's supply of natural gas the same way the Tea Party-financing Koch brothers control the nation's pipelines and refineries. Like them, McClendon is an influential right-wing power broker – he helped fund the Swift Boat attacks against John Kerry in 2004, donated $250,000 to the presidential campaign of Rick Perry, and contributed more than $500,000 to stop gay marriage. But unlike his fellow energy czars, McClendon knows how to tone down his politics and present a friendlier, less ideological face to the public. He secretly gave $26 million to the Sierra Club to fight Big Coal, and built a Google-like campus for America Chesapeake's 4,600 employees in , complete with a 63,000-square-foot day care center, a luxurious gym and four cafes manned by cook-to-order chefs. He even voted for Barack Obama because he thought the country needed "an inspirational figure." Oklahoma City
Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners. For
, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas. The company is now the largest leaseholder in the Chesapeake United States, owning the drilling rights to some 15 million acres – an area more than twice the size of . McClendon has financed this land grab with junk bonds and complex partnerships and future production deals, creating a highly leveraged, deeply indebted company that has more in common with Enron than ExxonMobil. As McClendon put it in a conference call with Wall Street analysts a few years ago, "I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas at $5 or $6 per million cubic feet." Maryland
According to Arthur Berman, a respected energy consultant in
Texaswho has spent years studying the industry, and its lesser competitors resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling. When the wells don't pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods. "This is an industry that is caught in the grip of magical thinking," Berman says. "In fact, when you look at the level of debt some of these companies are carrying, and the questionable value of their gas reserves, there is a lot in common with the subprime mortgage market just before it melted down." Like generations of energy kingpins before him, it would seem, McClendon's primary goal is not to solve Chesapeake 's energy problems, but to build a pipeline directly from your wallet into his. America
[The US Dept. of Energy's research arm the Energy Information Administration] recently downgraded its estimate of US shale gas reserves by more than 40 percent, from 827 trillion cubic feet to 482 trillion. Even more significant, the Marcellus Shale Formation of the Northeast, widely considered the most promising shale gas “play,” was downgraded from 410 trillion cubic feet in the 2011 estimate to 141 trillion in the 2012 report—an eye-catching drop of 66 percent. These revisions are said to represent greater experience in drilling, which, as noted, tends to produce many dry wells.
the likelihood of disappointing production figures is the steady growth of the anti-fracking movement in many parts of the country. Not only does the well-drilling disrupt rural communities, producing round-the-clock noise and traffic from heavy tankers and trucks; the use of toxic chemicals to liberate the gas threatens the safety of water supplies in a variety of ways, from the leaking of the toxic fracking water into underground aquifers to the dumping of the returned water (called flowback) into municipal water-treatment systems, which are not equipped to handle them. As these irritants and dangers have multiplied, more and more people are demanding strict county and state regulation of—if not an outright ban on—fracking, and the Obama administration is considering tougher federal standards. The anti-fracking activism will probably not halt the expansion of shale gas production, but it will certainly reduce the number of wells, lowering total output.
's land operation became almost as technologically sophisticated as its drilling operation, with a huge databank of property records and mineral-ownership rights across the country. "The goal is not just to pump gas," explains Pickens. "It's also to lock up future reserves." The company's financial statements estimate that it currently holds drilling rights to as much as 100 trillion cubic feet of gas – enough to supply the entire country for five years. Chesapeake
The problem with all sophisticated technology, of course, is that things inevitably go wrong. Last April, a
Chesapeakewell in suffered a massive blowout. It was the onshore, natural gas version of what happened to BP in the Gulf two years ago: A wellhead flange failed, and toxic water gushed uncontrollably from the well for several days before workers were able to bring it under control. Seven families were evacuated from their homes as 10,000 gallons of fracking fluid spilled into surrounding pastures and streams. Bradford County fined the company $250,000 – the highest penalty allowed under state law. Pennsylvania
Well failures, in fact, are fairly common at drilling sites. I ask Anthony Ingraffea, an engineering professor at
Cornell Universityand a former consultant for oil-service firms, to look at the 141 violations levied against Chesapeakein last year. According to Ingraffea, 24 of them involved failures of well integrity. "When a well loses integrity, it means the seal is broken and something – usually methane, but it could also be flowback water – is leaking out underground," he says. "And it's impossible to know where it is going, or in what amounts." Pennsylvania
It's also impossible to know what chemicals are flowing out of the wells, or how toxic they are, because companies like
are not required to disclose the compounds they use in fracking operations. Providers of fracking fluids, such as Halliburton, claim that the composition of such fluids can't be revealed without disclosing trade secrets. In 2005, the industry lobbied hard for what's known as "the Halliburton loophole," which exempts it from federal disclosure requirements. In recent months, Chesapeake Colorado, Texasand have moved to tighten state regulations and require mandatory disclosure of what's in the fracking fluids, but loopholes still remain. "We don't know the chemicals that are involved," Vikas Kapil, chief medical officer at the Pennsylvania for Environmental Health, admitted at a recent conference. "We don't have a great handle on the toxicology of fracking chemicals." National Center
Much of what McClendon says is misleading – wind power is as cheap as gas in some places and falling fast, and cutting back on gas doesn't have to mean burning more coal. But his plan is clear. He's not going to back off until every last square foot of shale rock in
is drilled and fracked and sucked clean of gas. McClendon may rely on sophisticated new drilling technologies, but at heart, he's driven by the same dream of endless extraction that has gripped oil barons and coal companies since the dawn of the Industrial Revolution. In the end, all his talk of energy independence and a cleaner, brighter future boils down to a single demand, as simple as it is disastrous:Drill, baby, drill. America