A decade ago, the Enron scandal saw a $65 billion company’s management integrity and finances collapse in what was then the second largest bankruptcy in history. Investors, employees and electric consumers were left holding the bag. Now Chesapeake Energy is following in Enron’s footsteps. Ohio Attorney General Mike DeWine should step in to protect Ohioans from this company.
Oklahoma-based Chesapeake Energy extracts oil and gas from shale using horizontal drilling and hydraulic fracturing (“fracking”), which injects water and toxic chemicals underground to fracture the rock. Chesapeake Energy is by far the biggest driller in Ohio, with lease rights to 1.5 million acres, or 5% of the entire state. As of April, the company held 132 of the 179 drilling permits, or 74%, issued by Ohio since November 2010. And Chesapeake owns 9 of Ohio’s 12 producing gas wells.
Ohio Governor John Kasich and the legislature have just passed a new law opening up state regulations for Chesapeake Energy and companies like it. Under the new law, Ohioans do not have the right to know what toxic chemicals Chesapeake is injecting into the ground, and we do not have the right to say “no” if we don’t want Chesapeake’s drilling rigs in our local communities.
Should we hitch our economy to Chesapeake Energy?
Considering Chesapeake Energy’s dominance of shale drilling in Ohio, Kasich is hinging his economic strategy for the state on the success of a single company. Unfortunately, the company may be coming apart at the seams:
- The price of natural gas hit $10.79 in 2008, the early days of shale drilling. Today, it is approximately $2.50, and Chesapeake is hard-pressed to earn enough cash to continue operations, let alone pay down its debt.
- The Securities and Exchange Commission and the Internal Revenue Service have both launched investigations of Chesapeake’s finances and management.
- Ratings agencies Standard & Poor’s, Moody’s and Fitch have all recently downgraded Chesapeake’s ratings.
- Chesapeake investors have lost more than half the value of their stocks since last August.
- Chesapeake’s largest shareholder, Southeastern Asset Management, recently urged the company to sell assets or consider selling the entire company.
- Company CEO Aubrey McClendon, facing ethics and financial scrutiny and shareholder lawsuits, has stepped down as Board Chairman.
This is not a time for panic. It is a time for leadership.
Ohio Attorney General Mike DeWine is the chief legal advisor to the state government and the state’s chief law enforcement officer. We urge him to get to the bottom of questions like –
- Given what Chesapeake Energy officials have been concealing from their own board, what financial information have they been concealing from Ohio landowners, regulators and investors? Does this constitute fraud?
- Given what we have recently learned about Chesapeake’s finances and governance, why isn’t the State scrutinizing their existing permits and freezing pending permits?
- Why would the State continue to issue permits to a company that may not survive the year?
- Why have Ohio state pension funds not divested their Chesapeake stock?
- Should Ohio pension funds be in court seeking to recover the money they lost due to actions of Chesapeake managers?
- If Chesapeake goes bankrupt or is sold, how can the State protect Ohio investors, landowners, and local governments?
Write Ohio Attorney General Mike DeWine
Please take a few minutes and write to Attorney General Mike DeWine.
Ask him to –
- Investigate Chesapeake’s financial practices
- Hold regional public hearings on Chesapeake’s activities in Ohio
- Take steps to protect Ohioans from the new Enron: Chesapeake Energy
You can address the letter to Attorney General Mike DeWine, 30 East Broad Street, Columbus 43215. Don’t forget to include your return address.
DURHAM, NC — “Number of workers employed by the U.S. oil and gas extraction industry: 435,000
Percent of those workers employed by well servicing companies, including those that conduct hydraulic fracturing or ‘fracking’ for natural gas: almost 50
Occupational deaths in the oil and gas extraction industry from 2003 to
2009 per 100,000 workers: 27.5
Number of times that rate exceeds the fatality rate for all U.S. workers: more than 7
Percent by which fatalities among oil and gas workers rose from 2003 to 2005, as the drilling boom accelerated: 15
Rank of highway crashes among the top causes of fatalities in the industry: 1
Number of oil and gas workers killed in highway crashes over the past decade: more than 300”
— Sue Sturgis, Institute for Southern Studies
link to article
A Chesapeake Energy worker on a natural gas rig in the North Texas Barnett Shale bed rock deposit near Kennendale, Texas.
NEW YORK, NY — “Chesapeake Energy Corp. (CHK)’s depressed valuation is making the company a potential target for acquirers willing to bet that natural-gas prices will rebound from a decade low.
Chesapeake’s equity and net debt was valued yesterday at $9.19 for each barrel of oil equivalent, the lowest among U.S. oil and gas explorers with market capitalizations greater than $5 billion, according to data compiled by Bloomberg. While a stock purchase by Carl Icahn helped the $11 billion company’s shares rebound in the past week, Chesapeake was still down 27 percent in 2012 amid investigations into Chief Executive Officer Aubrey McClendon’s personal loans backed by stakes in company- operated wells.”
— Tara Lachapelle, Jim Polson and Joe Carroll, Bloomberg News
link to article
CHARLESTON, WV — “Local citizens on Wednesday threatened to sue FirstEnergy Corp. over a huge coal-ash impoundment along the West Virginia-Pennsylvania border, alleging the operation is polluting area streams, tainting groundwater, and violating federal waste disposal requirements.
The Little Blue Regional Action Group sent Akron, Ohio-based FirstEnergy a formal notice of intent to sue the company over what is believed to be the largest such coal-ash disposal site in the nation.”
— Ken Ward Jr., Charleston Gazette
link to article
NILES — “State Attorney General Mike DeWine says he is pleased with tougher laws approved by the Ohio Legislature governing the oil and gas industry, but would like greater power to intervene on disputes involving landowners.
Speaking Tuesday before the Youngstown/Warren Regional Chamber’s government affairs council, DeWine, who previously served as a U.S. senator and as the state’s lieutenant governor, said his office often hears complaints from property owners that there is ‘confusion about the facts’ involving lease agreements they have reached regarding their property.
‘They think they were told one thing, signed some papers, then they found out something else after the fact. It’s kind of a typical consumer problem,’ he explained. However, his office doesn’t have jurisdiction to intervene because such transactions don’t fall under the state’s consumer sales practice act. ‘They’ – the landowners – ‘are the seller, not the buyer,’ he explained.
Giving his office the authority to ‘help these people, to mediate these problems, to go to bat for them when it’s appropriate’ would require action on the part of the General Assembly, and DeWine said he has asked for that authority.”
— George Nelson, The Business Journal
link to article
Chesapeake’s ties to Thunder questioned
OKLAHOMA CITY,OK — “Chesapeake Energy Corp., whose top executive invested in the Oklahoma City Thunder, almost doubled its spending on the professional basketball team during the past four years buying tickets, luxury box seats and naming rights for the home arena.
Chesapeake directors are under pressure to investigate conflicts between Aubrey McClendon’s duties as CEO and his personal finances, which include a 19.2 percent stake in the Thunder. New York City pension funds, which own 1.9 million Chesapeake shares, have complained about the company’s spending on the National Basketball Association squad.
While the $8 million expenditure so far this year on the team is less than half of what Chesapeake spends drilling for oil and gas in an average day, it underscores how the company’s board hasn’t always erred on the side of caution while overseeing McClendon’s potential conflicts of interest, some observers say.
— David Wethe and Jim Polson, Bloomberg News
link to article
AUSTIN,TX — “In the United States, an interesting discussion has occurred in Ohio, home of the booming Utica Shale, where state lawmakers passed a complex fracking regulation bill last week that includes disclosure requirements.
As originally proposed, the legislation would have required disclosure of the chemicals used throughout the drilling process, not merely in the fracking itself. The difference is that the term ‘fracking’ refers to a specific act, namely the breaking up of shale rock, and does not apply to many other parts of the drilling process, which runs from the initial drilling to the plugging of the well, not to mention the disposal of the waste.
‘There are a lot of nasty chemicals that are used throughout the life cycle of the well,’ said Matt Watson, the senior energy policy manager at the Environmental Defense Fund, which has been pushing for regulation of the whole process. The issue, he added, is spills, which are ‘the most common way that this stuff gets released into the environment.’”
— Kate Galbraith, New York Times
link to article
CLEVELAND — A network of consumer and environmental organizations from the Midwest today launched a new website to track developments at the controversial Prairie State coal-fired power plant, currently under construction in southern Illinois. The website, called “Prairie State Coal Plant Tracker,” is located at www.prairiestatecoalplant.org….
“Information about the delays and costs of the plant have been difficult for citizens and municipal officials to obtain, yet they are carrying virtually all of the financial risk for this plant,” explained Sandy Buchanan, Executive Director of Ohio Citizen Action. “We are launching this website to provide local officials, community residents, and the media with copies of important documents and news coverage.”
The groups sponsoring the website include Ohio Citizen Action, Citizens Action Coalition of Indiana, Kentuckians for the Commonwealth, the Illinois Chapter of the Sierra Club, and Missourians Organized for Reform and Empowerment (MORE).
— Press release Sandy Buchanan, Executive Director Ohio Citizen Action
link to press release
GRANVILLE — “This April, I went with a group to Carroll County, the new hot spot for deep shale drilling here in Ohio. Currently, there are about 20 wells. Soon, there will be thousands. Here’s what we saw and were told:
- Large pipeline clearings lace the countryside, 4 to 5 acre well pads grace the hilltops and huge semis stream through downtown Carrollton.
- Most gas-oil taxes go to the state with little staying locally.
- We were told, ‘Companies are always pushing the envelope.’ Gas-oil companies are moving so fast, it’s hard for local officials to make wise decisions.
- The Ohio Department of Natural Resources is not addressing community concerns about drilling in wetlands, headwaters and water protection areas.
- No one seemed to know who would pay for a major community disaster if one were to occur.
- Skilled workers needed by local businesses are taking jobs as truck drivers and security guards.
- Rents have doubled because of out-of-state workers. Some residents no longer can afford to rent locally.
- One farming family with a huge well pad behind their house and a large compressor station nearby said that if they could rethink their leasing decision, they would ‘fight like hell’ to keep it from happening.”
— Carol Apacki letter to the editor, Newark Advocate
link to letter
Pollutants in coal ash, as from Tampa Electric’s Big Bend plant, are poisoning the waters at nearly 200 U.S. sites.
TAMPA BAY — “Florida’s drinking waters are slowly being poisoned by a silent toxic menace. If certain members of Congress have their way, federal regulators will never be able to do anything about it. At Tampa Electric’s Big Bend Station near Apollo Beach, arsenic, boron, molybdenum and other toxic chemicals that can cause cancer and organ damage have already contaminated groundwater supplies. The cause: coal ash.
Big Bend and hundreds of other coal-fired power plants just like it burn millions of tons of coal every year. The resulting ash is often filled with toxic chemicals like arsenic, mercury, lead, chromium and more. Enough coal ash is generated each year to fill train cars stretching from the North Pole to the South Pole. This toxic waste is dumped into unlined and unmonitored landfills and ponds that contaminate nearby lakes, rivers, streams, creeks and aquifers that supply local residents with drinking water.”
— Dr. Lynn Ringenberg commentary, Tampa Bay Times
link to article
NEW YORK, NY —- “In a letter issued on Tuesday, New York State Comptroller Thomas DiNapoli said withholding votes from board members V. Burns Hargis and Richard K. Davidson was a ‘necessary first step toward reconstituting a board that is currently entrenched and unaccountable to shareholders.’
On Friday, activist investor Carl Icahn revealed he had taken a 7.6 percent stake in Chesapeake and called on the company to replace at least four directors.
Icahn asked the company for two board seats for his own representatives and two for another large shareholder such as Chesapeake’s largest, Southeastern Asset Management.”
— Anna Driver and Matt Daily, Reuters
link to article
COLUMBUS — “A ‘fracking’ executive, a state legislator and an oil-and-gas-industry lobbyist walk into a bar.
They’re pretty pleased with the way they’ve managed to keep some of the chemicals in fracking liquid secret from the public, and they’re ready to celebrate.
Under a bill passed by the legislature last week, people who fear that the secret chemicals sickened them or polluted their water could find out what those chemicals are only by filing a lawsuit after the fact.This seems reasonable to the trio, toasting the victory…”
— Joe Blundo commentary, Columbus Dispatch
link to article
WASHINGTON, DC — “Ohio Governor John Kasich showed real leadership earlier this month when he introduced an energy bill with the most comprehensive rules in the country for chemical disclosure during oil and gas operations. The Governor’s bill would have required disclosure of not only the chemicals used in hydraulic fracturing – as a number of other states have done – but also the full range of chemicals used throughout the lifecycle of a well. Hydraulic fracturing gets all the attention, but the Governor and his team understand that dangerous chemicals are also used in drilling, producing, servicing and shutting down wells. The entire process should be transparent from beginning to end — ‘from spud to plug,’ as it’s called.
This was smart policy when the Governor proposed it. And it’s smart policy today. Unfortunately, the energy bill passed yesterday by the Ohio General Assembly fails to fully deliver on that vision. In the face of intense industry opposition, lawmakers eliminated many of the reporting requirements contained in the original bill. EDF is disappointed the final bill does not live up to what Governor Kasich proposed, but we give the Governor credit for putting the idea forward and expanding the terms of the debate – both in Ohio and nationally.”
— Matt Watson, Environmental Defense Fund
link to article
We invite readers to check the claims in the above column against the bill Governor Kasich actually had introduced. The bill was formally sponsored by Ohio Senator Shannon Jones; the words “by request” after her name means that Kasich wrote it. As we discussed at the time, whatever Kasich’s vision was, the right-to-know had nothing to do with it.
— Paul Ryder, Assistant Director, Ohio Citizen Action
Investor Carl Icahn
NEW YORK, NY — “Billionaire investor Carl Icahn revealed he had bought a 7.6 percent stake in Chesapeake Energy Corp (CHK.N) and called for the natural gas producer to replace at least four directors, saying the board has failed ‘in a dramatic fashion’ in its oversight of management.
The corporate-raider-turned-activist investor asked the company for two board seats for his own representatives and two for another large shareholder such as Chesapeake’s largest, Southeastern Asset Management.
The news was the latest in a saga that has seen the company come under intense pressure from investors to improve its corporate governance after Reuters reported in April that Chesapeake Chief Executive Aubrey McClendon had taken out more than $1 billion in loans using his personal stakes in thousands of company wells as collateral.”
link to article
— Ben Lefebvre, Wall Street Journal
TOLEDO —”Many Ohioans are ambivalent about that speeding train and about how the rush by state leaders to accommodate oil and gas drillers could come at the public’s expense. General awareness of the oil industry’s accelerated interest in Ohio’s natural resources is limited to what is projected about new jobs and economic revival.
That’s how big money, behind the move to drill in areas of the state rich in Utica and Marcellus shale, effectively framed the fracking issue to Ohioans. The ploy worked brilliantly.
With voters fixated on the economy, politicians who might otherwise balk at the audacious demands of drillers — no severance tax, guarded disclosure of drilling fluids, no citizen appeal of drilling permits — caved in. Proceed at any cost.”
— Marilou Johanek commentary, Toledo Blade
link to article