Overpromised? (Opinion)

It’s a tad early, but we’d be willing to place a small bet The New York Times’ astonishing revelations about the over-promising and under-delivering of the shale gas industry will be honored with a Pulitzer Prize in due time.

The industry sprang forth with denials as soon as the article was published. But the fundamental question raised by the story, whether gas exploration companies have oversold the amount and value of gas trapped in shale formations like Arkansas’ own Fayetteville shale, is an excellent one.

It’s one that has crossed our minds here as we’ve watched production drop by 80 to 90 percent in less than five years from wells that were supposed to be viable for decades. Arkansas has benefited from the shale boom – in jobs, cash royalties and vastly increased severance tax receipts – and those benefits could not have come at a more opportune time. Imagine the Great Recession in Arkansas without it. But the dollars have not been nearly as plentiful as we were all led to expect. And while the benefits have been disappointing, the costs have been greater than expected. Think crumbling roads, long-term environmental concerns, even the possibility that disposing of the “fracking” water could have triggered the earthquakes centered in Faulkner County.

Sheffield Nelson wants Arkansans to increase the severance tax on natural gas because it hasn’t produced enough to compensate state and local governments for the damage done. But the problem with our current severance tax receipts is not the tax rate but the depressed price against which it is calculated.

The gas companies are not to blame for the economic cycle, and there are legal and competitive reasons they may have continued drilling more wells even as the price plummeted. The question at this point is whether the companies are leveling with investors, mineral rights owners and regulators. In one of the most chilling documents uncovered by the Times, a former Enron executive working in the gas industry asked, “I wonder when they will start telling people these wells are just not what they thought they were going to be?”