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August 19th, 2011:

New York Subpoenas Natural Gas Drillers

American Energy Coalition - August 19th, 2011

The Attorney General for New York State recently issued subpoenas to several natural gas drillers asking them to explain how they identify the quantities of recoverable natural gas that they declare to investors, according to a story in the Wall Street Journal

Some industry critics have questioned the longevity of the natural gas drilling boom in New York, Pennsylvania and other states and suggested that companies will struggle to turn a profit unless prices rise sharply, according to the Wall Street Journal article. 

New York Attorney General Eric Schneiderman last week sent subpoenas to Range Resources Corp., Goodrich Petroleum Corp., and Cabot Oil & Gas Corp. seeking information on how they calculate their natural gas reserves and how they represent their profitability to investors, according to the Wall Street Journal. The subpoenas also seek information on the cost and longevity of wells, the Journal reported. 

In addition to the long-standing debate over the environmental impacts of drilling, public officials now are raising questions about whether some companies have accurately represented the amount of gas they can profitably produce, the Journal reported. The attorney general's subpoenas follow similar inquiries that the U.S. Securities and Exchange Commission has made of other companies. 

Taken together, the inquiries underscore how regulators' concerns are expanding beyond the controversial process of extracting gas from shale rock, known as hydraulic fracturing, which has so far dominated the debate over natural gas development. 

Schneiderman requested the same information from Chesapeake Energy Corp. in an addendum to a subpoena issued in June on how it discloses environmental risk, the Journal reported. The subpoenas were issued under the Martin Act, which gives the attorney general broad authority to obtain documents from companies that operate in New York. 

A focus of Schneiderman's probe is whether companies are abusing the license they were given in estimating their reserves, as the result of a 2008 change in SEC rules, according to the Journal. Before the rules changed, companies had to estimate reserves based on the production of nearby wells. The revamp allowed them to calculate their reserves from wells they have planned to drill but have not developed over a larger territory, enabling them to book greater volumes of gas. 

The change came as producers increasingly turned to mining natural gas from shale formations, layers of rock that tend to have the same mineral deposits and extend for hundreds of miles. Hydraulic fracturing has drawn scrutiny from environmentalists and regulators concerned about its impact on water and air quality, according to the Journal.

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