Chesapeake Energy Corp. defended itself against a story in an upcoming issue of Rolling Stone magazine that the producer is claiming contains several inaccuracies.
"The Big Fracking Bubble: The Scam Behind the Gas Boom" is to appear in the March 15 edition, but it is available online. The story, by Jeff Goodell, begins with Chesapeake CEO Aubrey McClendon sharing a bottle of $400 wine during an interview. Goodell, who said he spent several days interviewing the CEO and top executives at the Oklahoma City-based company, as well at drilling sites, explained in detail the company's appetite for land acquisitions and for "flipping" acquisitions for profit. He also used several sources, including people who are considered "ne'er do wells" by some in the natural gas industry, to describe at length the alleged dangers of hydraulic fracturing, which drillers have used for decades.
Chesapeake posted a lengthy rebuttal to Goodell's article.
"Despite giving the writer access to our rig locations and briefings from senior executives over three days, Rolling Stone has published a story that recycles the same old debunked theories of a few short-positioned analysts, activist academics and publicity-seeking litigants that have mischaracterized our company and our industry for the past five years," said Chesapeake's Michael Kehs, vice president of Strategic Affairs and Public Relations. "There is little new in this story and much that is either half true or just flat wrong.
"The writer clearly chose to ignore critical information and context that addressed the false allegations he chose to publish. Despite politely listening, he had no intention of reporting facts that would have showed Chesapeake to be the responsible operator and generous corporate citizen that we are and the vast majority of observers of our company know us to be."
Kehs said, "While it is painful to read such misrepresentations about our industry, company and CEO, I hope you will take pride in knowing that when faced with an expected assault on our reputation, we didn't just sit back and take it. We engaged fully and did so because we have such great confidence in the ultimate assessment that the truth will win out and the facts will speak for themselves. That opinion was buttressed by the fact that we have the most articulate, knowledgeable, and visionary CEO in the industry and an unequaled team of senior leadership at his side.
"We played it straight and transparent. We treated the reporter with respect and integrity. That he chose not to reciprocate does not diminish Chesapeake or our mission. It makes us more resolved to continue to prove the naysayers wrong. I hope you will find the analysis below to be of assistance to you."
The rebuttal then goes on to take Goodell's story to task point by point. For example, the article stated that energy consultant Arthur Berman -- a shale skeptic criticized by many in the industry long before the article was published (see Daily GPI, Oct. 16, 2009) -- said "Chesapeake and its lesser competitors resemble a Ponzi scheme, over-hyping 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."
The reality, said Kehs, is "of at least 100 years' worth of shale gas abundance has been supported by virtually every credible third-party expert, such as the U.S. Energy Information Administration, the Colorado School of Mine's Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and the largest energy companies in the world, among them being ExxonMobil, Shell, Chevron, ConocoPhillips, BP, Total, Statoil, CNOOC, Sinopec, Reliance, Repsol, BG, Eni and many others, not to mention every major independent in the U.S., including Occidental Petroleum, Anadarko, Apache, EOG, Devon, Encana, Talisman and dozens more.
"The collective market cap of these energy leaders approaches $2 trillion...Ask yourself: do I believe Rolling Stone and Arthur Berman or the world's biggest and most successful energy companies?"
Other alleged errors were pointed out, most notably, a comparison of a Chesapeake blowout in Bradford County, PA, to BP plc's Macondo well blowout in the deepwater Gulf of Mexico.
In the article Goodell wrote that the Pennsylvania blowout "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."
To compare the Pennsylvania well blowout to Macondo "is both misleading and irresponsible," wrote Kehs.
In his rebuttal to the rebuttal, Goodell said McClendon had a "reputation for being a tough street-fighter, so his company's response...is no surprise...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...
"Kehs...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."