Chesapeake Responds to "Crazy" Article in the New York Times -- Natural Gas

Update

June 27, 2011: EOG's CEO Mark Papa responds also. The article in question was outdated and used unnamed sources. Great opportunity to buy shares in natural gas companies during the pullback. CHK's CEO will be on James Cramer's "Fast Money" on Tuesday, June 28, 2011.

Original Post

Yesterday, Sunday, June 26, 2011, I linked a New York Times/MSNBC article that was so preposterous I thought it had been printed back in 2009. I guess I was wrong; it was actually published over the weekend. Maybe it was written in 2009 and accidentally released. I am absolutely blown away the Times could have been so wrong.

A big "thank you" to "anon 1" to alerting me to Chesapeake's response to this article. The following is just the beginning of their response:

Over the weekend The New York Times published this story on how the business of drilling natural gas out of shale is some sort of ponzi scheme, even Enron-like. The article suggested that there’s really not as much gas in these plays as the industry wants us to believe, that companies are making false claims about the productivity of wells, and that the costs of extracting the gas might be so high as to not be economic.

Most of this argument is absurd on its face. The United States is currently producing more natural gas than at any time in history, on track for 27 trillion cubic feet this year. This is thanks in large part to the breakthroughs in drilling shale formations. And development of these shales has only just begun. In fact, gas is so plentiful in the U.S. right now that companies like Cheniere Energy have gotten the green light to start exporting it.

The shale play that started it all, the Barnett of northern Texas, is today producing more than ever (5.6 billion cubic feet per day) despite there being half as many rigs working the land than there was two years ago (when production was 5.3 bcfd). As analyst Dan Pickering of Tudor, Pickering & Holt wrote in a note this morning, “If wells are declining faster than expected, the Barnett would not be at record production with reduced rig count.”

This reminds me of DKRW talking about a shortage of natural gas last year. They never responded to my queries, but today I see they have changed their mission statement regarding natural gas:

The most conservative estimates of North American natural gas supply shows a serious increase in production for the foreseeable future. With US supplies increasing and relative prices decreasing, DKRW believes Mexico will be a prime beneficiary of this cheap energy source.

To meet the need, DKRW along with our partners, is developing the Sonora Pacific Energy Hub in Puerto Libertad, Sonora, Mexico. Cooperation with the Sonora State government in the development of its energy infrastructure will ensure a long-term clean supply of energy that can displace less environmentally friendly forms of energy currently utilized in Sonora, and also fuel economic growth in the region.

This is what DKRW was saying on their website just one year ago:

The most conservative estimates of North American natural gas supply demonstrate a serious shortfall in production for the foreseeable future. With short supply driving prices higher, we are now seeing some of the highest natural gas prices in the world here in the Southwestern United States and Mexico. With so much of our energy infrastructure and industry tied directly to natural gas, it is necessary to identify and deliver more competitive supply options in order for the US and Mexican economies to grow. 

That was not true then. DKRW finally changed their website to match reality.

I can't make this stuff up.