
In the early days,
gas producers did pretty much whatever they wanted with the billions of
gallons of toxic water their operations produce. "Since there were no
laws covering the disposal of this stuff at first, they just dumped it
into rivers or hauled it off to sewage plants to be 'treated,' which
they knew didn't work," says
Deborah Goldberg, a lawyer at
Earthjustice. "They just wanted to get rid of the stuff as quickly and
as cheaply as possible." At one fracking operation, a subcontractor was
caught opening the valves on the back of his truck and
dumping the
wastewater on roads.
New laws in Pennsylvania now prohibit companies from discharging
flowback into rivers and streams. Instead, operators like Chesapeake
either "recycle" their water by running it through a filtration system,
or haul it off to Ohio and inject it underground –
a process which, some
seismologists now suspect, is the reason Ohio was hit by an
uncharacteristically large number of earthquakes last year. (The
injected water lubricates fault lines, the theory goes, causing them to
slip.)
McClendon dismisses the dangers of flowback, insisting that other
industries cause far more pollution. "Why are you not focused on the
amount of oil runoff from parking lots when it rains?" he recently asked
a top environmentalist. "What about the billions of tons of
agricultural chemicals that run off every day into streams and rivers?
That's real pollution that kills real fish, and degrades a real
environment. What's worse for Chesapeake Bay? Fertilizer runoff from
poultry farms? Or fracking 200 miles away for which there is no evidence
that one drop has ever gotten more than 100 yards away from a well
site?"
According to McClendon, environmentalists hate fracking for a
self-serving reason: because it upends their dreams of green power. "If
you believe in a world where the wind and the sun are going to produce
all our power in the future, then we've disrupted that vision of the
world," he says. "On the other hand, if you dream of a world where air
is cleaner, where energy is half the price it was before and we're not
exporting a million dollars a minute to OPEC or having to go fight wars
in Afghanistan and Iraq, then you should embrace natural gas. That's
what's so troubling to me – that people are willing to turn a blind eye
to the enormous, well-known consequences of what we do today and not
realize that this new path is the only affordable, scalable way to
something else."
Last
year, scientists at Duke University, McClendon's
alma mater, published
the first rigorous, peer-reviewed study of pollution at drilling and
fracking operations. Examining 60 sites in New York and Pennsylvania,
they found "systematic evidence for methane contamination" in household
drinking water: Water wells half a mile from drilling operations were
contaminated by methane at 17 times the rate of those farther from gas
developments. Although methane in water has not been studied closely as a
health hazard, it can seep into houses and build up to explosive
levels.
The study caused a big stir, in part because it was the first
clear
evidence that fracking was contaminating drinking water, contrary to the
industry's denials. Just weeks after the study was released, the
Pennsylvania Department of Environmental Protection fined Chesapeake
$1.1 million – the largest fine against an oil and gas operator in the
agency's history – for contaminating 17 wells in Bradford County,
including some that had been part of the Duke study.
McClendon, a major benefactor to Duke, fired off a blistering letter
to the university, which was printed in the alumni magazine and widely
circulated online. He didn't point out any errors by the scientists or
question their methodology. Instead, he went after their character,
dismissing the study as "more political science than physical science"
and accusing them of having a bias against fossil fuels. "These guys,"
he tells me, "have invested their lives in the view that climate change
is occurring, that fossil fuels are bad, and that natural gas is a
fossil fuel, and therefore it's bad."
When I ask
Avner Vengosh, a geochemistry professor who served as a
lead author of the study, about McClendon's letter, he laughs lightly.
"I have no agenda," he says. "I am a scientist. I report what the
evidence I find tells me to report." He and his colleagues visited
Chesapeake's headquarters in Oklahoma a few weeks before the study was
finished and shared their results with the company. They also offered to
consider any data that Chesapeake might have that would challenge their
results. "They offered us nothing," says one scientist who attended the
meeting.
One of the wells in the study belongs to Sherry Vargson, a dairy
farmer who lives in a white house on nearly 200 acres in Granville
Summit, a rural area 20 miles from Chesapeake's regional headquarters in
Towanda. Unlike many residents, who have been forced by gas companies
to sign nondisclosure agreements, Vargson is happy to discuss her
experiences with Chesapeake. In 2007, shortly after her two children
left for college, a landman from the company showed up at her door and
asked to lease the mineral rights beneath her farm. "He told us there
was natural gas in the shale rock a mile down, and they had a new way to
drill for it that was minimally invasive and would cause very little
damage to our land," she recalls. "He said it was a patriotic thing to
do, that natural gas would help America gain energy independence."
The landman offered Vargson $100 per acre, plus 12 percent in
royalties. He told her there was no way to predict how big the royalties
would be, but emphasized that she stood to make "a lot of money" over
the 30-year life expectancy of the well. Vargson accepted the deal. "We
thought we were taken care of," she says.
Drilling, which began the next year, was an immediate nightmare. One
morning, Vargson woke up at 6 a.m. to find 18 trucks idling in her
driveway. The hillside behind her house was leveled for a drill pad, and
the rig went up 500 feet from her back door. Once the fracking began,
water trucks made hundreds of trips up and down her driveway, while air
compressors roared all day and night. When the gas was flared off before
production began, the flame was so bright in the night sky that she
could see it glowing red on the horizon 12 miles away.
Vargson noticed not long after production began in 2009 that water in
the trough out back stopped freezing on cold nights. Inside the house,
the faucet began to sputter and spit. Her husband seemed to have a lot
of headaches, and Vargson felt nauseous if she stayed in the shower for
more than a few minutes. Acting on a tip from a friend,
she had her
water tested. It was loaded with methane.
"I discovered I could light my water on fire," she says. "And I still
can." To demonstrate, she walks over to the faucet in her kitchen,
lights a match and turns on the faucet.
Whoosh! A flame shoots out like a blowtorch.
Vargson stopped drinking the water after she discovered the methane –
but tests showed that her water also contained elevated levels of toxic
chemicals like
radium,
manganese and
strontium. Chesapeake agreed to
supply Vargson with fresh drinking water, delivered to her door in
five-gallon jugs once a month, but it denies any responsibility for the
elevated methane levels. Tom Darrah, a Duke geologist who has examined
Vargson's well for a new study, finds that difficult to square with the
facts. "Anyone who has seen the data I have and thinks this much methane
in her well is from natural sources has their head in the sand," he
says.
For Vargson, and many homeowners just like her,
fracking has proved
to be a full-blown disaster. Since she signed up with Chesapeake, her
back pasture has become a full-time industrial zone, her water supply
has been contaminated, and it will be virtually impossible to sell her
home, since it lacks drinkable water. What's more, her well turned out
to be a dud: The landman from Chesapeake who sold her on the deal failed
to mention that 80 percent of a well's gas is often depleted within the
first two years. In all likelihood, Vargson's well will end up being a
money-loser for Chesapeake, either sold off to another company or
refracked in an attempt to dislodge more gas. Either way, the royalty
checks that Vargson and her husband were counting on for retirement will
hardly pay for dinner and a movie. "We made about $1,400 the first
month, and it's been all downhill from there," she says. Her check for
last November: $70.
I ask her how she feels about the promise of fracking now. "I think
the industry is destroying our water resource to extract a gas
resource," she says. "And in the long run, I don't think that's a very
smart trade."
As
fracking has come under increasing attack, McClendon has used his
financial clout to keep the drills pumping. Chesapeake spent only $2
million on federal lobbying last year – about average for a company its
size – but it has contributed almost as much to political candidates and
PACs in the current election cycle as the Koch brothers. (McClendon
makes it clear that he won't be voting for Obama this time around.) In
Pennsylvania, Chesapeake has contributed more than half a million
dollars to state and local politicians since 2008 – the highest total in
the industry.
McClendon, who funds an
industry lobbying group called
America's
Natural Gas Alliance, has also used his cash to attack Big Coal, hoping
to topple his chief competitor and refit coal plants to run on natural
gas. In 2007, when a Texas utility threatened to build 11 new coal
plants, he won over many clean-energy activists by spending $1 million
on a "Coal Is Filthy" media blitz. The $26 million he gave to the Sierra
Club helped fund its "Beyond Coal" campaign, which has blocked more
than 150 new coal plants. But in 2010, when McClendon tried to cement an
alliance with environmental groups at a two-day conference in Colorado,
the plan backfired. McClendon struck many of the assembled activists as
aloof and arrogant. A few weeks later, after he backed away from a
promise to lobby for tougher laws requiring the industry to disclose the
chemicals it uses in fracking fluid, one top environmentalist sent an
e-mail to other participants
calling McClendon "a pathological liar."
But McClendon's worst enemy may not be environmentalists or coal
companies, but his own recklessness. He played a leading role in
creating the
fracking bubble by hyping the promise of endless natural
gas and sweet-talking Wall Street into funding a massive land grab. If
the bubble bursts, Chesapeake's stockholders won't be the only ones who
pay the price – the shock waves will be felt throughout the economy,
from homeowners who rely on natural gas for heat to manufacturers who
were betting on it to power their new factories. Thanks to McClendon's
gambles, Chesapeake is struggling to cover $10 billion in long-term
debt. In recent weeks, the company has announced it will sell off more
land and shut down some production. McClendon also hopes to increase
demand and boost gas prices by promoting cars and power plants that run
on natural gas, and by cutting deals to export gas to Europe and Asia,
where prices are five times higher than in the U.S.
Turning vast stretches of Pennsylvania into a pincushion in order to
ship gas to China doesn't exactly mesh with McClendon's emphasis on
making America energy independent. But unless something changes, that's
precisely where things are headed – on a grand scale. "In the Marcellus,
the boom has just begun," says Ingraffea, the Cornell engineer. "The
idea is to drill
everywhere." Tougher laws and stricter
enforcement could mitigate the damage to people and the environment, but
widespread drilling – especially at the boomtown pace that McClendon is
pushing – will inevitably result in mishaps. Well casings will fail.
Fracking chemicals will be spilled. Drinking water will be contaminated.
Methane will seep into the atmosphere, accelerating global warming.
When you add it all up, you can see why many environmentalists and
clean-energy activists no longer see natural gas as a bridge to a more
sustainable future.
"It's time to stop thinking of natural gas as a
'kinder, gentler' energy source," Mike Brune, executive director of the
Sierra Club, recently blogged. "Instead of rushing to see how quickly we
can extract natural gas, we should be focusing on how to be sure we are
using less."
That kind of talk enrages McClendon. "What does that mean, Mike?" he
asks angrily when I ask him about Brune's comment over dinner at his
restaurant. "Does that mean we maximize the use of coal? That we fill
the countryside with windmills and kill all the migratory birds and
double electricity prices while we do it? What's the human cost to
doubling electricity prices? What's the human benefit to halving them? I
think those are enormously important questions that are never imposed
at the same time people say, 'Fracking is bad.'"
I look at the $400 bottle of wine on the table. Much of what
McClendon says is misleading – wind power is as cheap as gas in some
places and falling fast, and cutting back on gas doesn't have to mean
burning more coal. But his plan is clear. He's not going to back off
until every last square foot of shale rock in America is drilled and
fracked and sucked clean of gas. McClendon may rely on sophisticated new
drilling technologies, but at heart, he's driven by the same dream of
endless extraction that has gripped oil barons and coal companies since
the dawn of the Industrial Revolution. In the end, all his talk of
energy independence and a cleaner, brighter future boils down to a
single demand, as simple as it is disastrous:
Drill, baby, drill.
