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Chesapeake Energy Dismisses Earthquakes and Dead Cows -- Says Company Still "Clean and Green"

Thanks to dead cows, water-well explosions, and contaminated groundwater from drilling, Chesapeake Energy's effort to market natural gas as an environmentally friendly option to "filthy coal" hasn't gained much traction lately. Now comes word of another public relations disaster for the company: its wastewater wells apparently caused a series of small earthquakes at the Dallas/Fort Worth airport.

Chesapeake Energy (CHK) is the second largest provider of natural gas in the U.S. (behind ExxonMobil), producing an average of 2.4 billion cubic feet per day in the last quarter of 2009. As the most active explorer in the U.S. -- responsible for 1 of 7 gas wells being drilled -- the company is the face of the unconventional gas exploration business.

Sensitive to this responsibility, in 2007 the company introduced a new logo featuring innovative design elements, including a bright green stroke above its name. In particular, this symbol was meant to represent "the green earth and visibly communicate the company's commitment to the environment," Chesapeake's chairman and CEO, Aubrey K. McClendon, said at the time.

Per its greener image, the company issued a Water Use in Deep Shale Fact Sheet, highlighting how natural gas production uses significantly less water per BTU of energy produced than other fuel sources, such as coal, oil, or ethanol. Additionally, the U.S. natural gas industry accounts for only 3.2 percent of total Greenhouse Gas Emissions on a carbon dioxide equivalent basis.

Its "green and clean" message is falling flat. If environmentalists have their way, the flame in Chesapeake's logo would be snuffed out. Critics howl that the energy company's drilling method (like all shale exploration companies), known as hydraulic fracturing, used to extract its gas deposits is toxic (in all respects). Specifically, the process involves injecting (hazardous) chemicals into the ground under immense pressures to "fracture" the sand and dense, shale rock formations holding millions of cubic feet of natural gas.

Critics have long alleged that the chemicals used during "fracking," including diesel fuel and hydrochloric acid, find their way into aquifiers and watersheds, resulting in the contamination of drinking water used by millions of Americans (among other alleged safety violations).

Haliburton (HAL), a leading provider of drilling services to exploration companies like Chesapeake, counters that more than one million wells over sixty years have safely extracted oil and gas using the hydraulic fracturing process. In a Fracture Stimulation Position Statement the oil service provider emphasized that "sand and water make up more than 99 percent of the fracturing fluids used today," industry practices comply with all state regulatory statutes, and its safety procedures have effectively "prevented drinking water contamination."

Moo! Tell that to the twelve cows who dropped dead after drinking fracking fluids in Caddo Parish, Louisiana, last year.

And, now a team of university researchers from Southern Methodist University has concluded there's likely a link between a series of small earthquakes at Dallas/Fort Worth Airport and a Chesapeake injection well used to get rid of wastewater from natural gas drilling. The quakes started seven weeks after the well began operating in 2008 and stopped when the well was closed last summer.

Lead investigator Brian Stump stressed that the seismic activity was not an indictment of fracking or drilling procedures. (Chesapeake is a high profile player in the Barnett Shale (24% of proved reserves), and donates to many local causes in the Fort Worth area, according to local newspapers.)

If Stemp's apologist statement was meant to assuage Cheasapeake, I'm not quite sure it helped -- as his team's research only served to widen the net of supposed environmental disses committed by the company.

At every turn, whether its allegations of earthquakes or polluted wells, the company's refutation remains unflinchingly consistent:

In every state where we operate, the company is cognizant of the need to conserve water and protect groundwater resources. We always use safety measures such as surface casing and conductor pipe to ensure the integrity of freshwater formations. We isolate and safely dispose of any saltwater produced during the drilling process.
At December 31, proved reserves at Chesapeake grew 18.2 percent to 14.3 tcfe, all onshore in the continental U.S. Management has budgeted $3.3 billion for its drill bit program to grow its proved reserves by another 2.0 - 2.5 tcfe in 2010. With producing properties expected to decline approximately 28 percent from 2010 to 2011, the company is becoming more dependent on advances in hydraulic fracturing processes.

Save for some wastes generated by day-to-day natural gas operations, most regulation (including hydraulic fracturing) principally falls to the state level. Environmental groups are urging members of Congress to bring drilling of unconventional resources under federal control. This could easily be accomplished through a collective vote of the Senate and House -- without the need to create a new bureaucratic body. For example, regulation could fall under the influence of the EPA via an amendment to the Safe Drinking Water Act.

That said, environmentalists are naïve to think that the current crop of milquetoasts on Capitol Hill will engage in anything more than distracting (and useless) policy debates. It's going to take more than an earthquake to alter Chesapeake Energy's beguiling "clean and green" gas drilling activities.

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