Rolling Stone Magazine : MARCH 6, 2012 By JEFF GOODELL
Aubrey McClendon, the CEO of Chesapeake Energy, has a reputation for being a tough street-fighter, so his company’s response to my article in Rolling Stone is no surprise. (You can view the entire response here.) What is surprising is how weak it is. The company entirely dodges the article’s central point: that Chesapeake is highly-leveraged firm operated by a corporate gambler who engaged in complex scheme to profit off the illusion that America has a virtually unlimited supply of cheap natural gas.
Michael Kehs, the vice president of strategic affairs and public relations at Chesapeake, says that after looking at my work, the company decided that they would never get a fair shake. In fact, after some initial hesitation, McClendon expressed nothing but excitement at the prospect of being featured in Rolling Stone. He brought an issue of the magazine with him to our interview in Oklahoma City and asked me to autograph it. He also brought a copy of my book, Big Coal, which he also asked me to sign. When it came out, he said, he had bought 25 copies and sent them to his friends. He told me the book had "radicalized" him on his views about the coal industry.
Kehs also boasts that Chesapeake offered me "full transparency." The company did allow me to visit a drilling rig in Pennsylvania, showed me around their campus in Oklahoma City, and provided me with quick briefings from top executives. But when it came time to answer more substantial questions, all traces of transparency vanished. A quick example: I asked Chesapeake three times to provide me with a statistic for the total volume of dirty flowback water the company handled in the Marcellus Shale region last year. I got no answer.
Even more disturbing, when I asked McClendon directly if he or his company had contributed any money to presidential candidates or their PACs during the current campaign, he said flatly that they had not. This was curious to me, because McClendon has a long history of making campaign donations, and often encourages others in the industry to give to PACs as a way to make sure their voices are heard. So I asked him again in email a few days later: The answer was still "no." A week later, a researcher at Rolling Stone discovered that Chesapeake had indeed contributed $250,000 to Rick Perry's campaign last fall. When I asked Kehs about this, he admitted it was true. Apparently McClendon operates in a world where a quarter million dollar campaign contribution can just slip one’s mind.
As to Chesapeake’s specific points:
Finally, there is one assertion made by Kehs in the company’s response that is completely true: Like all writers who make use of a wealth of research and interviews, I "omitted" certain things from my article. I didn’t tell you – shame on me! – that Chesapeake has essentially operated at a loss since October 2003, its capital spending exceeding cash from operations in every single quarter. Or that it faces a criminal investigation by the U.S. Department of Justice for violations of the Clean Water Act in West Virginia. Or about how it hid behind shell companies to grab land in Michigan – then tried to swindle hundreds of owners out of money and contracts.
I regret these errors of omission, and hope other reporters will follow up on them.
Aubrey McClendon, the CEO of Chesapeake Energy, has a reputation for being a tough street-fighter, so his company’s response to my article in Rolling Stone is no surprise. (You can view the entire response here.) What is surprising is how weak it is. The company entirely dodges the article’s central point: that Chesapeake is highly-leveraged firm operated by a corporate gambler who engaged in complex scheme to profit off the illusion that America has a virtually unlimited supply of cheap natural gas.
Michael Kehs, the vice president of strategic affairs and public relations at Chesapeake, says that after looking at my work, the company decided that they would never get a fair shake. In fact, after some initial hesitation, McClendon expressed nothing but excitement at the prospect of being featured in Rolling Stone. He brought an issue of the magazine with him to our interview in Oklahoma City and asked me to autograph it. He also brought a copy of my book, Big Coal, which he also asked me to sign. When it came out, he said, he had bought 25 copies and sent them to his friends. He told me the book had "radicalized" him on his views about the coal industry.
Kehs also boasts that Chesapeake offered me "full transparency." The company did allow me to visit a drilling rig in Pennsylvania, showed me around their campus in Oklahoma City, and provided me with quick briefings from top executives. But when it came time to answer more substantial questions, all traces of transparency vanished. A quick example: I asked Chesapeake three times to provide me with a statistic for the total volume of dirty flowback water the company handled in the Marcellus Shale region last year. I got no answer.
Even more disturbing, when I asked McClendon directly if he or his company had contributed any money to presidential candidates or their PACs during the current campaign, he said flatly that they had not. This was curious to me, because McClendon has a long history of making campaign donations, and often encourages others in the industry to give to PACs as a way to make sure their voices are heard. So I asked him again in email a few days later: The answer was still "no." A week later, a researcher at Rolling Stone discovered that Chesapeake had indeed contributed $250,000 to Rick Perry's campaign last fall. When I asked Kehs about this, he admitted it was true. Apparently McClendon operates in a world where a quarter million dollar campaign contribution can just slip one’s mind.
As to Chesapeake’s specific points:
The "reality" of 100 years of shale gas. This claim is a great example of the kind of misleading rhetoric that Chesapeake – and the natural gas industry as a whole – specializes in. The assertion deliberately confuses what geologists refer to as the “resource” and the “reserves.” The resource is basically all the natural gas that geologists believe exists; the proved reserve is what they believe is currently recoverable at today’s prices, with today’s technology. The resource is indeed close to 100 years; but according to most calculations (including the Potential Gas Committee, a respected source that is cited by Chesapeake), the reserve is more like 11 years. The actual amount of gas we’ll be able to get out of the ground in the future depends on factors like price and demand and whether new technologies can be developed to get at hard-to-extract gas, and whether or not you care that it requires blasting and drilling our way through suburbs and national parks. Chris Nelder over at Slate has a good primer on this. The debate over reserve size is important, because it raises a lot of interesting questions about future energy investments. If McClendon wants to invest hundreds of millions of his dollars to convert vehicles to natural gas, that’s up to him – but why invest big public dollars in a fuel that might not last much more than a decade?
The credibility of Arthur Berman. As is often the case with Chesapeake, those who disagree with or criticize their work are dismissed as inconsequential. But Berman is a widely respected geologist and energy consultant; I highly recommend viewing a PowerPoint presentation he gave at Duke earlier this year.
Chesapeake’s convoluted off-book accounting practices. This is hardly a controversial statement; virtually every financial analyst I talked to mentioned it. In addition, it is discussed at length in this recent Forbes story, and is a big reason why people like Phil Weiss, an analyst at Argus Research Group, said point-blank to me about Chesapeake: “I don’t trust them.”
The economic benefits of cheap natural gas. Nobody disputes that cheap natural gas would be a good thing for the economy. The question is, is this a sustainable new development that can be counted on for decades to come, or simply a “bubble” brought on by a land grab and drilling frenzy? And what are the other costs – in environmental destruction, in diverting funding from renewable energy – related to this boom in cheap gas?
The credibility of Gasland. The natural gas industry has worked long and hard to smear Josh Fox, the director of Gasland, and has failed. Here’s Fox’s own defense of the criticisms in Gasland.
Fugitive methane emissions. With the possible exception of Josh Fox, no one gets McClendon and other Chesapeake executives cranked up like Robert Howarth, the Cornell University professor who was one of the first to question the amount of natural gas that is escaping from wells, pipelines and compressor stations. This is a hugely important issue, because the industry has long argued that one of the big advantages natural gas has over coal is that it can help reduce global-warming pollution. It’s true that burning natural gas releases about half as much CO2 as an equivalent amount of coal. But the problem is that when it comes to trapping heat, natural gas – aka methane – is about 21 times as potent as CO2 (although it stays in the atmosphere a much shorter time). And as it turns out, there are a lot of leaks in the production of natural gas. Exactly how much is hotly debated (here is a good backgrounder on the debate and here is a summary of the latest peer-reviewed research). Some studies have shown that natural gas could, in fact, be worse for the climate than coal. But even if you don’t factor in leakage rates, shifting to natural gas is not going to begin to stop global warming. As a new study by climate scientist Ken Caldeira and tech billionaire Nathan Myhrvold argues, shifting to natural gas “cannot substantially reduce the climate risk in the next 100 years.”
The credibility of Deborah Rogers. The natural gas industry has been trying to discredit Rogers ever since she began speaking out about the economics of shale gas. She can stand up for herself.
Bias in the Duke study. There is some poetry in the fact that scientists at McClendon’s alma mater were the first to conduct a rigorous, peer-reviewed study showing methane migration into drinking water wells near drilling sites. The study was published in theProceedings of the National Academy of Sciences, one of the most prestigious scientific journals in America. The notion that it is “biased” and written by scientists bent on putting Chesapeake out of business is downright delusional. As for the criticisms of Michael Krancer of the Pennsylvania Department of Environmental Protection, the authors of the study address that here.
Methane levels in the Vargson well. Arguing that the methane was, in effect, already there, is a classic defense of the gas industry whenever there is a problem with methane contamination in a well. It’s the industry equivalent of the schoolyard taunt, "You can’t prove it!" In fact, the Vargson well is one of the best studied in Bradford County. Tom Darrah, a respected geologist at Duke, has studied the historical data at the Vargson well and says explicitly that the high levels of methane are “well above natural levels." As I point out in the story, the well was also one of 17 cited in a record $1 million fine against Chesapeake levied by the Pennsylvania Department of Environmental Protection.
Consequences of Chesapeake’s well blow-out in Bradford County. While I was visiting Chesapeake, one executive described the environmental damage from the blowout like this: "We killed a couple of frogs." It is certainly true that, given the scale of the blowout, Chesapeake did a good job of minimizing the impact. But the full scope of the damage is unclear. A study by the Agency for Toxic Substances and Disease Registry, which is a branch of the federal Centers for Disease Control, found a 10-fold increase in methane and various salts in one nearby well. It’s also worth pointing out that the investigation of the blow-out cited by Chesapeake was hardly independent. Louis Simpson, a board memberof SAIC, the company that wrote the report, is also a board member of Chesapeake Energy. As Jim Gipson, Chesapeake’s director of media relations, put it in an email dated last October 17: "The report was never characterized as independent."
Fracking fluid disclosure. It’s important to underscore that the chemicals disclosed onFracfocus.org, the website the industry recently set up to address the concerns about the chemicals being injected during fracking operations, are disclosed voluntarily. Which means that drillers do not have to disclose anything on this website that they don’t want to. As for the Pennsylvania DEP requirements cited by Chesapeake in their response, access to those records require digging through paperwork in regional office of the DEP or filing a Right to Know request. And even then, says a spokesman for the DEP, "Drillers may denote on these reports specific portions of the stimulation record as trade secret or confidential proprietary information." In other words, if they claim it is proprietary, they don’t have to disclose it publically (although in some situations, they can be compelled by the state).
Finally, there is one assertion made by Kehs in the company’s response that is completely true: Like all writers who make use of a wealth of research and interviews, I "omitted" certain things from my article. I didn’t tell you – shame on me! – that Chesapeake has essentially operated at a loss since October 2003, its capital spending exceeding cash from operations in every single quarter. Or that it faces a criminal investigation by the U.S. Department of Justice for violations of the Clean Water Act in West Virginia. Or about how it hid behind shell companies to grab land in Michigan – then tried to swindle hundreds of owners out of money and contracts.
I regret these errors of omission, and hope other reporters will follow up on them.
T. Boone Pickens
Aubrey McClendon
Governor Tom Corbett
Governor Chris Christie 
