File this one under B for Be Careful What You Wish For. The leading US fossil fuel company Chesapeake Energy was among the first to take advantage of the natural gas fracking free-for-all sparked last year, when the Trump* administration opened up more public lands for drilling. That lead to a supply glut. Now all of a sudden Chesapeake is blaming low prices for its current predicament, which is pretty bad. Go ahead and file that under W for We Might Be Going Out Of Business. Jeeze, who coulda seen that coming?
The Natural Gas Fracking Boom
The US gas fracking boom launched shortly after 2006, when the Bush administration created a gaping loophole in federal water safety regulations. The shift in the regulatory landscape opened up new shale gas fields for exploitation.
The results were predictable from an environmental perspective, and from a financial one, too. By 2012, gas prices were going through the floor and industry observers began warning that the pace of drilling activity was becoming unsustainable.
Natural Gas Fracking In The Dumps
Chesapeake Energy and other oil and gas stakeholders stayed alive on their ability to keep drilling new wells no matter what the market was doing. Some may call that a Ponzi scheme, but whatever you call it, low gas prices have proved no obstacle to drilling.
Chesapeake is a case in point. According to a report yesterday on Bloomberg Wire, in the years following 2006 Chesapeake raced to the top of the fracking pile. By around 2010 the company nailed down a slot as the nation’s second-largest driller and was valued at $37.5 billion.
However, the warning signs were clear. Regardless of its tip-top status in the oil and gas industry, by 2016 the company was burdened by “billions of dollars” of debt.
Now Chesapeake’s value is down to a measly $2.6 billion. The company also continues to shoulder significant debt, despite a three-year effort to turn itself around.
Yesterday Chesapeake issued a quarterly filing in which it admitted that if low oil and gas prices continue, there will be “substantial doubt about our ability to continue as a going concern.”
Traders promptly ran for the exits and the company’s stock took a dive.
Natural Gas Fracking On Public Land
As for the role of the Trump administration public land policy in Chesapeake’s woes, take a look back to October of 2018, when The New York Times took a measure of the new policy:
Seeing growth and profit opportunities at a time of rising oil prices and a pro-business administration, big energy companies like Chesapeake Energy, Chevron, and Anschutz Exploration are seizing on the federal lands free-for-all, as they collectively buy up tens of thousands of acres of new leases and apply for thousands of permits to drill.
At the time, Chesapeake was already sliding away from “ability to continue” territory. Nevertheless, the company jumped at the chance to add to its shale gas portfolio. It acquired the leading shale gas explorer WildHorse Resource Development Corp. in October last year, shortly after WildHorse announced a slew of new leases.
As for drilling no matter what the market is doing, the public lands feeding frenzy is another case in point, and not just for Chesapeake. Drilling activity has increased without adequate plans for taking the product to market.
In last year’s report, for example, The Times attributed a 72% increase in methane flaring from oil and gas wells in Wyoming to the lack of pipelines and other transportation infrastructure.
Revenge Of The Sage Grouse
The damage to public lands will take years (if ever) to undo, but in consideration of Chesapeake’s financial woes let’s hear it for the sage grouse. This uniquely interesting bird has become a flashpoint for the battle over land preservation and fossil fuel activity in Wyoming and elsewhere in the western US.
In 2017 the conservation organization Western Values Project got hold of correspondence indicating that Chesapeake was among a group of companies represented by the Independent Petroleum Association of America, which was pushing to lift protections for the sage grouse in Wyoming.
Apparently the effort succeeded and the sage grouse population has plunged over the past couple of years.
Well, well. If the bird is going down, it’s taking Chesapeake along for the ride.
CleanTechnica is reaching out to the Western Values Project for more insights into the public lands situation, so stay tuned for more on that.
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Image: National Energy Technology Laboratory/US Department of Energy.