Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on August 18, 2011 at 15:30

Wall Street Journal article:

 

By DANIEL GILBERT

New York state's Attorney General recently issued subpoenas to several energy companies requesting details of how they value their natural gas discoveries, the latest evidence of increasing regulatory scrutiny of gas drillers.

In addition to the long-standing debate over the environmental impacts of drilling, public officials now are raising questions about whether some companies have accurately represented the amount of gas they can profitably produce. The attorney general's subpoenas follow similar inquiries that the U.S. Securities and Exchange Commission has made of other companies.

Taken together, the inquiries underscore how regulators' concerns are expanding beyond the controversial process of extracting gas from shale rock, known as hydraulic fracturing, which has so far dominated the debate over natural-gas development.

New York Attorney General Eric Schneiderman last week sent subpoenas to Range Resources Corp., Goodrich Petroleum Corp. and Cabot Oil & Gas Corp. seeking information on how they calculate their natural gas reserves and how they represent their profitability to investors, according to a person with direct knowledge of the probe. The subpoenas also seek information on the cost and longevity of wells, this person said.

Goodrich confirmed it had received a request for information. Range and Cabot did not respond to requests for comment.

The New York Times reported the subpoenas on its website on Thursday.

Some industry critics have questioned the longevity of the shale boom and have suggested that companies will struggle to turn a profit unless prices rise sharply. Defenders of drilling however challenge those claims, noting that giants such as Exxon Mobil Corp. have invested billions of dollars on U.S. natural gas exploration.

Mr. Schneiderman requested the same information from Chesapeake Energy Corp. in an addendum to a subpoena issued in June on how it discloses environmental risk, said the person familiar with the matter. The subpoenas were issued under the Martin Act, which gives the attorney general broad authority to obtain documents from companies that operate in New York.

"We are confident our production and reserves numbers are accurate and compliant with SEC requirements," a spokesman for Chesapeake said in an email.

Marcellus Shale Coalition, an industry group, said Mr. Schneiderman's probe was politically motivated and likely to show that companies are "producing volumes of energy no one previously thought possible."

A focus of Mr. Schneiderman's probe is whether companies are abusing the license they were given in estimating their reserves, as the result of a 2008 change in SEC rules.

Before the rules changed, companies had to estimate reserves based on the production of nearby wells. The revamp allowed them to calculate their reserves from wells they have planned to drill but have not developed over a larger territory, enabling them to book greater volumes of gas.

The change came as producers increasingly turned to mining natural gas from shale formations, layers of rock that tend to have the same mineral deposits and extend for hundreds of miles. Companies have unlocked these reserves by using horizontal drilling and fracturing the shale in multiple places with a high-pressure mixture of water, sand and chemicals. Hydraulic fracturing has drawn scrutiny from environmentalists and regulators concerned about its impact on water and air quality. The companies have said their drilling techniques are safe.

Environmental Advocates of New York, which calls for tougher regulation of the gas industry, applauded Mr. Schneiderman's probe, though the group is not specifically concerned with how companies book their reserves.

"We're interested in any effort that is going to encourage the industry to be honest and upfront about its intentions in New York," said Erica Ringewald, a spokeswoman for the group.

—Jacob Gershman and Angel Gonzalez contributed to this article.

• ▶ Reply

Permalink Reply by Craig Wascom on August 18, 2011 at 15:50

This is just what our country needs. What about the economic impact! There is no doubt that we can clean up the enviroment if we shut down all industy why stop at oil and gas.

• ▶ Reply

Permalink Reply by Joe Aldridge on August 18, 2011 at 17:49

Craig, 

You make a valid point. Look at the exodus of companies in manufacturing. We are no longer a manufacturing country because of regulation. We are a service country and service makes nothing. Wouldn't it be ironic if these companies started pulling out of the NYSE and listing their stocks on other exchanges worldwide. 

• ▶ Reply

Permalink Reply by JHH on August 19, 2011 at 0:40

Thanks, interesting article.  Just seems like the threat of government is always around just before policy is decided. I suppose this goes hand-in-hand with discussions of an energy policy that lawmakers are incapable of producing without getting something back.  I liked the last quote in the article from Erica Ringewald about "honesty".  That's a good one.  HA!  Maybe the government can require MTBE in gasoline and then fine refiners for contaminating ground water with MTBE. Sorry for the rant.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on August 19, 2011 at 2:18

The SEC and New York State Attorney General are looking into the accounting practices of these firms.  More specifically how they book reserves.  This is also about long overdue oversight by regulatory agencies that dropped the ball previously allowing the stock market to crater because financial firms were selling risky investments and having them graded as AAA.  That also the reason that Standard & Poors is under investigation.  These actions are taken to protect share holders and investors.

• ▶ Reply

Permalink Reply by JHH on August 19, 2011 at 2:31

Very good, i hope. thanks

• ▶ Reply

Permalink Reply by JHH on August 19, 2011 at 9:37

Maybe the SEC ought to subpoena CEMI... PDQ.

• ▶ Reply

Permalink Reply by FXEF on August 20, 2011 at 10:47

All corporations, not just O&G industry, participate in unethical accounting practices. They just throw a little raw meat to the vultures (all politicians) and continue on with their scandal.

• ▶ Reply

Permalink Reply by Bacon on August 20, 2011 at 23:27

Thanks.

• ▶ Reply