Companies fracking for natural gas may feel the same sort of no-fair anger. Fracking is controversial to begin with. Fracking is the name given to hydraulic fracturing to develop horizontally drilled wells in shale that previously couldn't be tapped. Along with water, high volumes of chemicals are added, and sometimes naturally occurring hazardous materials are released. Fracking is putting money -- lots of it -- into the pockets of the companies that frack and the landowners who sell fracking rights, largely in the mid-Atlantic states and Texas. It also feeds supportive politicians' political campaigns.
But Chesapeake Energy is behaving like that bad kid in the third row with an angelic face that hides a smirk deep within. According to its website, "Chesapeake Energy Corporation is the second-largest producer of natural gas, the 11th largest producer of oil and natural gas liquids and the most active driller of new wells in the U.S." (http://www.chk.com/Pages/default.aspx)
Those opposed to fracking do so largely on the basis of environmental health and safety. The companies say their methods are safe and they take precautions to protect groundwater and surface water from contamination. When something goes wrong -- as "something" is inclined to do -- fracking opponents rally around the upset to try to block the practice.
Fracking adversaries face an uphill battle against companies that are large contributors to political campaigns. But a groundswell of opponents with anecdotal evidence could neutralize scientific evidence and big money. "Both (CEO Aubrey K.) McClendon and Chesapeake’s political action committee have financially supported (Pennsylvania) Governor Tom Corbett. The PAC gave the Republican $12,000 during the 2010 gubernatorial campaign. McClendon donated $5,000 that year, and also provided Corbett with an indirect $450,000 contribution during his 2004 campaign for attorney general." (http://stateimpact.npr.org/pennsylvania/tag/chesapeake-energy/)
More on McClendon in a moment.
To the governor's credit and to illustrate my point that big money can be negated to some extent, "Pennsylvania Public Radio has reported Governor Corbett asked a Chesapeake executive to step down from his Marcellus Shale Advisory Commission, due to the company’s high-profile accidents."
One of those high-profile examples: Two years ago Chesapeake damaged some streams in Wetzel County, West Virginia. These violations of the Clean Water Act brought in the federal EPA. Last fall, Chesapeake agreed to settle the case. "The deal with the EPA calls for Chesapeake to pay a $600,000 fine and be placed on probation for two years. During that period the company’s activities will be supervised even more intensively than normal by the EPA. EPA officials, noting they worked closely with U.S. Attorney William Ihlenfeld on the case, stressed it sets something of a precedent. The action was the first by the agency related to drilling in the Marcellus Shale and under the EPA’s Energy Extraction Initiative." (http://marcellusdrilling.com/2012/10/chesapeake-pleads-guilty-to-enviro-damage-in-wetzel-county-wv/)
The violation and fine had to do with filling a stream with rock to build a road, not water contamination from drilling. But then there's this other story going around and published by Shale Reporter and picked up by media such as timesonline.
"Judy Armstrong Stiles had no idea what she was signing away when she and her husband Carl agreed to let Chesapeake Energy operate natural gas wells on their Bradford County (Pennsylvania) land. That was three years ago.... Soon after the company started using hydraulic fracturing to develop the horizontally drilled wells, both she and her husband began suffering severe rashes. They also complained of stomach aches, dizziness, fatigue, aching joints and forgetfulness, Stiles told Shalefield Stories in November 2012." (http://www.timesonline.com/fracking-taps-a-mile-deep-danger/article_ce6580ec-ec1d-57ad-b6e8-25f06a542dca.html)
A few months later, a large hole that gave off a terrible smell and leaked a foamy substance opened up in their front yard. Their daughter moved in and soon she, too, was sick. A test of their smelly, yellow drinking water revealed it was contaminated with lead, methane, propane, ethane, ethene, barium, magnesium, strontium, and arsenic.
"The family soon abandoned (its) home and moved in with relatives, unable to sell (the) house. Radon tests came back, Stiles said, showing radon gas in the air around their home. Trace amounts of radium-226, radium-228 and uranium were found in the home’s water. In February 2011, Carl was diagnosed with intestinal cancer. Their daughter, then pregnant, had seizures and lead poisoning. 'I’d like to say that after moving out, our health improved, but it did not,' Stiles said. Her daughter still has seizures and cannot work or drive. Carl, his health rapidly deteriorating, killed himself."
Radium-226 is among wastewater poisons that come from fracking. In wastewater pumped from the mile-deep Marcellus shale in northeastern United States, radium can reach 3,000 times the limit for drinking water and 300 times the limit for nuclear industry discharge. The EPA classifies both radon gas and radium as potent human carcinogens and says that long-term exposure to radium increases the risk for lymphoma, bone cancer, leukemia, and aplastic anemia.
The company has had more problems that blemish its name, its spreadsheet, and the industry. In May, 2011, it was on the receiving end of the largest fine in the history of the Pennsylvania Department of Environmental Protection for a Washington County tank fire three months earlier, and for contaminating drinking wells in Bradford County.
Chesapeake voluntarily suspended fracking for three weeks in April and May, 2011 after a Bradford County well spilled hundreds of thousands of gallons of fracking fluid.
Crisis has spilled over into the boardroom. McClendon, Chesapeake's founder and CEO (and chairman until he was bumped out last summer), has been forced out of the company and will step down on April 1 "after months of scrutiny over how he mixed his personal finances and those of the corporation." It doesn't help matters that some of the shine on fracking is beginning to tarnish, squeezing industry profits including the company McClendon started.
The Pittsburgh Post-Gazette reported that McClendon was taking out loans against the company’s West Virginia holdings. Later, Reuters alleged this was happening in multiple states. McClendon reportedly has taken out more than $1 billion in loans, using Chesapeake’s land holdings as collateral. And as Reuters documented, he is using that money to expand his holdings in those very same wells. Because these loans weren't disclosed to shareholders, the practice raised questions about whether McClendon’s mixing of personal and business dealings constituted a conflict of interest.
McClendon was able to purchase personal stakes in Chesapeake’s wells through an initiative called the “Founder Well Participation Program.” Chesapeake stopped the program shortly after it became public.
"Not only did his small Oklahoma company become the nation’s second biggest gas producer after Exxon Mobile, but Mr. McClendon also assembled a trophy room of assets that included a piece of the Oklahoma Thunder basketball team, a winery and a $12 million collection of antique maps." (http://dealbook.nytimes.com/2013/01/29/chesapeakes-chief-to-retire/)
A downturn in natural gas prices, caused largely by the industry’s over-exuberant drilling, dealt a huge blow to the company’s balance sheet and to McClendon’s personal fortune. He borrowed heavily — more than $800 million to finance his investments in the Founder Well Participation Program, which enabled him to share in both profits and expenses. Last year, the SEC began investigating McClendon’s finances, and a shareholder rebellion led to his removal as chairman last June and a reshuffling of the board.
Not only did McClendon not receive a 2012 bonus, he was required to reimburse the company for his personal use of company aircraft in excess of $250,000. (http://www.nytimes.com/2013/01/08/business/chesapeake-energys-chief-denied-2012-bonus.html?ref=chesapeakeenergycorporation&_r=0)
For a copy of Chesapeake's news release on the ouster of McClendon, see http://www.chk.com/News/Articles/Pages/1779133.aspx. It contains the usual platitudes, but it doesn't seem to pooh-pooh the firing as much as other companies do when unloading a co-founder. Angry shareholders meant playing it straight in the release without hanging the only leader the company ever knew.
A shareholders' revolt purged the board of directors and the CEO suite. Now it's up the the new administration to make clear to everyone in the organization that it won't tolerate environmental or ethical miscues. Then it's up to communications to plan and execute how to change Chesapeake's bad-boy reputation and minimize future crises.