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Energy Companies Overstating Shale Gas Production

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Gas companies may be overstating how effortless and economical natural gas extraction is, says the New York Times. Industry consultants and analysts provided e-mails to the Times saying they “believe that the public perception of shale gas does not match reality.”

The emails reveal industry skepticism about whether companies are misleading investors and the public about well production and gas extraction amounts. One email from an analyst compared natural gas drilling to “Ponzi schemes”; while, an analyst from PNC Wealth Management considered the practice “inherently unprofitable.”

Investors are attracted to the increasing size of gas extraction amounts reported by companies. However, e-mails suggest companies may be misleading investors by overestimating the amounts. According to the Times, the correspondences do not explicitly say companies are breaking the law, but “the number of e-mails, the seniority of the people writing them, the variety of positions they hold” and comparisons to illegal activities such as Ponzi schemes suggest otherwise.

Company data from more than 10,000 wells in three major shale gas formations showed several active wells are actually surrounded by large zones of less-productive wells, which may cost more to drill than the gas extracted is worth. Also, the economic downfall is making it more difficult for companies to turn a profit, reported the Times.

A retired geologist from a major oil and gas company analogized the industry’s realization of fewer profits to “having an Enron moment.”

Production data received by the Times revealed many wells are not performing as expected. Only less than 20 percent of the area in three major shale formations will be profitable under market conditions. If company expectations are not realized, the impact could drastically affect consumers and the environment. According to the Times, consumers will face increased electricity and home heating bills; while, faded wells will lead to additional drilling sites which can ultimately contaminate local water sources.

Even those in the industry question the probability of well production.

A geologist at Chesapeake Energy wrote in an e-mail, “Our engineers here project these wells out to 20-30 years of production and in my mind that has yet to be proven as viable. In fact I’m quite skeptical of it myself when you see the percent decline in the first year of production.”

Despite apprehension, others within the industry stand by their productivity projections arguing things will improve once gas prices increase.

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