The Big Fracking Bubble: The Scam Behind Aubrey McClendon's Gas Boom

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Drilling, which began the next year, was an immediate nightmare. One morning, Vargson woke up at 6 a.m. to find 18 trucks idling in her driveway. The hillside behind her house was leveled for a drill pad, and the rig went up 500 feet from her back door. Once the fracking began, water trucks made hundreds of trips up and down her driveway, while air compressors roared all day and night. When the gas was flared off before production began, the flame was so bright in the night sky that she could see it glowing red on the horizon 12 miles away.

Vargson noticed not long after production began in 2009 that water in the trough out back stopped freezing on cold nights. Inside the house, the faucet began to sputter and spit. Her husband seemed to have a lot of headaches, and Vargson felt nauseous if she stayed in the shower for more than a few minutes. Acting on a tip from a friend, she had her water tested. It was loaded with methane.

"I discovered I could light my water on fire," she says. "And I still can." To demonstrate, she walks over to the faucet in her kitchen, lights a match and turns on the faucet. Whoosh! A flame shoots out like a blowtorch.

Vargson stopped drinking the water after she discovered the methane – but tests showed that her water also contained elevated levels of toxic chemicals like radium, manganese and strontium. Chesapeake agreed to supply Vargson with fresh drinking water, delivered to her door in five-gallon jugs once a month, but it denies any responsibility for the elevated methane levels. Tom Darrah, a Duke geologist who has examined Vargson's well for a new study, finds that difficult to square with the facts. "Anyone who has seen the data I have and thinks this much methane in her well is from natural sources has their head in the sand," he says.

For Vargson, and many homeowners just like her, fracking has proved to be a full-blown disaster. Since she signed up with Chesapeake, her back pasture has become a full-time industrial zone, her water supply has been contaminated, and it will be virtually impossible to sell her home, since it lacks drinkable water. What's more, her well turned out to be a dud: The landman from Chesapeake who sold her on the deal failed to mention that 80 percent of a well's gas is often depleted within the first two years. In all likelihood, Vargson's well will end up being a money-loser for Chesapeake, either sold off to another company or refracked in an attempt to dislodge more gas. Either way, the royalty checks that Vargson and her husband were counting on for retirement will hardly pay for dinner and a movie. "We made about $1,400 the first month, and it's been all downhill from there," she says. Her check for last November: $70.

I ask her how she feels about the promise of fracking now. "I think the industry is destroying our water resource to extract a gas resource," she says. "And in the long run, I don't think that's a very smart trade."

As fracking has come under increasing attack, McClendon has used his financial clout to keep the drills pumping. Chesapeake spent only $2 million on federal lobbying last year – about average for a company its size – but it has contributed almost as much to political candidates and PACs in the current election cycle as the Koch brothers. (McClendon makes it clear that he won't be voting for Obama this time around.) In Pennsylvania, Chesapeake has contributed more than half a million dollars to state and local politicians since 2008 – the highest total in the industry.

McClendon, who funds an industry lobbying group called America's Natural Gas Alliance, has also used his cash to attack Big Coal, hoping to topple his chief competitor and refit coal plants to run on natural gas. In 2007, when a Texas utility threatened to build 11 new coal plants, he won over many clean-energy activists by spending $1 million on a "Coal Is Filthy" media blitz. The $26 million he gave to the Sierra Club helped fund its "Beyond Coal" campaign, which has blocked more than 150 new coal plants. But in 2010, when McClendon tried to cement an alliance with environmental groups at a two-day conference in Colorado, the plan backfired. McClendon struck many of the assembled activists as aloof and arrogant. A few weeks later, after he backed away from a promise to lobby for tougher laws requiring the industry to disclose the chemicals it uses in fracking fluid, one top environmentalist sent an e-mail to other participants calling McClendon "a pathological liar."

But McClendon's worst enemy may not be environmentalists or coal companies, but his own recklessness. He played a leading role in creating the fracking bubble by hyping the promise of endless natural gas and sweet-talking Wall Street into funding a massive land grab. If the bubble bursts, Chesapeake's stockholders won't be the only ones who pay the price – the shock waves will be felt throughout the economy, from homeowners who rely on natural gas for heat to manufacturers who were betting on it to power their new factories. Thanks to McClendon's gambles, Chesapeake is struggling to cover $10 billion in long-term debt. In recent weeks, the company has announced it will sell off more land and shut down some production. McClendon also hopes to increase demand and boost gas prices by promoting cars and power plants that run on natural gas, and by cutting deals to export gas to Europe and Asia, where prices are five times higher than in the U.S.

Turning vast stretches of Pennsylvania into a pincushion in order to ship gas to China doesn't exactly mesh with McClendon's emphasis on making America energy independent. But unless something changes, that's precisely where things are headed – on a grand scale. "In the Marcellus, the boom has just begun," says Ingraffea, the Cornell engineer. "The idea is to drill everywhere." Tougher laws and stricter enforcement could mitigate the damage to people and the environment, but widespread drilling – especially at the boomtown pace that McClendon is pushing – will inevitably result in mishaps. Well casings will fail. Fracking chemicals will be spilled. Drinking water will be contaminated. Methane will seep into the atmosphere, accelerating global warming. When you add it all up, you can see why many environmentalists and clean-energy activists no longer see natural gas as a bridge to a more sustainable future. "It's time to stop thinking of natural gas as a 'kinder, gentler' energy source," Mike Brune, executive director of the Sierra Club, recently blogged. "Instead of rushing to see how quickly we can extract natural gas, we should be focusing on how to be sure we are using less."

That kind of talk enrages McClendon. "What does that mean, Mike?" he asks angrily when I ask him about Brune's comment over dinner at his restaurant. "Does that mean we maximize the use of coal? That we fill the countryside with windmills and kill all the migratory birds and double electricity prices while we do it? What's the human cost to doubling electricity prices? What's the human benefit to halving them? I think those are enormously important questions that are never imposed at the same time people say, 'Fracking is bad.'"

I look at the $400 bottle of wine on the table. Much of what McClendon says is misleading – wind power is as cheap as gas in some places and falling fast, and cutting back on gas doesn't have to mean burning more coal. But his plan is clear. He's not going to back off until every last square foot of shale rock in America is drilled and fracked and sucked clean of gas. McClendon may rely on sophisticated new drilling technologies, but at heart, he's driven by the same dream of endless extraction that has gripped oil barons and coal companies since the dawn of the Industrial Revolution. In the end, all his talk of energy independence and a cleaner, brighter future boils down to a single demand, as simple as it is disastrous: Drill, baby, drill.

This story is from the March 15, 2012 issue of Rolling Stone.

Chesapeake Energy Responds to 'The Big Fracking Bubble'
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