A Reality Check for David Oh and the Fracking Industry

 

On April 16, 2015 environmental realists, having just been forced to sit in silence, as we had so many times before, at a City Council hearing while industry representatives touted the “wonders” of the fracked shale gas and oil industry, found ourselves once again, silenced in the back of the room at another event touting the economic “miracle” of fracked shale oil, gas, NGLs, LNG, and related products as the 100 year magic solution to all our woes.

 

But instead of remaining silent, we disrupted this charade with some cold hard facts. We have done our homework. Will the media and our elected officials do theirs? Is the much-touted shale “Energy Hub” plan based on a Ponzi Scheme? Many oil industry experts and energy investment analysts think so. How much of the city’s pension fund, a major factor in our economic crisis and a driver of the desperate quest for investment and jobs, is tied up in this bubble?

 

Memorable moments from the day:

Jason French of Chenier Energy requesting some water and a voice from the audience commenting, “At least we can still drink it.”

Councilman Oh asking the audience who wanted to continue with the presentations uninterrupted, and half the hands in the room being raised. An activist asking “Who here lives in a Philadelphia zip code?” followed by the raised hands going down and the other half of the hands in the room going up!

Councilman Oh’s declaring in exasperation, “I don’t represent you.” Who, then does this at-large councilman from Philadelphia represent?

 

We appeal to our elected leaders, the media and everyday citizens to look into the facts and ask questions that matter. Don’t just accept the assertions of people with strong financial incentives to spin their story. We ask you to think critically. Who really cares about our city—corporate executives whose only goal is to increase short-term profits, or people who live and work in this city and will have to live for generations with the consequences of economic policy decisions made by our elected representatives?

 

The following information was available to any media representatives present (none asked for it) and was presented personally, on stage, to Councilman Oh. We wonder if he ever read it.

 

A reality check on the presenters and their companies at David Oh’s symposium, in order of appearance

 

Keynote Presentation

Jason French

Director of Public Affairs, Cheniere Energy

 

Let’s start with Jason French himself, in his previous role as Community Outreach Leader for BP after the disastrous Gulf Oil Spill. The outraged comments on his Facebook page speak for themselves. https://www.facebook.com/BPAmerica/posts/111845248867586

The same Jason French now works for Cheniere.

 

According to David Stockman, Cheniere is the “Poster-Boy of the Shale Gas Hallucination.”   http://davidstockmanscontracorner.com/cheniere-energy-poster-boy-for-the-shale-gas-hallucination/

This article is worth quoting at length: At the end of the day, the whole shale gas story is another giant deformation flowing from the Fed’s financial repression.  The industry has drilled on Wall Street for massive amounts of cheap debt and other capital which generated a one-time spurt of fraked (sic) wells and initial production. But the latter cannot be sustained due to the devastating decline rates of fraked wells. At today’s prices most of the dry gas shale wells ever drilled in the US are under-water economically, and the industry collectively has generated hundreds of billions of economic losses.

So the shale gas story is not about an economic miracle, the wonders of technology, the prowess of job creators or the virtues of mindless slogans like “drill baby, drill”.  Instead, its a place where the cheap capital enabled by central banks goes to die.

 

Cheniere legal troubles: http://www.law360.com/articles/604948/cheniere-brass-keeping-300m-in-shareholder-deal

This case concerned several suits by investors who claimed that about $2 billion in stock grants to company executives were not legally approved. Cheniere’s defense included the claim that following stock exchange rules to recover the illegally issued benefits would have damaged the company and its investors!

This company is leveraged at dangerous levels. http://ycharts.com/companies/LNG/debt_equity_ratio

$9 billion of debt and $18 billion of market cap in the face of massive losses and negative cash flow. (see Stockman link)

 

PANEL I: LNG and Energy Infrastructure

Susan Oliver

Manager of Community and Government Relations, WPX

 

Here’s some interesting information about this company and its fiscal position: Energyhttp://bakken.com/news/id/233251/wpx-energy-asks-its-vendors-for-20-percent

-cut/

The company is so short of cash that it is asking its vendors for a 20% price cut.

In their own words:

FARMINGTON – Local contractors in the oil and gas industry are facing severe cuts in the wake of fallen oil prices.

One industry leader in the San Juan Basin, WPX Energy, has asked its contractors for a 20 percent price cut on goods and services.

“I am writing to request a 20 percent cost reduction in the goods and services you provide WPX Energy …,” Ken McQueen, WPX’s vice president of San Juan Basin operations, wrote to the company’s vendors in a Feb. 9 letter. “WPX has enjoyed a long and productive history with our vendor community in the San Juan Basin. I hope you understand that this in no way reflects poorly on you or your company. Instead, this is my only alternative to keep a modicum of activity intact during this depressed commodity price environment.”

 

They’re cutting their workforce, too. http://www.tulsaworld.com/business/energy/wpx-energy-cutting-its-workforce-by-positions-systemwide-including-in/article_bed4d352-8561-512b-824c-ca560a7260fd.html

 

And this is a quote from their own press release from their official company site trying to spin their decision to monetize their Marcellus Shale Assets. http://www.wpxenergy.com/news-and-media/press-releases/pressrelease.aspx?id=58fff1c5-b8dc-4397-a9bc-3185ebb5e672.

WPX’s first transaction involving its Marcellus Shale operations marks the company’s sixth significant agreement it has entered into since May to narrow the company’s business focus, increase scalability of core assets, bring value forward and further strengthen its balance sheet. As previously announced, WPX also recently executed a new five-year, $1.5 billion senior unsecured credit facility… WPX’s remaining operations in the Marcellus Shale primarily consists of its physical operations in Westmoreland County in southwestern Pennsylvania and additional firm transport capacity on Transco’s Northeast Supply Link line. These assets also are targeted for divestiture. (emphasis ours)

 

Chris Moul

VP, Commercial Development, WesPac Energy Group

 

WesPac does not seem to be in economic trouble at the time of this Symposium, but some of its projects are in danger of being derailed due to local opposition.

This company is not well liked in its home state:

http://www.350bayarea.org/_wespac

Or in Pennsylvania:

http://www.examiner.com/article/pittsburg-residents-protest-the-wespac-pittsburg-energy-infrastructure-project

http://www.sunflower-alliance.org/pittsburg_rally_

 

PANEL II: Market Analysis and Investment

Steve Mullin

President; Principal, Econsult Solutions

Econsult works for whoever hires them, providing services such as cost-benefit analysis, strategic decision making and litigation support. It would be interesting to ask them who paid for them to be here today.

 

Will Freeman

Founder and CEO, AstorFreeman 

…and, not mentioned in the program, past chair of the Natural Gas Use Committee of the Marcellus Shale Coalition

http://marcelluscoalition.org/2013/01/msc-announces-committee-leadership-for-2013/

…as a representative of Chesapeake energy

 Yes, that Chesapeake energy, the one founded by Shale booster Aubrey McClendon who was just a few years ago the golden boy of Philadelphia…well, not to all of Philadelphia: http://shalegasoutrage.org

And, boy, was Aubrey peeved! http://www.philly.com/philly/blogs/cityhall/Natural-gas-industry-leader-bemoans-fracking-protesters.html

Meanwhile, what was he up to? http://www.reuters.com/article/2012/04/18/us-chesapeake-mcclendon-loans-idUSBRE83H0GA20120418

And this just in:

Two months after a bombshell lawsuit accused former chief executive Aubrey McClendon of stealing trade secrets, Chesapeake Energy has settled with a key defendant: an Ohio drilling venture that McClendon founded. http://www.cnbc.com/id/102585687

The Board of Directors was not too thrilled by the way Aubrey was lining his own pockets either: http://business.time.com/2012/05/03/fracked-why-chesapeake-energys-aubrey-mcclendon-is-in-hot-water/

But is that stopping Aubrey? Nope. http://www.cnbc.com/id/102475932

 

PANEL III: Site Preparation

Morgan Abele 

President of Operations, PULS

Perhaps he would like to comment on this article from his own website

http://www.fingeronthepuls.com/#!Report-claims-oil-gas-drillers-more-open-about-fracking-risks/c3jx/1375CF51-3B1D-448E-A061-E6ED6277F88F

EQT — Corp. and Range Resources Corp. were among companies that improved reporting about the risks to the environment and communities from hydraulic fracturing in a scorecard from a group that pushes corporations to be more environmentally responsible. 

But the report released Thursday by the coalition of investment companies and shareholder advocacy groups was still downbeat about the drilling industry’s progress in disclosing information and reducing risks of their fracking operations. 

“The most important takeaway is that many energy companies are still largely failing to rigorously disclose the impacts of their fracking operations,” said Richard Liroff, executive director of Investor Environmental Health Network, a coalition of shareholder advocacy groups.

 

Mitch Bormack

Vice President, TRC

Maybe he’d like to tell us the results of this study by TRCSolutions:

Project Location: North America Project: Not Disclosed Contract Award: Not Disclosed Completion Date: 2012

An international private equity firm recognized possible exposure in portfolio company assets in the natural gas exploration sector. As the debate on fracking intensified in North America, EU and UK in 2012, TRC was engaged to perform an Environmental Liability Risk Assessment for North American operating portfolio companies.

http://www.trcsolutions.com/Services/EnvironmentalLiability/Seller%20Due%20Diligence/EROI%20Quad%204%20case%20study%202%20Preparation%20for%20Sale.pdf

 

Background Reading:

 

http://www.rollingstone.com/politics/news/the-big-fracking-bubble-the-scam-behind-the-gas-boom-20120301?page=2

 

http://www.theguardian.com/environment/earth-insight/2014/may/22/two-thirds-write-down-us-shale-oil-gas-explodes-fracking-myth

 

http://desmogblog.com/2013/05/08/interview-energy-investor-bill-powers-discusses-looming-shale-gas-bubble

 

http://www.reuters.com/article/2015/02/23/usa-oil-cuts-idUSL1N0VR1K820150223

 

A Risky Business: The Economic Risks of Climate Change in the United States

http://riskybusiness.org/uploads/files/RiskyBusiness_Report_WEB_09_08_14.pdf