A natural gas drilling rig stands on a Chesapeake Energy Corp. drill site in Bradford County, Pennsylvania.Daniel Acker/Bloomberg via Getty Images
Aubrey McClendon, America's second-largest producer of natural gas, has never been afraid of a fight. He has become a billionaire by directing his company, Chesapeake Energy, to blast apart gas-soaked rocks a mile underground and pump the fuel to the surface. "We're the biggest frackers in the world," he declares proudly over a $400 bottle of French Bordeaux at a restaurant he co-owns in his hometown of Oklahoma City. "We frack all the time. What's the big deal?"
McClendon dominates America's supply of natural gas the same way the Tea Party-financing Koch brothers control the nation's pipelines and refineries. Like them, McClendon is an influential right-wing power broker – he helped fund the Swift Boat attacks against John Kerry in 2004, donated $250,000 to the presidential campaign of Rick Perry, and contributed more than $500,000 to stop gay marriage. But unlike his fellow energy czars, McClendon knows how to tone down his politics and present a friendlier, less ideological face to the public. He secretly gave $26 million to the Sierra Club to fight Big Coal, and built a Google-like campus for Chesapeake's 4,600 employees in Oklahoma City, complete with a 63,000-square-foot day care center, a luxurious gym and four cafes manned by cook-to-order chefs. He even voted for Barack Obama because he thought the country needed "an inspirational figure."
At 52, McClendon still looks like the whip-smart accountant he once aspired to be – crisp white shirt, polished shoes, a toss of white hair. To hear him tell it, the cleaner-than-coal fuel he produces will revive our faltering economy, free us from the tyranny of foreign oil and save the planet from global warming. "I have a fossil fuel that makes other fossil fuels obsolete," he boasts. By McClendon's estimate, the industry has drilled more than 1.2 million wells nationwide, yet so far there have been only a few confirmed cases where things have gone wrong – despite dire warnings from scientists and environmentalists that fracking pollutes rivers and streams, contaminates drinking water and turns large swaths of farmland into industrial moonscapes. "Where is the mushroom cloud?" McClendon asks. "Where are the dogs with one leg? Where are the people that have been maimed or hurt?"
He sips his Bordeaux; his own private wine cellar once boasted more than 10,000 bottles. It's a good riff, with some truth to it. But what McClendon leaves out is the real nature of the business he's in. Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners. For Chesapeake, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas. The company is now the largest leaseholder in the United States, owning the drilling rights to some 15 million acres – an area more than twice the size of Maryland. McClendon has financed this land grab with junk bonds and complex partnerships and future production deals, creating a highly leveraged, deeply indebted company that has more in common with Enron than ExxonMobil. As McClendon put it in a conference call with Wall Street analysts a few years ago, "I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas at $5 or $6 per million cubic feet."
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. "This is an industry that is caught in the grip of magical thinking," Berman says. "In fact, when you look at the level of debt some of these companies are carrying, and the questionable value of their gas reserves, there is a lot in common with the subprime mortgage market just before it melted down." Like generations of energy kingpins before him, it would seem, McClendon's primary goal is not to solve America's energy problems, but to build a pipeline directly from your wallet into his.
As recently as a decade ago, many energy experts believed that America was nearly pumped out – that the only oil and gas left here at home was too difficult and too expensive to get out of the ground. Until we can ferment synthetic fuels with genetically engineered yeast or develop solar cells as cheap as Frisbees, the argument went, we would be stuck buying oil from the Arabs.
Geologists had long known there was a lot more energy buried deep underground – they called these subterranean rock layers "the kitchen," because it was where the gas and oil were actually made, before they bubbled up and gathered in reservoirs. But nobody knew how to extract these deep reserves – at least, not in a way that made economic sense. Then, in the 1980s, a Texas wildcatter named George Mitchell began working on a way to drill a mile down into the earth, turn the drill sideways, and keep drilling horizontally into a thin layer of shale. Next, he pumped in a few million gallons of water and sand under enough pressure to shatter the rock. When he pumped the water out, gas and oil flowed out of the rock's fractured pores.
The new technique ignited a boom in drilling for "unconventional" sources of gas and oil: Shale gas now provides 25 percent of America's gas supply, enabling the U.S. to pass Russia as the world's largest producer of natural gas. Initially, even environmentalists were enthusiastic. Fred Krupp, who heads the Environmental Defense Fund, called the gas boom a "potential game changer" – a cleaner energy source that could replace coal and oil for a few decades, until the cost of wind and solar power dropped enough to put fossil fuels out of business. But exactly how much gas and oil we can continue to squeeze out of deep sources like shale rock is unclear. In his State of the Union address, President Obama estimated that there's enough to fuel the country for nearly 100 years. T. Boone Pickens, the energy billionaire who has a major stake in Chesapeake Energy, offers an even more sweeping assessment. "Natural gas," he tells me point-blank, "is the solution to America's energy problems."
At first, when oil and gas producers confined themselves to fracking in the wide-open spaces of Texas and Oklahoma, nobody much gave a damn. The trouble started in 2007, when drilling operators made a run on the Marcellus Shale, a broad region of gas reserves that stretches through Pennsylvania and up into Ohio and New York. Almost overnight, fracking's technological miracle was recast as the next great environmental menace. The Oscar-nominated film Gasland exposed the dark underbelly of fracking, interviewing residents who could literally light their faucets on fire, thanks to the gas that had contaminated their drinking water. Last year, The New York Times documented how gas drillers were dumping millions of gallons of irradiated wastewater loaded with toxic chemicals into Pennsylvania's rivers and streams, largely without regulatory oversight.
At the same time, scientists began to conclude that America's reserves of natural gas have been overhyped. In January, the Energy Department cut its estimate of the amount of gas available in the Marcellus Shale by nearly 70 percent, and a group affiliated with the Colorado School of Mines warns that there may be only 23 years' worth of economically recoverable gas left nationwide. Even worse, new studies suggest that because of fugitive emissions of methane from wellheads and pipelines, natural gas may actually be no better than coal when it comes to global warming. "I was an early optimist about natural gas," says Robert Kennedy Jr., who sits on a panel that's advising Gov. Andrew Cuomo on whether to allow drillers like McClendon to expand into New York. "But after looking into it, I now believe that, without tighter regulations and stricter oversight, the shale-gas boom could turn out to be an economic and environmental disaster."
The oil and gas business is full of guys like T. Boone Pickens, self-made men who rose from a hardscrabble life on the prairie to become titans of the industry. McClendon, by contrast, grew up awash in oil money: He's the great-nephew of Robert S. Kerr, the influential Oklahoma governor and senator who co-founded the Kerr-McGee Corp. in 1929. Kerr-McGee was the ExxonMobil of its time, an energy giant that eventually sold for $16 billion. McClendon's personal fortune is now estimated at $1.2 billion, including a major stake in the NBA's Oklahoma City Thunder and a $20 million retreat in Bermuda.
By the time McClendon headed off to college, at Duke University, he didn't have much interest in the family business. He majored in history, joined a frat and listened to a lot of Bruce Springsteen. But his real passion was accounting. "I just wanted to be a businessman," he says, "and to me, the best way to understand business was to be an accountant." He might have gone on to a steady, solid career at Arthur Andersen had he not come across an article in The Wall Street Journal during his senior year. "It was about two guys who had drilled a big well in the Anadarko Basin that had blown out, and it was alleged to be the biggest blowout in the history of the country," McClendon recalls. "They sold their stake to Washington Gas and Light and got a $100 million check. I thought, 'These are two dudes who just drilled a well and it happened to hit.' So that really piqued my interest."
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