Rolling Stone Responds to Chesapeake Energy on 'The Fracking Bubble'

Rolling Stone Contributing Editor Jeff Goodell has published a response on March 6, 2011 to Chesapeake Energy's rebuttal of his "The Big Fracking Bubble: The Scam Behind the Gas Boom" that was published on March 2, 2012.

The New York Post: Another Shale Gas Attack

On March 5, 2012, The New York Post featured a post called "Another Shale Gas Attack Full of Hot Air." The author, Abby W. Schachter, noted my dissatisfaction with being mis-quoted in the recent Rolling Stone article "The Big Fracking Bubble: The Scam Behind the Gas Boom."

She wrote, "Only trouble with the claim is the main person Goodell uses to substantiate this claim has now written that he was misquoted, that the reporter had a political agenda and that there is no truth to the reporter's claim."

She, apparently, has the same problem mis-quoting me as Goodell. I wrote that I was mis-quoted but never said that the author had a political agenda or that there was no truth to the reporter's claim.

The statements incorrectly attributed to me in Rolling Stone are "According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake 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."

What I wrote was "That may be what Goodell thinks but that is not what I said, think or imply."

The two quoted statements by me that follow in the same paragraph were accurately represented by Goodell.

I Was Mis-Represented in the Rolling Stone Article: The Big Fracking Bubble

"The Big Fracking Bubble: The Scam Behind the Gas Boom" by Jeff Goodell was published March 1, 2012 in Rolling Stone. I was interviewed by Goodell and was mentioned in the article. I sent the following rebuttal to the editors of Rolling Stone:

March 3, 2012

To the Editor:

I was interviewed by Jeff Goodell and mentioned in his recent Rolling Stone article "The Big Fracking Bubble: The Scam Behind the Gas Boom."

He wrote, "According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake 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."

I never said that Chesapeake or any other company involved in shale gas drilling is involved in or resembles a Ponzi scheme. That may be what Goodell thinks but that is not what I said, think or imply. I have expressed doubts about the viability of the shale gas business model used by some companies, but I do not question the legality of those business models. The term Ponzi scheme does not remotely apply to the way that exploration and production companies obtain capital and rationalize earnings.

Jeff Goodell may think that some shale gas companies are involved in Ponzi schemes, but such statements cannot be attributed to me.

Respectfully,

Arthur E. Berman

U.S. Shale Gas: Less Abundance, Higher Cost

SEE THE FULL POST ON THE OIL DRUM:

http://www.theoildrum.com/node/8212

Arthur E. Berman and Lynn F. Pittinger

Lynn Pittinger is a consultant in petroleum engineering with 30 years of industry experience. He managed economic and engineering evaluations for Unocal and Occidental Oil & Gas, and has been an independent consultant since 2008. He has collaborated with Berman on all shale play evaluation projects since 2009.

Introduction

Shale gas has become an important and permanent feature of U.S. energy supply. Daily production has increased from less than 1 billion cubic feet of gas per day (bcfd) in 2003, when the first modern horizontal drilling and fracture stimulation was used, to almost 20 bcfd by mid-2011.

There are, however, two major concerns at the center of the shale gas revolution:

• Despite impressive production growth, it is not yet clear that these plays are commercial at current prices because of the high capital costs of land and drilling and completion.

• Reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic.

These are not purely technical topics for debate among petroleum professionals. The marketing of the shale gas phenomenon has been so effective that important policy and strategic decisions are being made based on as yet unproven assumptions about the abundance and low cost of these plays. The “Pickens Plan” seeks to get congressional approval for natural gas subsidies that might eventually lead to conversion of large parts of our vehicle fleet to run on natural gas. Similarly, companies have gotten permits from the government to transform liquefied natural gas import terminals into export facilities that would commit the U.S. to decades of large, fixed export volumes. This might commit the U.S. to decades of natural gas exports at fixed prices in the face of scarcity and increasing prices in the domestic market. If reserves are less and cost is more than many assume, these could be disastrous decisions.

Executive Summary

Our analysis indicates that industry reserves are over-stated by at least 100 percent based on detailed review of both individual well and group decline profiles for the Barnett, Fayetteville and Haynesville shale plays. The contraction of extensive geographic play regions into relatively small core areas greatly reduces the commercially recoverable reserves of the plays that we have studied.

The Barnett and Fayetteville shale plays have the most complete history of production and thus provide the best available analogues for shale gas plays with less complete histories. We recognize that all shale plays are different but, until more production history is available, the best assumption is that newer plays will develop along similar lines to these older plays. There is now far too much data in Barnett and Fayetteville to continue use of strong hyperbolic flattening decline models with b coefficients greater than 1.0.

Type curves that are commonly used to support strong hyperbolic flattening are misleading because they incorporate survivorship bias and rate increases from re-stimulations that require additional capital investment. Comparison of individual and group decline-curve analysis indicates that group or type-curve methods substantially over-estimate recoverable reserves.

Results to date in the Haynesville Shale play are disappointing, and will substantially underperform industry claims. In fact, it is difficult to understand how companies justify 125 rigs drilling in a play that has not yet demonstrated commercial viability at present reserve projections until gas prices exceed $8.68 per mmBu.

SEE THE FULL POST ON THE OIL DRUM:

http://www.theoildrum.com/node/8212

Interview on Platts Energy Week TV

Arthur Berman, Houston-based Geoscientist, discusses a recent story featured in the NY Times that called into question whether the shale boom was akin to a ponzi scheme.
http://www.plattsenergyweektv.com/video/default.aspx#/Platts+Energy+Week%2DAlt/07.24.11+Latest+Controversy+Over+Shale+Exploration/78974462001/748923961001/1070933193001

National Legal and Policy Center Lacks Courtesy to Respond

On July 7, 2011, The National Legal and Policy Center's (NLPC) Chairman Kenneth Boehm published untrue and unsubstantiated statements about me. On July 12, I responded with demands for corrections that were published on this blog: http://petroleumtruthreport.blogspot.com/2011/07/smear-campaign-continues.html.

A week later, the NLPC has not shown the professional courtesy to respond to my request. I leave it to my readers to decide what this means about the NLPC.

The Smear Campaign Continues

Today, Mr. Kenneth Boehm, Chairman of the National Legal and Policy Center, wrote an e-mail to Arthur Brisbane,The New York Times Public Editor, in which he made false and unsubstantiated statements about my professional work and conduct:

http://nlpc.org/stories/2011/07/07/ny-times-asked-investigate-shale-gas-bubble-series

Mr. Boehm,

I demand a public correction and apology for the unethical, un-researched and un-investigated statements that you made about my professional activities and positions in your e-mail to Arthur Brisbane, Public Editor of The New York Times, and that are now reproduced on the NLPC website.

"Arthur Berman makes his living providing investment advice based upon his own position as a shale gas critic."

Your reference is to a news report on a technical talk that I gave pro bono two years ago that in no way supports your claim that I make my living providing investment advice.

In fact, I do not.

I am a petroleum geologist and have spent all of my thirty-three year career making maps, interpreting subsurface data, evaluating drilling prospects and advising clients on the technical risks of petroleum systems. I am a licensed geoscientist in the State of Texas and have held numerous unpaid positions as an officer in professional geological societies.

I have no experience as a financial advisor and have never given any client investment advice as you claim.

I have no position as a shale gas critic. I evaluate a broad spectrum of oil and gas opportunities in my work and have no bias toward any of them. If the petroleum system risk, reserve, rates and economics of a prospect or play do not meet threshold criteria, I provide this interpretation.

The fact that shale gas plays fail to meet these standard criteria does not make me a shale gas critic but, rather, an honest broker of objective data.

"The truth is that Mr. Berman is a very lonely proponent of this view. As much as he has tried for over three years, he has garnered virtually no scientific support."

Your reference is to a technical report that I published in World Oil, a respected industry journal (re-printed on my blog) that it no way supports your comments.

I suggest that you poll the thousands of technical professionals in the oil and gas business who have filled my invited pro bono technical presentations at professional societies all over the country for many years. Any rudimentary research would reveal that my publications and public lectures cover a spectrum of petroleum subjects of which shale gas is only part. Perhaps you should poll my many clients about the degree to which they find scientific merit in my work.

"In these emails, Mr. Berman appears to be corresponding with, among others, investors who missed out on the boom in shale gas and stand to gain, financially, from a devaluation of the natural gas industry."

You provide no reference for this ridiculous statement so it is obviously nothing more than unethical conjecture to support a bias that you appear eager to forward.

"Mr. Berman offers his views regularly to media outlets which service the investment community, consistently espousing views supportive of short sellers."

Your reference is to a blog by someone who I have never heard of who apparently heard a presentation that I made and summarized my conclusions. I never gave this person an interview and have no idea about his business. Your reference does not support your specious speculation.

I have no interest in or knowledge of short sellers. My business is geology not finance. I have never taken a short position and, frankly, would have to ask how to do it.

I called you today to discuss these and other matters but, since you did not give me the courtesy of a return call, I must write my comments.

Your written comments to Mr. Brisbane are in direct violation of the NLPC's stated purpose:

"NLPC promotes ethics in public life through research, investigation, education and legal action."

Your statements reflect a profound lack of ethics, research or investigation.

I have no interest in defending or otherwise taking the side of The New York Times about its article on shale gas. I do have deep interest in preventing people from making false and damaging statements about me while pursuing some agenda also outside of my interest.

I look forward to a swift rectification of your incorrect and unsubstantiated statements.

Sincerely,

Arthur E. Berman