Rolling Stone Article Launches Fracking Fight with Chesapeake

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Chesapeake Energy and Rolling Stone writer Jeff Goodell are battling over his March feature. The abridged version of the lengthy piece, unpacked further by Brantley, goes like this: Drilling appears to be a Ponzi scheme with Chesapeake's founder, Aubrey McClendon, as its leader. Neither McClendon nor Goodell are the type to back out of a fight, and right now Goodell is holding his own against the gas industry giant.

Chesapeake Energy, with its thousands of wells dotting the country's largest shale plays, owns the drilling rights to an area more than twice the size of Maryland, according to an undisputed part of the Rolling Stone feature. That's a damn powerful company, with much of its landholdings and active drill sites just outside of Dallas. In fact, the Dallas drilling task force toured a Chesapeake drill site in Arlington this summer.

So it's no surprise that McClendon, who shared a $400 bottle of Bordeaux with Goodell in the first paragraph, suited up for battle, issuing a point-by-point rebuttal of the article and a few serious jabs at his dining companion.

"Although our expectations for honesty and fairness were quite low, the writer failed to reach even that low bar," it read. "The writer clearly chose to ignore critical information and context that addressed the false allegations he chose to publish."

Then comes the charted matrix of purported lies: The company says that energy consultant Arthur Berman has a habit of underestimating natural gas reserves, as he did when he said Chesapeake and its competitors oversell the promise of future shale gas development to keep the company financially well-oiled in the present.

The chart includes a requisite box about Gasland, the expose documentary that's become a bible to anti-fracking activists. Many aspects of the film have been debunked, Chesapeake says. The rebuttal also says a Duke study that determined fracking was responsible for water well contamination was at least partially bogus because samples of the water before and after drilling indicate that quality did not change. Most of the points made by Chesapeake involve environmental concerns that are largely separate from the article's central point.

Or, in Goodell's words, from his response to the response: "The company entirely dodges the article's central point: that Chesapeake is a 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 went on to defend the tangential points refuted by Chesapeake.

Interestingly, one source who became wrapped up in this debate is Deborah Rogers, who spoke to the Dallas drilling task force back in August. Chesapeake chides Goodall for calling her a "former investment banker," without including that she's also a member of the Oil and Gas Accountability Project, an activist group working to ban fracking.

When she visited Dallas, she told the task force that it's questionable whether the financial benefits of drilling are as stable and certain as energy companies claim. She came to the conclusion: "This probably isn't the highest and best use of the land."

McClendon obviously feels otherwise, and with a portfolio of land the size of two Marylands, he's got a lot of chips on the table. But does that make him fracking's Bernie Madoff? As with most issues related to fracking, further exploration is necessary.

UPDATE: We received a response from Chesapeake shortly after this post went live. A representative of the company said the Rolling Stone article did not affect stock prices, investor relations, or personnel, and sent the following response.

Rolling Stone should stick to its core competency, which is all things liberal arts, not forming accurate financial opinions. The article greatly overstates our debt profile. Major credit ratings agencies reflect that we currently have modest financial leverage (BB+ at Standard & Poor's and Ba3 at Moody's). Our financial and operational strategy has been well articulated to the investment community and we believe we will improve to investment-grade debt metrics in the next few quarters.

Contrary to the magazine's flawed opinion, we have created substantial value from periodic sales of assets that have been central to growing our business without increasing debt or issuing new shares that would dilute common shareholders. The company's business model is to identify new areas that hold energy reserves, capture a large portion of them at a low cost, and then aggressively create production and cash flow utilizing the industry's most active drilling program. The ultimate success of our strategy will be dependent primarily on our drilling performance and future oil and natural gas prices.

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