From: Aubrey McClendon
Sent: Sunday, June 26, 2011 8:37 PM
To: All Employees
Subject: FW: CHK's response to 6.26.11 NYT article on shale gas
Dear CHK Employees: By now many of you may have read or heard about a story in today’s New York Times (NYT) that questioned the productive capacity and economic quality of U.S. natural gas shale reserves, as well as energy reserve accounting practices used by E&P companies, including Chesapeake. The story is misleading, at best, and is the latest in a series of articles produced by this publication that obviously have an anti-industry bias. We know for a fact that today’s NYT story is the handiwork of the same group of environmental activists who have been the driving force behind the NYT’s ongoing series of negative articles about the use of fracking and its importance to the US natural gas supply growth revolution – which is changing the future of our nation for the better in multiple areas. It is not clear to me exactly what these environmental activists are seeking to offer as their alternative energy plan, but most that I have talked to continue to naively presume that our great country need only rely on wind and solar energy to meet our current and future energy needs. They always seem to forget that wind and solar produce less than 2% of America electricity today and are completely non-economic without ongoing government and ratepayer subsidies.
During the past seven years, Chesapeake has helped create an extremely disruptive and valuable technology in the form of shale gas, and now shale oil is on the way, and hopefully it too will be as disruptive, and will lead to lower oil prices, a stronger economy and fewer foreign military entanglements. Since the shale gas revolution and resulting confirmation of enormous domestic gas reserves, there has been a relatively small group of analysts and geologists who have doubted the future of shale gas. Their doubts have become very convenient to the environmental activists I mentioned earlier. This particular NYT reporter has apparently sought out a few of the doubters to fashion together a negative view of the U.S. natural gas industry. We also believe certain media outlets, especially the once venerable NYT, are being manipulated by those whose environmental or economic interests are being threatened by abundant natural gas supplies. We have seen for example today an email from a leader of a group called the Environmental Working Group who claimed today’s articles as this NYT reporter’s “second great story” (the first one declaring that produced water disposal from shale gas wells was unsafe) and that “we've been working with him for over 8 months. Much more to come. . .”
But I wanted you to know that this reporter’s claim of impending scarcity of natural gas supply contradicts the facts and the scientific extrapolation of those facts by the most sophisticated reservoir engineers and geoscientists in the world. Not just at Chesapeake, but by experts at many of the world’s leading energy companies that have made multi-billion-dollar, long-term investments in U.S. shale gas plays, with us and many other companies. Notable examples of these companies, besides the leading independents such as Chesapeake, Devon, Anadarko, EOG, EnCana, Talisman and others, include these leading global energy giants: Exxon, Shell, BP, Chevron, Conoco, Statoil, BHP, Total, CNOOC, Marathon, BG, KNOC, Reliance, PetroChina, Mitsui, Mitsubishi and ENI, among others. Is it really possible that all of these companies, with a combined market cap of almost $2 trillion, know less about shale gas than a NYT reporter, a few environmental activists and a handful of shale gas doubters? I seriously doubt it and I expect you do as well.
It is also ludicrous to allege that shale gas wells are underperforming as we sit awash in natural gas, with natural gas prices less than half of what they averaged in 2008. I also note that CHK and other shale gas producers are routinely beating our production forecasts – how can shale wells be underperforming if shale gas companies are beating their production forecasts and as US nat gas production has recently surged to new record highs (in fact, in 2009, thanks to shale gas, the US passed Russia as the largest natural gas producer in the world). Also, isn’t it completely illogical when this reporter argues that shale gas wells are underperforming, yet acknowledges that gas prices are less than half the price they were three years ago. Today gas shale production represents 25% of US natural gas production, if it were underperforming, how come gas prices are so low when US gas demand is at a record high?
This reality of generations’ worth of natural gas abundance is also supported by virtually every credible third-party expert, such as the U.S. Energy Information Administration, the Colorado School of Mines’ Potential Gas Committee, the Massachusetts Institute of Technology, Navigant Consulting and others. You also need to know that all these facts and others were provided to the newspaper by our media team well in advance of publication and the NYT predictably choose to ignore them.
By analyzing actual Chesapeake well performance, we know that the initial productivity associated with a majority of our shale gas wells have been steadily improving over the years in all of our gas shale plays, both in initial production rates and the expected ultimate recoveries of natural gas. We fully expect that the majority of these wells will be productive for 30-50 years, or even longer. In fact, the industry has vertical Devonian Shale wells in Appalachia that have been producing natural gas for more than 100 years, and I believe it is quite likely many of our horizontal shale wells will produce for a similar length of time. Further, there is no reason to believe that shale gas wells will have shorter lives than our conventional wells – some 8,000 of which are 30 years old or older.
As far as accounting practices, we follow full-cost accounting rules to the letter and routinely have our filings reviewed by the U.S. Securities and Exchange Commission, as is typical for any public company of our size. The same holds true for the rest of our industry – our reserve accounting techniques are strong and have stood the test of time for decades. In 2008 in fact, the SEC recognized that the prior rules regarding direct offset wells were too restrictive, especially in shale plays where producing horizontal wells typically prove up larger areas for development. Once a shale gas play becomes well-defined by drilling results, exploration can be more accurately described as a manufacturing process because well outcomes become very predictable, substantially reducing risk. We believe that the new modernized SEC rules very reasonably reflect the advancements in our industry’s ability to predictably produce oil and natural gas resources from unconventional formations.
In summary, you work for a great company and a great industry that is changing our country (and someday our world), much for the better. We have detractors out there, as any successful company or person has, but there are other, more prestigious and less biased, publications that really do understand the big picture as you can read today on myCHK.com and through the links I have provided below. Again, thank you for all your hard work in building our company and in delivering to all Americans a brighter future through more affordable energy, more American energy, more clean energy and more job and wealth creation. Sure, it's become a little noisier in the media since we started moving some folks’ cheese, but we will remain committed to state of the industry performance in all that we do and we will now re-double our efforts to educate as many people as possible so that they may know the truth from us rather than distortions and dishonesty from others.
We hope that every Chesapeake employee can be part of our public education outreach. At more than 11,000 strong, we are an army of “factivists” – people who have knowledge of the facts and the personal knowledge and ability to spread them. You can do this by talking to your families, friends and others in your spheres of influence (schools, churches, civic organizations, etc) about the kind of company you work for and the integrity of what we do every day for our shareholders, our communities, our states, our nation, our economy and our environment. You don’t have to be an expert to stand up and tell folks that Chesapeake is committed to doing what’s right – and that commitment is expressed every day by you and your colleagues across the company.
You can also get involved by joining Chesapeake Fed PAC, our political action committee. Our opponents are extremely well funded and organized. We need to make sure our voice is heard in Washington, DC and with elected officials who are making decisions that affect our industry, our company and our ability to operate in the many states in which shale gas and oil have been discovered. The Chesapeake Fed PAC is an important way to reach the decision makers who can impact our business for better or worse. Please look out for more information on this effort soon inviting you to support this important effort with a contribution. Thanks to each of you for making Chesapeake a leader in all we do. Aubrey
PS: please see the links below for further information:
PSS: never forget a few other important facts:
1) The US natural gas industry is providing a direct daily economic stimulus to the economy of $250 million through lower gas prices from 2008. The indirect economic effects are likely many times this amount.
2) The US natural gas industry has created more than 500,000 jobs in the past 7 years of the gas shale revolution and created tens of billions of $ in economic value at the same time, plus reduced the amount of coal and oil burned in the US – I ask you, what value has the NYT or environmental activists created during these same past seven years? You either create value in this world or you consume/destroy it – we are value creators, please never forget that and know that you are on the right side of history, they are not, so always stand tall and proud for CHK and our industry.