Although the U.S. is placing many of its energy bets on shale gas, a new investigation by the New York Times indicates that the whole thing could be a giant scam.
Hundreds of industry e-mails and internal documents have just been released. And in these e-mails, energy execs, geologists, analysts and lawyers reveal a level of skepticism that until now, has been pretty well-hidden from the public.
Some concerns include the overstating of well productivity, economic viability and overall potential to deliver what the industry has promised.
Here are some excerpts from a few of the e-mails that were uncovered in the investigation. . .
August, 2009
An official from IHS Drilling writes. . .
The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work.
August, 2007
An official from an independent oil and gas exploration company writes. . .
What are these guys doing. I wonder how Southwestern, et al are getting their reserve estimates past the SEC?
November, 2009
An e-mail exchange between a geologist in Texas and a petroleum geologist who spent more than a decade at Phillips Petroleum. . .
I believe that you are factual in your analysis of the shale plays. It looks to me that the hype about these plays is creating a false sense of security for the American public.
August, 2009
An official at Anglo-European Energy writes. . .
The herd mentality into the shale will eventually end possibly like the sub prime mortgage did. In the meantime, it is very difficult to sell any type of prospect that is not a shale play.
Date unknown
An e-mail from an official at Suemaur Exploration writes. . .
I am a shale skeptic and think as an industry we are claiming that we have a long term solution to Americas energy problem but do not bother to tell anyone the potential cost. I am afraid we have a bunch of 25 year old analysts driving the boat and people who should know better looking the other way while peeling off part of the pie.
July, 2010
An official from oil and gas service company, Schlumberger writes. . .
All about making money. I'm working on a shale gas well that was just drilled in Europe. Looks like crap, but operator will flip it based on 'potential' and make some money on it. Always a great sucker. . .
February, 2011
A retired geologist who used to work at a major oil and gas company writes. . .
As I think you would agree, we are looking at a bubble here with caveats. The caveats are how corporate hubris and bad science have caused a lot of folks to think gas is nearly too cheap to meter. And now these corporate giants are having an Enron moment, they want to bend light to hide the truth. This bubble will burst, folks will get run over, reason will be restored, if only temporarily.
July, 2009
A senior official from energy investment firm, Ivy Energy writes. . .
Do you think that there may be something suspicious going with the public companies in regard to booking shale reserves? With so many public companies shale heavy (and in some cases, nearly one-shale ponies) it seems that a significant write down in reserves and valuation could render a number of large public companies unviable.
We looked at the Fayetteville Shale gas again and again, and couldn't make the numbers work. Perhaps we were simply looking at production numbers in the wrong area, but most of the wells were Southwestern or Chesapeake. They simply didn't work on a cash flow basis, and we were running our numbers at $6 wellhead gas. I don't understand how a company can be built on that sort of play, much less be trading where Southwestern is, if the play doesn't throw off any cash.
It has become increasingly clear that environmental concerns associated with shale gas production will not be enough to put regulatory pressure on these operations. After all, Obama's subcommittee on natural gas (designed to find ways to make the fracking process safer and cleaner) is comprised mostly of folks with direct ties to the oil and gas industry.
That whole thing is nothing more than one more dog and pony show. And if history has taught us anything, it's that environmental concerns never trump huge piles of cash that can buy bureaucratic roaches like cheap whores at U.S. Senate conventions.
But if the economics don't make sense, well that's another kettle of fish altogether.
If the numbers don't pan out, eventually the chickens come home to roost. So will the numbers pan out?
Only time will tell. But one thing is certain – every time we put all of our energy eggs in one basket, we get screwed.
And I'm sure our latest love affair with shale gas will ultimately prove to leave us lonely, unfulfilled and with a bad case of herpes.
To read more of these recently discovered e-mails, click here.
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