Part I dealt with the first stage of the natural gas (NG) con: buttonholing the mark, getting his attention and setting him up for the next two stages. Part II begins with second stage of the swindle, baiting the hook, and concludes with stage three, getting the mark's money or signature.

The Con: Baiting the hook.

“The four-state span of Marcellus Shale has 1,307 trillion cubic feet of recoverable natural gas,” say the frackers. “And gas wells can last up to 60 years. That's a constant stream of dividends for the shareholders and royalties for the lessees for the rest of their lives.” The fracker continues, “It's a green, money-making machine that's the answer to high-priced Arab oil.”

Well, not quite.

The 1,307 - the “7” lends credibility - trillion cubic feet (Tcf) of recoverable NG is airily optimistic. This gas company's figure is as inflated as a hot air balloon; it's meant to lure investors. Let's examine this 1,307 Tcf guesstimate.

The total NG reserve in the entire nation is 1,836 Tcf. But of this only 616 Tcf is from shale. And of this 616 Tcf only 50-75 Tcf is economically recoverable at twice the current price of NG.

It's easy to see the frackers 1,307 Tcf is more figment than figure.

As for the 60-year gas well lifespan, it's castles in the air. Hydraulic NG drilling is a relatively new technology. Long-term predictions of well productivity are based on hope and hype, not experience and hard data.

Are some wells productive? Yes, very much so. But the data shows that they are often surrounded by vast fields of unproductive wells. And that decades-long promised stream of dividends and royalties from productive wells could shrink like a snowball on a hot plate. Seventy-five percent of the gas in a fracked well is gone in a year.

Drillers touted the gas-bearing shales in Texas, Louisiana, and Arkansas. But an analysis of more than 9,000 wells showed that only 10 percent of the wells had recouped their investment costs. In Texas, the Barnett shale might end up as “the world's largest uneconomic field,” according to an insider e-mail. Gas companies are now trying to rescind high-priced lease offers to thousands of residents.

The Con: Getting the mark's money or signature.

The gas rep gave you a lease. But did you assume it said what the gas rep led you to believe it said or did you have it perused by legal counsel?

If you trustingly signed, you might be in for some surprises. Thousands of leases in Pennsylvania state that all post production costs will be deducted from royalties. And what are “post production costs?” They are what the driller says they are.

“U.S. shale plays have been over-sold and are unlikely to deliver the results that investors [or lessees] expect. In fact, shareholders have already lost most of their investment. Our evaluation suggest that there is limited commercial value from these plays despite public enthusiasm and operator claims,” according to Oil Drum, an independent oil and NG analysis site.

Yet “money is pouring in from investors even though shale gas is inherently unprofitable,” wrote PNC Wealth Management, an investment company.

Even so, NG companies hope to get government subsidies by playing the clean-and-green card. But that card may turn out to be a joker.

Advocates for NG assert that it produces 50 percent less carbon dioxide than coal. But a recent reevaluation by the EPA doubled the level of methane emissions from gas wells. Methane compared to carbon dioxide is 25 times a more potent greenhouse gas. That makes NG no better than coal.

Largely unknown is the amount of carbon dioxide produced during the entire production cycle of NG, but it is considerable. The lauded Kelly green in NG is starting to look more like sooty brown.

“The word in the world of independents [drillers] is that the shale plays are just giant Ponzi schemes and the economics just do not work,” said an e-mail from Drilling Data, an energy research company.

So are fracking companies really just Ponzi schemes, money losers rather than money makers? In 2008, Chesapeake Energy stockholders took a hit when shares lost 60 percent of their value. That same year the company's CEO salary of $100 million was topped with a $77 million bonus. Money losers or money makers? It all depends on which side of the scam you're on.

Sincerely,
Bob Scroggins
New Milford, PA