SEC Issues Subpoenas to Natural Gas Shale Well Producers

In response to a recent New York Times Article (Insiders Sound an Alarm Amid a Natural Gas Rush, June 25, 2011) concerning inflated projections for the production of natural gas from three shale gas formations, the SEC has issued subpoenas to at least two producers, Quicksilver Resources, Inc. and Exco Resources, Inc, for documents concerning projected decline curves and economics of shale gas wells.  The SEC regulates company reports of oil and gas reserves and inventories for investors. 

The New York Times reviewed hundreds of industry e-mails and other corporate documents indicating that extraction of natural gas from shale formations, and in particular certain wells in Texas and Arkansas, may be costly and may not produce the amount of natural gas estimated.  The article quoted an analyst from an independent energy research company as saying that “The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work.”  Individuals within the natural gas industry also questioned corporate projections In light of substantial declines in gas well production.  Some within the industry have even begun to compare the shale gas rage to the dot.com bubble of the late 90’s, and the Enron collapse early in the last decade. 

The Times reported that while natural gas within the shale formations may be plentiful, it may also be costly to extract because active wells are frequently surrounded by less-productive wells that cost more to drill and extract than the gas is worth.  Moreover, federal and state governments either provide subsidies to the natural gas business to support shale gas production, or are looking to do so.