The Charleston Gazette has a long and proud tradition as a crusading newspaper. Our late publisher, W.E. "Ned" Chilton III coined the phrase "sustained outrage" and insisted the Gazette live up to that motto with long-term coverage of important issues facing West Virginia and the nation.
The mission of the "Gazette Watchdog" is simple: To carry on that tradition. We make a commitment to our readers to serve as a public watchdog over government, business, and other powerful entities in West Virginia society, to ensure that the public interest is protected.
Back in September, we wrote about a case before the West Virginia Supreme Court that held great importance for surface landowners who don’t also hold title to oil and gas reserves under their property:
The state Supreme Court will hear arguments later this week in a significant case that could decide if surface landowners are able to appeal oil and gas drilling permits on their land.
Citizen groups, industry lobbyists and the state Department of Environmental Protection all seem to agree that West Virginia’s oil and gas statute doesn’t specifically allow such appeals.
But though justices appear to have incorrectly cited that statute in a ruling 10 years ago, citizen groups argue now that the court reached the correct result. They say surface landowners should have a due process right to have their challenges to drilling permits heard.
Last Wednesday, on the last day of its term and the day before Thanksgiving, the justices issued their ruling, in which they held:
The right of judicial review with regard to the issuance or refusal of a well work permit as provided by W. Va. Code § 22-6-41 does not extend to owners of the surface rights of the property upon which the proposed well is to be drilled. To the extent that State ex rel. Lovejoy v. Callaghan indicates otherwise, it is overruled.
The right of judicial review with regard to the issuance or refusal of a well work permit as provided by W. Va. Code § 22-6-40 does not extend to owners of the surface rights of the property upon which the proposed well is to be drilled.
Writing for the court, Justice Margaret Workman added this:
Nonetheless, given the fact that the statutes granting the right of judicial review discussed herein, W. Va. Code § 22-6-40 and -41,were enacted prior to the extensive development of Marcellus shale in this State, this Court urges the Legislature to re-examine this issue and consider whether surface owners should be afforded an administrative appeal under these circumstances.
Oil and gas development, whether conventional or shale oil and gas, pose inherent environmental and public health risks, but the extent of these risks associated with shale oil and gas development is unknown, in part, because the studies GAO reviewed do not generally take into account the potential long-term, cumulative effects.
The report goes on:
For example, according to a number of studies and publications GAO reviewed, shale oil and gas development poses risks to air quality, generally as the result of (1) engine exhaust from increased truck traffic, (2) emissions from diesel-powered pumps used to power equipment, (3) gas that is flared (burned) or vented (released directly into the atmosphere) for operational reasons, and (4) unintentional emissions of pollutants from faulty equipment or impoundments–temporary storage areas.
Similarly, a number of studies and publications GAO reviewed indicate that shale oil and gas development poses risks to water quality from contamination of surface water and groundwater as a result of erosion from ground disturbances, spills and releases of chemicals and other fluids, or underground migration of gases and chemicals. For example, tanks storing toxic chemicals or hoses and pipes used to convey wastes to the tanks could leak, or impoundments containing wastes could overflow as a result of extensive rainfall. According to the New York Department of Environmental Conservation’s 2011 Supplemental Generic Environmental Impact Statement, spilled, leaked, or released chemicals or wastes could flow to a surface water body or infiltrate the ground, reaching and contaminating subsurface soils and aquifers.
You can read a summary here and the full report here.
A natural gas well operated by Northeast Natural Energy in Morgantown on Saturday, Aug. 6, 2011. (AP Photo/David Smith)
West Virginia citizen groups this afternoon are holding a press conference at the Capitol to issue an urgent call for an immediate moratorium on new permits for oil and gas drilling in the Marcellus Shale region of our state.
Among other concerns, the groups are citing the state Department of Environmental Protection’s shortage of inspectors (see here and here), and arguing that a permit moratorium should remain in place until the following condition is met:
No new permits should be issued until DEP inspections of drilling operations and gas wells become mandatory. The WV DEP must determine the number of active wells that an inspector can effectively oversee and limit the number of permits issued to the corresponding number of inspectors on staff.
One citizen group, WV for Moratorium on Marcellus, had already called for at least a temporary halt to new permits. Other groups joining in today’s call for a moratorium include the West Virginia Chapter of the Sierra Club, the West Virginia Highlands Conservancy, the Ohio Valley Environmental Coalition, the West Virginia Environmental Council, Friends of the Cacapon River, Christians for the Mountains, Eight Rivers Council, the Greenbrier River Water Association, and SaveTheWaterTable.org.
Their call for a moratorium comes after citizen and environmental groups turned out for a WVDEP hearing in July, trying to urge agency officials to toughen the rules they wrote to implement last December’s new drilling legislation. Citizen groups have complained that the new legislation doesn’t go nearly far enough, and was greatly weakened by Gov. Earl Ray Tomblin at the industry’s request (see here, here and here).
Among the other demands made by citizen groups today:
— No new permits should be issued until a closed-loop process is mandated for drilling and hydraulic fracturing. In order to protect the state’s surface and groundwater, no waste or flowback, solid or liquid, should be applied to or buried on the land.
— No new permits should be issued until Home Rule is honored. Local towns and counties must be allowed to control whether, where and when hydraulic fracturing is done in their communities, including control of the roads and hours where trucks hauling drilling equipment and supplies are allowed to operate.
— No new permits should be issued until West Virginia citizens are guaranteed a permanent replacement if their source of clean water becomes contaminated at any time within 1 mile of a natural gas drilling operation unless another source of pollution can be proven.
The citizen groups said today:
We know that the legislation adopted in December 2011 was grossly inadequate, and does not provide the basic protections needed by West Virginia citizens. Yet permits for new wells continue to be issued, leaving landowners and local citizens helpless to stop the dangers in their neighborhood. Natural gas development can be done right, but today, it is being done wrong, and that needs to stop.
In the debate over natural gas drilling, the companies are often the ones accused of twisting the facts. But scientists say opponents sometimes mislead the public, too.
Critics of fracking often raise alarms about groundwater pollution, air pollution, and cancer risks, and there are still many uncertainties. But some of the claims have little — or nothing— to back them.
But right off the bat, you’ve got to question the broad conclusions being outlined by AP reporter Kevin Begos. Why? Because this is one of the three examples he uses to make his point:
And concerns about air pollution from the industry often don’t acknowledge that natural gas is a far cleaner burning fuel than coal.
Throughout the rest of the story (all 1,183 words of it), Begos doesn’t delve at all into what may be the central air pollution issue — and the central scientific debate over air emissions — regarding the natural gas boom: Whether the greenhouse gas emissions from natural gas, which all added up, are really that much better than those from coal. We’ve written about that issue many times before (see here,here, and here) and it’s one of the more lively debates going on around the “fracking” issue.
The AP story might have been better if Begos had made more clear a point that he barely touches on between taking shots at the claims of citizen activists:
… There are still many uncertainties … science is slow, and research into gas drilling’s many possible effects are in the early stages, and much more work remains to be done.
As the U.S. enjoys a natural-gas boom from a process called hydraulic fracturing, or fracking, producers are taking a page from the tobacco industry playbook: funding research at established universities that arrives at conclusions that counter concerns raised by critics.
Natural gas has its challenges, too – with serious questions about water contamination and shortages and other environmental concerns. But while coal executives pine for the past, natural gas looks to the future -investing in technologies to reduce their environmental footprint. And they’re working with others on ways to support the safe development of gas – and we will all be watching.
As he watched the natual gas boom, Sen. Rockefeller might want to check out a couple of interesting stories that came out this week.
Over the past several decades, U.S. industries have injected more than 30 trillion gallons of toxic liquid deep into the earth, using broad expanses of the nation’s geology as an invisible dumping ground.
No company would be allowed to pour such dangerous chemicals into the rivers or onto the soil. But until recently, scientists and environmental officials have assumed that deep layers of rock beneath the earth would safely entomb the waste for millennia.
There are growing signs they were mistaken.
Records from disparate corners of the United States show that wells drilled to bury this waste deep beneath the ground have repeatedly leaked, sending dangerous chemicals and waste gurgling to the surface or, on occasion, seeping into shallow aquifers that store a significant portion of the nation’s drinking water.
Hydraulic fracturing has a low risk for inducing earthquakes that can be felt by people …
But hold on, and read the rest of the sentence:
… But underground injection of wastewater produced by hydraulic fracturing and other energy technologies has a higher risk of causing such earthquakes, says a new report from the National Research Council.
The release goes on:
In addition, carbon capture and storage may have the potential for inducing seismic events, because significant volumes of fluids are injected underground over long periods of time. However, insufficient information exists to understand the potential of carbon capture and storage to cause earthquakes, because no large-scale projects are as yet in operation. The committee that wrote the report said continued research will be needed to examine the potential for induced seismicity in large-scale carbon capture and storage projects.
An independent scientist has confirmed that fracking has clearly contaminated a drinking water source east of the town of Pavillion, Wyoming, supporting the findings in a draft EPA report published in December.
This is not only important news for residents of the small town with contaminated water-– but it has national significance as well. While oil and gas corporations enjoy exemptions from critical protective environmental provisions in the Safe Drinking Water Act and Clean Water Act, they have continued to publicly claim there has never been any proof that fracking has contaminated drinking water–despite reports of suspected cases from around the country.
Here’s the basic conclusion from that report, written for NRDC and other groups by hydro-geologist Tom Myers:
After consideration of the evidence presented in the EPA report and in URS (2009 and 2010), it is clear that hydraulic fracturing (fracking (Kramer 2011)) has caused pollution of the Wind River formation and aquifer. The EPA documents that pollution with up to four sample events in the domestic water wells and two sample events in two monitoring well constructed by the EPA between the level of the domestic water wells and the gas production zone. The EPA’s conclusion is sound.
Importantly, though, the report adds:
The situation at Pavillion is not an analogue for other gas plays because the geology and regulatory framework may be different.
That’s why, for folks concerned about the Marcellus Shale boom here in West Virginia, this other study — also by Myers, but published in a peer-reviewed journal — might turn out to be much more important. Abrahm Lustgarten, the great reporter at ProPublica, broke the story:
A new study has raised fresh concerns about the safety of gas drilling in the Marcellus Shale, concluding that fracking chemicals injected into the ground could migrate toward drinking water supplies far more quickly than experts have previously predicted.
More than 5,000 wells were drilled in the Marcellus between mid-2009 and mid-2010, according to the study, which was published in the journal Ground Water two weeks ago. Operators inject up to 4 million gallons of fluid, under more than 10,000 pounds of pressure, to drill and frack each well.
Scientists have theorized that impermeable layers of rock would keep the fluid, which contains benzene and other dangerous chemicals, safely locked nearly a mile below water supplies. This view of the earth’s underground geology is a cornerstone of the industry’s argument that fracking poses minimal threats to the environment.
But the study, using computer modeling, concluded that natural faults and fractures in the Marcellus, exacerbated by the effects of fracking itself, could allow chemicals to reach the surface in as little as “just a few years.”
“Simply put, [the rock layers] are not impermeable,” said the study’s author, Tom Myers, an independent hydrogeologist whose clients include the federal government and environmental groups.
“The Marcellus shale is being fracked into a very high permeability,” he said. “Fluids could move from most any injection process.”
The research for the study was paid for by Catskill Mountainkeeper and the Park Foundation, two upstate New York organizations that have opposed gas drilling and fracking in the Marcellus.
Much of the debate about the environmental risks of gas drilling has centered on the risk that spills could pollute surface water or that structural failures would cause wells to leak.
Though some scientists believed it was possible for fracking to contaminate underground water supplies, those risks have been considered secondary. The study in Ground Water is the first peer-reviewed research evaluating this possibility.
Here’s a summary of the study, which is available online here:
Hydraulic fracturing of deep shale beds to develop natural gas has caused concern regarding the potential for various forms of water pollution. Two potential pathways—advective transport through bulk media and preferential flow through fractures—could allow the transport of contaminants from the fractured shale to aquifers. There is substantial geologic evidence that natural vertical flow drives contaminants, mostly brine, to near the surface from deep evaporite sources. Interpretative modeling shows that advective transport could require up to tens of thousands of years to move contaminants to the surface, but also that fracking the shale could reduce that transport time to tens or hundreds of years. Conductive faults or fracture zones, as found throughout the Marcellus shale region, could reduce the travel time further. Injection of up to 15,000,000 L of fluid into the shale generates high pressure at the well, which decreases with distance from the well and with time after injection as the fluid advects through the shale. The advection displaces native fluids, mostly brine, and fractures the bulk media widening existing fractures. Simulated pressure returns to pre-injection levels in about 300 d. The overall system requires from 3 to 6 years to reach a new equilibrium reflecting the significant changes caused by fracking the shale, which could allow advective transport to aquifers in less than 10 years. The rapid expansion of hydraulic fracturing requires that monitoring systems be employed to track the movement of contaminants and that gas wells have a reasonable offset from faults.
Chesapeake Energy Corporation today announced that its Board of Directors has renegotiated the terms of the company’s Founder Well Participation Program (FWPP) with Chairman and Chief Executive Officer Aubrey K. McClendon to provide for the early termination of the FWPP on June 30, 2014, 18 months before the end of its current term on December 31, 2015. Mr. McClendon will receive no compensation of any kind in connection with the early termination of the FWPP.
The FWPP, which was approved by shareholders for a 10-year term in 2005, in conjunction with Mr. McClendon’s employment agreement with the company, provides Mr. McClendon a contractual right to participate and invest as a working interest owner (with up to a 2.5% working interest) in new wells drilled on the company’s leasehold. Mr. McClendon has agreed to forego such contractual right 18 months early without compensation.
The Board of Directors will name an independent, Non-Executive Chairman in the near future. The Board’s Nominating and Corporate Governance Committee is considering potential candidates with no previous substantive relationship with Chesapeake and will be soliciting input from major shareholders. Upon the appointment of a Non-Executive Chairman, Mr. McClendon will relinquish the position of Chairman and continue as Chief Executive Officer. Mr. McClendon has indicated his support of the Board’s decision to name a Non-Executive Chairman and waived any rights he might have under his employment agreement as a result of no longer serving as Chairman. As previously announced, the Board is reviewing the financing arrangements between Mr. McClendon (and the entities through which he participates in the FWPP) and any third party that has had or may have a relationship with the company in any capacity.
An affiliate company owned by Chesapeake Energy CEO Aubrey McClendon is mortgaging its stake in West Virginia oil and gas leases, making Brooke County farmland part of a billionaire’s portfolio built to profit on the promise of future drilling.
The affiliate company — Jamestown Resources — has entered into mortgages with a global investment group to raise funds against untold portions of its holdings in West Virginia. Jamestown Resources is owned by Mr. McClendon, who also owns a personal stake in every well that Chesapeake drills.
The mortgaging gives Mr. McClendon the opportunity to raise cash now on the promise of drilling at a time when the industry is scaling back production and waiting for natural gas prices to rebound. Meanwhile, the practice is never disclosed to the landowners whose property it concerns, although it is filed in the Brooke County Courthouse alongside their leases.
It’s a win-win situation for Mr. McClendon: Drill a profitable well, and the loan is easily paid off and well profits go to Oklahoma City-based Chesapeake. If the well doesn’t produce or isn’t drilled, the only collateral jeopardized is oil and gas interests in Brooke County.
“What Aubrey does with his own investments is separate from what the company does,” said Bob Brackett, a senior analyst at New York-based Sanford C. Bernstein & Co. LLC. “But Aubrey as the CEO is willing to take big bets, and he’s consistent with his own money.”
The mortgages can be bundled and traded, not unlike how home mortgages have been on Wall Street.
… A series of previously undisclosed loans to McClendon could once again put Chesapeake’s CEO and shareholders at odds.
McClendon has borrowed as much as $1.1 billion in the last three years by pledging his stake in the company’s oil and natural gas wells as collateral, documents reviewed by Reuters show.
The loans were made through three companies controlled by McClendon that list Chesapeake’s headquarters as their address. The money is being used to help finance what could be a lucrative perk of his job – the opportunity to buy into the very same well stakes that he is using as collateral for the borrowings.
The size and nature of the loans raise concerns about whether McClendon’s personal financial deals could compromise his fiduciary duty to Chesapeake investors, according to more than a dozen academics, analysts and attorneys who reviewed the loan agreements for Reuters.
“If Mr. McClendon has $1 billion in debt through his own companies — companies operating in the same industry as Chesapeake — he has or could have a high degree of risk for conflicts of interest. As in, whose interest will he look out for, his own or Chesapeake’s?” said Joshua Fershee, an associate professor of energy and corporate law at the University of North Dakota.
The revelation of McClendon’s bout of borrowing comes as he is scrambling to help Chesapeake avert a multi-billion-dollar cash shortfall amid a plunge in natural gas prices.
It also exposes a potentially serious gap in how U.S. regulators scrutinize corporate executives, a decade after those rules were tightened in the wake of major accounting scandals.
Reuters advances the story considerably, reporting that those loans total more than a billion dollars—as much as or more than McClendon is worth—and that they come from a private-equity fund that does business with Chesapeake.
The Reuters piece sent Chesapeake shares plunging yesterday. At one point the stock was off 10 percent before settling down 6 percent. When a news story sends a $15 billion company’s stock down that much on a day when its peers aren’t moving much, it’s a very big story.
Oddly, though, as Chittum also points out, Reuters kind of backed into the story:
If I’ve got a quibble with the piece, it’s with how it’s set up. When you’ve got a really good investigation, you should give be able to come up with a better lede than this:
Aubrey K. McClendon is one of the most successful energy entrepreneurs of recent decades. But he hasn’t always proved popular with shareholders of the company he co-founded, Chesapeake Energy Corp., the second-largest natural gas producer in the United States.
Firms controlled by Aubrey McClendon, the high-profile founder and chief executive of Chesapeake Energy Corp. were in debt to a private equity group for as much as $1.4 billion while Chesapeake was negotiating with the same firm to sell it hundreds of millions of dollars of assets.
Now, also this week, I asked Chesapeake folks for some comments on the new U.S. Environmental Protection Agency rule to reduce air pollution from oil and natural gas operations. In particular, I wanted to know how frequently Chesapeake already uses the “green completion” methods that the new EPA rules are going to require. Chesapeake professes on its website to have a “GreenFrac” program, so I assumed they’d love to tell me how they are doing such a great job with this issue, perhaps even were out ahead of the EPA regulations. Well, nobody from Chesapeake got back to me prior to my deadline – and when I got a call back the next day, I was told Chesapeake wasn’t going to be able to answer my questions, because they were still reviewing the EPA’s final rule.
The snippy reaction of Chesapeake’s lawyers and flacks is another tell that Reuters is on to something … Look, if you can’t grasp the conflicts of interest inherent in the CEO of a company being personally in hock to a major investor in the company for a billion dollars, leveraging company assets the company has given him, you’re not even trying. This in a notoriously boom and bust industry and with an executive who crashed the company stock in 2008 when he got caught overlevered and had to sell almost all of his considerable pile of Chesapeake stock. The Chesapeake board rewarded him a couple of months later with a $75 million bonus and a sweetheart deal to buy his antique maps for $12 million, so you can imagine what kind of oversight it offers.
U.S. Environmental Protection Agency officials just finished up a telephone press briefing in which they discussed and then took a few questions about their new final rule aimed at reducing air emissions from oil and natural gas drilling and production operations that involve hydraulic fracturing. From EPA’s just-issued news release:
In response to a court deadline, the U.S. Environmental Protection Agency (EPA) has finalized standards to reduce harmful air pollution associated with oil and natural gas production. The updated standards, required by the Clean Air Act, were informed by the important feedback from a range of stakeholders including the public, public health groups, states and industry.
As a result, the final standards reduce implementation costs while also ensuring they are achievable and can be met by relying on proven, cost-effective technologies as well as processes already in use at approximately half of the fractured natural gas wells in the United States. These technologies will not only reduce 95 percent of the harmful emissions from these wells that contribute to smog and lead to health impacts, they will also enable companies to collect additional natural gas that can be sold.
Natural gas is a key component of the nation’s clean energy future and the standards released today make sure that we can continue to expand production of this important domestic resource while reducing impacts to public health, and most importantly builds on steps already being taken by industry leaders.
Interestingly, special interest groups from both the industry and environmental groups were clearly briefed about the rule and knew details of the final version long before anybody in the general public was able to read the rule.
Word of what’s in the rule first broke from Bloomberg, which reported — based on comments from an industry lobbyist — that EPA had agreed to give gas operators until 2015 to comply with the toughest emissions reductions requirements. First thing this morning, environmental groups were sending out “embargoed” news releases, with their comments on what EPA told them was in the final rule.
At the start of today’s press call, EPA air quality chief Gina McCarthy made clear the administration’s view on the ongoing boom in natural gas drilling in places like West Virginia:
Natural gas is key to the country’s clean energy future.
EPA officials didn’t dwell on the potential climate change impacts of the natural gas boom, and I didn’t get a chance to ask Gina McCarthy my question, which was going to be about scientific papers like this one from MIT, which warn that the natural gas push threatens to crowd out cleaner renewable energy sources. But in its fact sheet on the final rule, EPA did say:
Today’s rules also would yield significant reductions in methane, a potent greenhouse gas. EPA’s Regulatory Impact Analysis for the rule estimates the value of the climate co-benefits that would result from this reduction at $440 million annually by 2015. This includes the value of climate-related benefits such as avoided health impacts, crop damage and damage to coastal properties.