UPDATE: This story was updated at 11:30 p.m. on Tuesday, March 6 and again at 8:30 on Wednesday, March 7.
This weekend, Chesapeake Energy Corp. responded to a Rolling Stone story that took aim at the company, its CEO, and hydraulic fracturing. The magazine asserted that Chesapeake is “not only toxic – it’s driven by a right-wing billionaire who profits more from flipping land than drilling for gas.”
“The Big Fracking Bubble: The Scam Behind the Gas Boom,” written by Jeff Goodell and released last week (it’ll be in the March 15 issue of the magazine), delves into the history of fracking, and Chesapeake CEO Aubrey McClendon’s place in it, as well as current environmental concerns surrounding the practice—all from a decidedly anti-fracking angle. It also intensely—and critically—examines Chesapeake, McClendon and the millions of dollars they’ve profited from fracking. Goodell compares McClendon to the Koch brothers, Chesapeake to Enron, and a blowout at a Chesapeake natural gas well in Bradford County, Pennsylvania, last April to BP’s oil spill in the Gulf of Mexico.
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.
The company responded through Michael D. Kehs, vice president of strategic affairs and public relations, who criticized both Rolling Stone and Goodell, writing: “When we were first contacted by Rolling Stone and looked at the writer’s prior work, blog posts, and tweets, we figured we’d never get a fair shake and suggested he talk to other industry groups to get a perspective on natural gas. But when he declared his intention to write a story focused on our company and Aubrey – with or without our cooperation – we decided that providing the full transparency that the media and our critics so often demand from our industry would potentially result in a more honest and fact-based story. Although our expectations for honesty and fairness were quite low, the writer failed to reach even that low bar.”
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. Some examples of Rolling Stone’s selective reporting are detailed below – these mistakes and omissions would be inexcusable from a responsible journalist, but coming from Rolling Stone they are perhaps more understandable.
He then offered a rebuttal on several points Goodell made in his story, including his comparison of shale gas production to a Ponzi scheme, McClendon’s monetary motivation, references to the film Gasland, environmental dangers, and the Bradford County blowout.
Eric Bates, executive editor at Rolling Stone, told This Land that the magazine is putting together its response now, though he didn’t elaborate much further.
“We’re going through their response point by point,” he said. “We stand by our story in every detail. It’s accurate. They spoke with us and knew who they were speaking to, and we reported it fairly and accurately.”
When pressed for a quote, Jim Gipson, director of media relations for Chesapeake, told This Land: “I think our response says it all.”
The company has spent the last few days using Twitter to push its response, posting it and promoting it, and directing readers who mention the company by its handle, @Chesapeake, to read their response. They also posted a link to a blog post by Arthur Berman, a petroleum geologist quoted in the story who says he was “misrepresented” by its author.
I never said that Chesapeake or any other company involved in shale gas drilling is involved in or resembles a Ponzi scheme. That may be what Goodell thinks but that is not what I said, think or imply. I have expressed doubts about the viability of the shale gas business model used by some companies, but I do not question the legality of those business models. The term Ponzi scheme does not remotely apply to the way that exploration and production companies obtain capital and rationalize earnings.
UPDATE: At 10:22 a.m. today, Rolling Stone published its point-by-point rebuttal to Chesapeake’s side of the story. Jeff Goodell doesn’t pull any punches in his response. The first paragraph reads:
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.
He writes that McClendon was excited, not skeptical, about the prospect of being interviewed by Rolling Stone and argues that Chesapeake wasn’t as “transparent” as it claimed to be—especially when the questions turned to the company’s finances. He then argues every point Chesapeake made in its response, posting links to sources, studies, and other articles to re-affirm his original assertions. He finishes:
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.
UPDATE: A representative from Chesapeake said that the company’s original response to Rolling Stone is still sufficient, but it was updated the morning of March 7 to include new details. It’s available here. Jim Gipson also pointed This Land to “other important rebuttals” at Energy In Depth, John Hanger’s Facts of the Day, and Petroleum Truth Report.
—Holly Wall, News Editor