oil and gas

Chesapeake Energy, a company that is no stranger to financial scandals, has found itself on the front page of the financial papers again. This time, the subject is taxes. Or how Chesapeake barely pays them.  

Over its 23-year history, Chesapeake Energy, the second largest producer of natural gas in the U.S., and the company described by its founder and CEO Aubrey McClendon as “the biggest frackers in the world,” has earned roughly $5.5 billion in pre-tax profits. To date, the company has paid $53 million in taxes. That’s an effective tax rate of under 1 percent - a massive taxpayer subsidy.

The corporate income tax rate in the U.S. is 35 percent. 

The Bloomberg article that exposed these stunning figures is quick to note that this is far less than the 12 percent rate that GE paid in 2010 that caused such public outrage, and even a tiny percentage of the 18 percent effective rate that Google had to answer for.

So how does Chesapeake pull this off? Mostly, it’s due to a rule written in 1916 that allows oil and gas producers to, according to Bloomberg, “postpone income taxes in recognition of the inherent risk of drilling wells that may turn out to be dry.

The break may be outdated for companies such as Chesapeake, which, thanks to advances in technology, struck oil or gas in 99.6 percent of its wells last year.“ When the policy was written, drillers struck “dry wells” roughly 80 percent of the time.

Documents obtained by the Environmental Working Group (EWG) show that bureaucrats within the New York Department of Environmental Conservation (NY DEC) granted the oil and gas industry premature access to highly controversial draft regulations for shale gas fracking in the state. New York placed a moratorium on hydraulic fracturing for gas in order to evaluate the science on the risks posed to drinking water, air quality and the health of New York's citizens and the environment. 

The documents, obtained by EWG through New York's Freedom of Information Law, show that the fracking industry received an unfair advantage thanks to DEC officials who provided detailed summaries of their proposed rules exclusively to oil and gas industry representatives. This allowed industry a six-week head start to lobby state officials to weaken the proposed standards before the public was granted access to the plan.

Of particular concern, a lobbyist for scandal-ridden gas giant Chesapeake Energy used the exclusive access to the draft Supplemental Generic Environmental Impact Statement (SGEIS) to attempt to weaken the proposed rules restricting discharges of radioactive wastewater.

Thomas West, a prominent oil and gas industry lobbyist representing Chesapeake and other industry clients, made "one last pitch" -- in an email to DEC Deputy Commissioner and General Counsel Steven Russo -- to "reduce or eliminate radionuclide testing" of fluids that could migrate from drilling sites during storms, according to the documents.

NY DEC has previously found concentrations of cancer-causing radioactive pollution at shale gas drilling sites that exceeded safe drinking water standards by hundreds of times or more, according to EWG's report "Inside Track: Cuomo Team Gives Drillers Jump Start to Influence Fracking Rules." 

"This is like giving the drilling industry three laps around the track while everyone else was left waiting on the starting block," said Thomas Cluderay, EWG assistant general counsel. "The public needs to know whether New York regulators compromised the integrity of the state's drilling plan months ago, despite promises of keeping the process fair and transparent."