Climate Crisis: Fracking Pioneer Goes Bankrupt, Pipelines Get Big Legal Win

By: Steve Horn | July 10, 2020

Welcome back to TRNN’s Climate Crisis News Roundup. In recent weeks, this column has focused heavily on the intersection between COVID-19 and the climate crisis, and that will continue as the pandemic sweeps the world.

That intersection includes the ongoing economic repercussions for the U.S. oil and gas industry, with historic news playing out in the past two weeks for both pipeline battles and the potential creation of a new geopolitical alliance to shore up the North American industry. Further, one of the titans of industry has gone bankrupt. It may sound like bad news for the industry. But the details are always in the fine print.

If you have a story you think deserves a spot in the roundup or story pitches in general, get in touch with me at [email protected] or on Twitter at @SteveAHorn. You can read the previous edition here.


 

Pipelines Dead, Long Live Pipelines

Three pipeline project proposals suffered major legal blows within a period of two days, all of them the focus of key grassroots struggles for the climate justice movement stretching back years.

TC Energy’s Keystone XL Pipeline is likely on hiatus until at least 2021 after the U.S. Supreme Court struck down a request by the company and other industry lobbying groups to issue an emergency order to reverse district court and appellate court rulings. Energy Transfer Equity’s Dakota Access received a legal order to remove the oil from its pipeline by August 5 because the judge deemed its environmental impact assessment inadequate. And the Atlantic Coast Pipeline’s joint ownership has also thrown in the towel after years of legal setbacks.

Keystone XL, slated to carry Alberta’s tar sands oil (the most carbon-intensive crude on the planet) across the U.S.-Canada border into Nebraska, sat at the center of the climate movement’s focus since at least 2011. In 2015, President Barack Obama denied TC Energy, then called TransCanada, the presidential permit it needed to build the pipeline across the border.

Dakota Access was the center of the largest pan-tribal movement in decades during the 2016 election cycle at the Standing Rock Sioux Reservation, a months-long struggle drawing international attention and intense police brutality against those who came to Standing Rock in North Dakota. It carries oil obtained from fracking in North Dakota’s Bakken Shale basin to Gulf Coast refineries, 40% of the field’s production before COVID-19 hit and about 4.5% of all oil produced in the United States.

And the Atlantic Coast Pipeline—a joint venture of several companies including Dominion Energy, Duke Energy, Piedmont Natural Gas, Southern Company—was slated to carry fracked gas from West Virginia’s slice of the Marcellus Shale basin down to North Carolina. Grassroots groups throughout the Mid-Atlantic region had aligned against the proposed project.

Some have pointed to this all as a key turning point for the North American oil and gas industry, a moment where grassroots struggles finally bore fruit that may make a lasting dent on the industry as we know it, and by extension the climate crisis.

“A new era upon us—one for clean energy, and one where the risks of fossil fuel infrastructure are increasingly exposed,” Kelly Martin, director of the Sierra Club’s Beyond Dirty Fuel campaign, told InsideClimate News.

It turns out it’s not that simple, however, though it does make for a good soundbite. In reality, both the Keystone XL and Dakota Access cases are ongoing.

For Keystone, the Supreme Court simply ruled that it will not issue an emergency order to stop the final product of the District Court ruling. That ruling halted the Nationwide Permit 12 program overseen by the U.S. Army Corps of Engineers for oil and gas pipelines, both for Keystone XL and for the industry at large. The court, while striking down its application for Keystone XL, opened that program back up to the rest of the industry. The Obama administration first used Nationwide Permit 12 in this way for a major oil and gas pipeline project for the southern leg of Keystone XL in 2012.

The program allows for large scale interstate pipeline proposals which cross waterways to be broken into hundreds or thousands of “single and complete” projects. Conventionally, the program covers projects half an acre in size or smaller. But the permitting process has morphed into a way to segment thousands upon thousands of miles of pipelines and avoid a more robust environmental analysis. Many legal challenges have alleged the program’s use in major pipeline project proposals is a violation of the National Environmental Policy Act (NEPA), the bedrock environmental law mandating robust environmental analyses and a public hearings and comment period to give a “hard look” at the potential impacts a proposed project could have.

So, striking down the permitting program for oil and gas pipelines at large would have been a monumental loss for Big Oil. That didn’t happen. Instead, the industry lobbying groups who had intervened in the case pitting environmental groups against the Army Corps—including American Petroleum Institute, American Exploration & Production Council and Association of Oil Pipelines—pointed to the Court’s ruling as a major win, even if a loss for TC Energy.

“The highest court has reinstated Nationwide Permit 12, and for good reason—pipelines are the backbone of America’s energy infrastructure and the safest way to deliver affordable, reliable, and cleaner energy to communities across the country. This is a significant step toward restoring more certainty for energy companies,” said API in a press release, perhaps excited because 70 proposed pipelines can now continue their Nationwide Permit 12 processes.

Given the broader Nationwide Permit 12 news, Ruth Hopkins—a Dakota/Lakota Sioux writer and environmental justice advocate who was born on the Standing Rock Sioux Tribe Reservation and currently lives on the Lake Traverse Reservation in South Dakota—views the developments in a measured way.

“While it was good news to hear that SCOTUS didn’t greenlight construction of the Keystone XL Pipeline, Nationwide Permit 12 puts waterways across the country in danger,” Hopkins told The Real News. “Fast tracking dangerous fossil fuel projects is a mistake that will only serve to unnecessarily jeopardize American lives and ecosystems.”

The Dakota Access case, the plaintiffs for which are a slew of tribal nations including the Standing Rock Sioux Tribe, is also subject to appeal. And Energy Transfer Equity has said it will not halt moving any oil through the pipeline until the matter is legally resolved upon appeal.

“We believe that the ruling issued this morning from Judge Boasberg is not supported by the law or the facts of the case. Furthermore, we believe that Judge Boasberg has exceeded his authority in ordering the shutdown of the Dakota Access Pipeline, which has been safely operating for more than three years,” the company said in a press release. “We will be immediately pursuing all available legal and administrative processes and are confident that once the law and full record are fully considered Dakota Access Pipeline will not be shut down and that oil will continue to flow.”

Boasberg, an Obama appointee, issued the first ever ruling in U.S. history demanding that an already operational pipeline remove oil from the tube until the legal matter in question is resolved by the Army Corps of Engineers.

“We asked the court to do something that was unprecedented, but the law was on our side and it was the right thing to do,” Jan Hasselman, an attorney for Earthjustice who represented the plaintiffs in the case, told InsideClimate News of the ruling’s unprecedented nature.

Boasberg slammed the Army Corps for having a “build first” approach on NEPA in not properly analyzing the possible impacts the pipeline could have on the Missouri River and Lake Oahe. He wrote, “When it comes to NEPA, it is better to ask for permission than forgiveness: if you can build first and consider environmental consequences later, NEPA’s action-forcing purpose loses its bite.”

“The Court…readily acknowledges that, even with the currently low demand for oil, shutting down the pipeline will cause significant disruption to DAPL, the North Dakota oil industry, and potentially other states,” he wrote. “Yet, given the seriousness of the Corps’ NEPA error, the impossibility of a simple fix, the fact that Dakota Access did assume much of its economic risk knowingly, and the potential harm each day the pipeline operates, the Court is forced to conclude that the flow of oil must cease.”

Energy Transfer Equity has already filed a motion to stay the ruling with the U.S. Court of Appeals and has filed a notice of appeal for the broader issues found within the case. The company also has said it is physically impossible to remove the oil from the pipeline by August 5, saying removal would take at least three months to achieve. Legal analysts have mixed opinions on how the appellate court may rule.

The company’s founder and CEO, Kelcy Warren, is a major donor to President Donald Trump and hosted a fundraiser for Trump at his Dallas mansion in June. Former U.S. Secretary of Energy under Trump, Rick Perry, also sits on the company’s Board of Directors. Another Trump donor and the energy adviser to his 2016 presidential campaign, Harold Hamm, is the founder and executive chairman of a company—Continental Resources—whose oil now makes up 57% of Dakota Access’ carrying capacity. That’s 2.5% of all oil produced in the United States in that one pipeline.

Before the court ruling, Energy Transfer’s main focus on Dakota Access was a proposal to double the capacity of the pipeline as part of an expansion proposal, calling it “capacity optimization.” As The Real News previously reported, Energy Transfer has cited the export market as the rationale behind the proposal.

“We realize the battle is not over,” Hopkins, also a tribal lawyer and former tribal judge, said of Dakota Access. “For now though, logic, sound judgment, and good law has prevailed. We won’t be satisfied until it’s shut down permanently. It never should have been forced through our treaty lands and under our source of fresh water, against our will, in the first place.”


 

Chesa-peak to Valley

A pioneer of the fracking industry and one of the titans of drilling for natural gas in shale formations throughout the United States has filed for Chapter 11 bankruptcy.

It’s the highest profile example yet of the fracking boom going financially bust during COVID-19. And it’s due to the combination of the sinking global price of oil and lowered consumption of fossil fuels, with wide swaths of the global economy shut down or in reduced capacity to help stave off the lethal pandemic.

The company, Chesapeake Energy, formerly was the number two producer of shale gas behind ExxonMobil before facing financial difficulties and executive-level turmoil in more recent years. It is still now the number six producer.

In its headquarters city of Oklahoma City, Chesapeake is an iconic brand, and the namesake of the Chesapeake Energy Arena, home of the Oklahoma City Thunder National Basketball Association team. That team was co-owned and actually brought to the city from Seattle by company co-founders Aubrey McClendon and Tom Ward, business maneuverings which leave a sour taste in the mouths of Seattle Supersonics fans to this day.

Posted by Sonicsgate Movie on Sunday, June 28, 2020

The company also got an early entry into fracking on a massive scale by teaming up with one of the largest environmental groups in the United States, the Sierra Club. Between 2007-2010, McClendon gave the group $25 million to promote natural gas as a “bridge fuel.” He had donated the money via a front group called the American Clean Skies Foundation, which also ran an online streaming publication called Clean Skies TV.

Yet the business ambitions of McClendon and Ward ultimately proved fatal.

In 2012, company insiders told Reuters in a series of explosive investigations that McClendon used company resources to enrich himself. By 2013, McClendon had stepped down as CEO and then founded another company headquartered just down the street called American Energy Partners. Then in 2016, the U.S. Department of Justice indicted McClendon for rigging bids for oil and gas in Oklahoma between 2007-2012. A day later, McClendon crashed his car underneath a bridge in Oklahoma City and it went up in flames, with the fracking tycoon dying in the process.

In the aftermath, the company’s stock has dropped 99.8% in five years, now at $4.46 per share, down from $2,274.

Image from Google Finance

Image from Google Finance

Chesapeake’s fall from glory, then, was long in the making.

“In an era where shale companies are begging for bailouts, laying off workers and shutting down drilling operations, the news that one high-profile operator has filed for bankruptcy isn’t a surprise,” Food and Water Watch Executive Director Wenonah Hauter, author of the 2016 book “Frackopoly: The Battle for the Future of Energy and the Environment,” wrote in a blog post. “But Chesapeake has a prominent role in fracking’s sordid history, which makes its shaky status especially notable.”

And yet, filing for bankruptcy is not a death sentence. Investors in the company take the biggest hit, while the company works through bankruptcy proceedings to make the corporation a more financially viable venture.

“A bailout is literally a boat that you’ve got that is fine, that is solid, that doesn’t have any problems—there’s not crack, there’s not leak—and you just need to sort of toss water under the boat and the boat’s able to go on sailing on,” said Clark Williams-Derry, Energy Finance Analyst for the Institute for Energy Economics and Financial Analysis, on the podcast Drilled. “What it is, it’s a handout to investors and something that maybe allows the investors to recoup a little bit of the money that these companies owe to them.”

Chesapeake, for its part, thinks it will come out of the other side of bankruptcy all the richer.

“By eliminating approximately $7 billion of debt and addressing the legacy contractual obligations that have hindered our performance, we are positioning Chesapeake to capitalize on our diverse operating platform and proven track record of improving capital and operating efficiencies and technical excellence,” said CEO Doug Lawler in a press release. “With these demonstrated strengths, and the benefit of an appropriately sized capital structure, Chesapeake will be uniquely positioned to emerge from the Chapter 11 process as a stronger and more competitive enterprise.”

Just a month ago, in fact, Chesapeake executives showered themselves with $25 million in bonuses, despite the company tumbling toward bankruptcy.

“The board and compensation committee, with the advice of their independent compensation consultant and legal advisors, determined that the historic compensation structure and performance metrics would not be effective in motivating and incentivizing the company’s workforce,” Chesapeake wrote in a filing submitted with the U.S. Securities and Exchange Commission.

The bankruptcy proceedings are ongoing in the U.S. District Court for the Southern District of Texas and they’re already having industry-wide ramifications.

Chesapeake has requested cancellation of $311 million worth of pipeline contracts, a regulatory decision in the hands of the U.S. Federal Energy Regulatory Commission (FERC) as the overseer of interstate pipelines. Landowners who have leased their land to the company to do fracking in the heart of the natural gas boom in Pennsylvania’s Marcellus Shale field also say they fear they will not receive payments contractually promised to them by the company.

According to a June 29 story by USA Today, 24 oil and gas companies have already filed for bankruptcy since COVID-19 began sweeping through the United States. The Wall Street Journal also reported on June 28 that potentially 200 fracking production companies could declare bankruptcy in the next two years if the global price of oil stays at its current level.


 

OPEC North America

Finally, another fracking story to round things off. With the industry in dire straits economically en masse, some industry regulators have proposed a new solution: creating a North American equivalent to OPEC and using the new North American Free Trade Agreement (NAFTA) to make it happen. That deal is now known as the United States-Mexico-Canada Agreement (USMCA) and it went into effect on June 29.

Wayne Christian, a commissioner on the Texas Railroad Commission—the agency which oversees the state’s oil and gas industry—told Fox Business News it would be an “American pact that will work together to protect American production against foreign forces that are detrimental against our energy production.”

“Whether that becomes something like an OPEC from North America or whether it’s just an agreement that we work together through the Department of Energy or through some other independent organization in the United States, that’s what we’re investigating,” he continued.

Christian also said such an arrangement would require interagency coordination between those such as the U.S. Department of Energy, the Mexican government and the Canadian government. He also listed another lesser-known quasi-governmental agency, the Interstate Oil and Gas Compact Commission (IOGCC), as a potential partner in the prospective OPEC North America. This is perhaps not surprising, given his role as second vice chairman of the organization.

Unlike the others, the Oklahoma City-based IOGCC has long served as a de facto shadow industry lobbying group, utilizing Oklahoma government property to facilitate its day-to-day business.That includes its headquarters sitting on the same land deed as the Governor’s Mansion.

IOGCC headquarters at right, sharing the same land parcel as Oklahoma Governor’s Mansion at left.

IOGCC headquarters at right, sharing the same land parcel as Oklahoma Governor’s Mansion at left. Google Earth

Among other things, the group was a key behind-the-scenes player in the industry winning what’s now known as the “Halliburton Loophole,” or the fracking industry’s U.S. Environmental Protection Agency regulatory enforcement exemption from the Safe Drinking Water Act and the Clean Water Act which was inserted into the Energy Policy Act of 2005.

The IOGCC’s membership base consists of industry lobbyists, executives and attorneys sitting alongside state-level industry regulators and federal industry regulators. This reporter, who provided historical documents and documents obtained under open records law via historical archives on IOGCC for a feature investigation published by InsideClimate News in 2016, has coined the interstate compact the “most powerful oil and gas lobby you’ve never heard of” in the introduction to an investigative series about the group.

Christian is Texas’ official representative to the IOGCC and voted alongside other officials at the group’s 2019 annual business meeting in opposition of a Green New Deal.

“Over my dead body will I allow out-of-state forces to eliminate jobs, decrease state revenue, and increase the cost of living on the constituents I represent,” he said at the meeting. “I am proud to stand with my fellow regulators from across the nation and strongly urge the federal government to oppose the Green New Deal.”

Meanwhile, progressive activists have instead proposed another solution: nationalization of the oil and gas industry as a means of phasing out its operations for climate change purposes and to ensure a just transition for the workers who will need new jobs as part of the process.

Related Bios

Steve Horn

Steve Horn is a San Diego-based climate reporter and producer. He was also a reporter on a part-time basis for The Coast News—covering Escondido, San Marcos, and the San Diego North County region—from mid-2018 until early 2020. Also a freelance investigative reporter, his work has appeared in The Guardian, Al Jazeera America, The Intercept, Vice…