Have Fracking Lies Been Told? Elected Officials Seek Answers from Gas Companies and S.E.C.

"Shale gas companies may be engaging in questionable accounting tactics and may be taking advantage of loopholes in S.E.C. regulations to artificially inflate estimates of their gas reserves." -- Rep. Maurice Hinchey in a letter to S.E.C. chairman Mary. L. Schapiro

Did New York gas companies mislead investors about the futures and risks associated with hydraulic fracturing, a.k.a. hydrofracking? The answer to this question may soon be known, as New York State Attorney General Eric T. Schneiderman recently issued subpoenas to Talisman, Chesapeake Energy, E.O.G. Resources, Baker Hughes and Anadarko, five of the state's largest hydrofracking companies, seeking information about their research and what they told their investors.

"This is likely an attempt to figure out what hydrofracking companies know about the technology, and when they knew it," says Gregory S. Hoffnagle, an attorney who has studied the legal risks of hydrofracking. "To some extent this is about the environmental risks, but it's likely more to do with the statements these companies have made to shareholders and investors in order to secure financing for hydrofracking projects." Hoffnagle added, "The risks and benefits of hydrofracking are actually more nuanced than the energy companies may have presented, and regulators and lawmakers may be seeing smoke and trying to find the fire."


In the meantime, pressure continues to mount on the natural gas industry, and it's not the kind of pressure that breaks up underground shale formations to release methane. The sector is facing a growing chorus of citizens and elected officials who are concerned about the environmental risks associated with hydrofracking, which makes fissures in the Earth's surface using a super-pressurized injection of water mixed with a cocktail of dangerous chemicals that include a carcinogen (benzene), a neurotoxin (lead) and several other toxic substances like ethylene glycol, methanol and 2-butoxyethanol.

Environmentalists are concerned about leaks, as the process entails drilling through aquifiers and surface water. There are also concerns about the potential for creating seismic activity, surface layers of the ground collapsing and the release of combustible gases into homes and drinking water.


On Friday, fracking opponents cheered the decision by the Delaware River Basin Commission, a federal interstate agency comprised of the governors of Delaware, New Jersey, New York and Pennsylvania, to delay a vote that had been scheduled for today on regulations that would allow the natural gas industry to hydrofrack the Delaware River Watershed in search for fossil fuel.

The move came just hours after Delaware Governor Jack Martell told his fellow commissioners that he would vote no, joining New York's commitment to vote no. New Jersey and Pennsylvania were expected to vote yes, splitting the four state governors across party lines and leaving the deciding vote to the commission’s fifth member, the U.S. Army Corps of Engineers, which did not indicate its vote. Three votes are required to approve the regulations.

Schneiderman, who filed a suit in May against the Army Corps of Engineers, the U.S. Fish and Wildlife Service, the National Park Service, the Department of the Interior and the Environmental Protection Agency for their failure to comply with the National Environmental Policy Act of 1969 by not executing a full environmental review of the proposed regulations, said that Friday's decision "further demonstrates that the proposed regulations for fracking in the Delaware River Basin are not ready to see the light of day."

"Without a full, fair and open review of the potential risks of fracking in the Basin, the public will continue to question the federal government’s ability to protect public health and environment," said Schneiderman, who was elected last year with the support of environmentalists.


In June, four federal lawmakers -- Representative Edward J. Markey (D-Mass.) and Maurice Hinchey, Carolyn B. Maloney and Jerrold Nadler, all Democrats of New York -- sent letters "calling for the S.E.C. to reconsider recent rule changes that allow companies to avoid disclosing details about the proprietary technology used to predict future gas production and to avoid some third-party audits of those predictions," according to The New York Times. "They asked the commission whether third-party reserves audits should be made mandatory."

"Shale gas companies may be engaging in questionable accounting tactics and may be taking advantage of loopholes in S.E.C. regulations to artificially inflate estimates of their gas reserves," wrote Rep. Hinchey in a June 27 letter to S.E.C. chairman Mary L. Schapiro.

"Given the rapid growth of the shale gas industry and its growing importance for our country's energy portfolio, I urge the S.E.C. to quickly investigate whether investors have been intentionally misled. In addition, I urge the S.E.C. to consider updating its oil and gas reserve reporting requirements to provide greater disclosure to investors and the public by, for example, requiring third party audits and requiring companies to reveal the methodologies and technologies they use to develop reserve estimates," Hinchey wrote.


A loophole exempts gas companies from EPA regulations, which makes it much easier to shoot toxic chemicals through the groundwater and into the Earth’s surface. Before 2005, paragraph (1) of section 1421(d) of the Safe Drinking Water Act (42 U.S.C.) stated:

"The term 'underground injection' means the sub-surface emplacement of fluids by well injection. Such term does not include the underground injection of natural gas for purposes of storage."

Now, thanks to what is known as the "Halliburton Loophole" -- an amendment to the SDWA inserted into the Energy Policy Act of 2005 by Representative Joe Barton (R-Tex.) and Senator James Inhofe (R-Okla.) at the urging of Vice President Dick Cheney (hence the loophole’s nickname) -- that paragraph now reads:

"The term 'underground injection' means the sub-surface emplacement of fluids by well injection; and excludes the underground injection of natural gas for purposes of storage; and the underground injection of fluids or propping agents (other than diesel fuels) pursuant to hydraulic fracturing operations related to oil, gas, or geothermal production activities."

What a difference 23 words make. With the Halliburton Loophole, gas companies are liberated from having to worry about obeying laws meant to protect public health and the environment.


In March, Representative Diana DeGette (D-Colo.), Chief Deputy Whip and a ranking member of the House Subcommittee on Oversight and Investigations, reintroduced the FRAC Act (Fracturing Responsibility and Awareness of Chemicals Act, H.R. 1084), which was originally introduced in 2009 (H.R. 2766, S. 1215), to repeal the hydrofracking exemption and close the Halliburton loophole.

Passing the FRAC Act would be a massive victory for the anti-frackers, but for now, the delay in a key vote on fracking the Delaware River Basin is welcome news. And while it may have given the opposition fresh fuel for the fire, it's a fire that they definitely don't want caused by combustible gases in the drinking water.



Ibid., 1.

image: Hydraulic fracturing tower for drilling horizontally into the Marcellus Shale Formation for natural gas, north of Pennsylvania Route 118 in eastern Moreland Township, Lycoming County, Pennsylvania, November 2009 (Ruhrfisch, Wikimedia Commons)