Fraud
Last week, a federal judge in Pennsylvania let a fraud claim stand against Cabot:
In a ruling with potentially far-reaching consequences in Pennsylvania’s lucrative and burgeoning natural gas industry, a federal judge in Scranton on Wednesday ruled a Susquehanna County landowner can sue Cabot Oil & Gas Corp. on the grounds it fraudulently misled him into a signing a lease at a lowball rate. —Scranton Times-Tribune, June 10, 2010
Dimock, PA
It was in Dimock, PA, last year that a fracked well went haywire, releasing a pocket of methane, contaminating the fresh-water aquifer, and resulting in at least one explosion at the surface.
Apparently there was so much methane gas mixed in with Dimock’s tap water that some of the residents there could light their water on fire.
It’s still unusable.
Not only did the Pennsylvania Department of Environmental Protection order the company to stop drilling, the regulator blamed the company for failing to comply with a consent order to correct problems that lead to the contamination.
DEP Secretary John Hangar said the frack operator "had every opportunity to correct these violations, but failed to do so. Instead, it chose to ignore its responsibility to safeguard the citizens of this community and to protect the natueal resources there."
Cabot was the frack operator.
Corporate Governance
According to the Comptroller’s press office, New York State worked with Cabot, Hess, and Range on corporate governance issues to ensure investors would be apprised of the risks associated with gas drilling and that the companies “agreed to safest practices.” Indeed, New York State Comptroller Thomas DiNapoli, as Trustee for the New York State Common Retirement Fund, was lead filer of the resolution at Cabot Oil & Gas.
The following is a press release courtesy of First Affirmative Financial Network, a social investment company:
FALLS CHURCH, VA
May 6, 2010
Shareholders at Cabot Oil and Gas Corporation (COG) and EOG Resources, Inc. (EOG) cast about a third of their votes in support of resolutions urging the companies to better disclose the environmental hazards of natural gas production and policies to minimize risks.
But neither Cabot nor EOG went willingly:
Both Cabot Oil & Gas Corp. and EOG Resources Inc. challenged the shareholder initiative claiming the requests were “micromanagement.” The Securities and Exchange Commission backed the shareholder initiatives, which will be put to a shareholder vote. —Scranton Times-Tribune, April 12, 2010
Clearfield County
Earlier this month residents of Pennsylvania awoke to read about another accident at a natural gas well—this time, one owned by EOG Resources, the same company that bristled against the shareholder initiative:
A western Pennsylvania natural-gas well owned by EOG Resources Inc. blew out Thursday night, releasing an undisclosed amount of gas and drilling fluids before being contained about 16 hours later. —Wall Street Journal, June 4, 2010
During those sixteen hours, the well spewed explosive gas and water laced with chemicals into the air.
Investing in Fracking
Despite the accidents and the lawsuits, gas drilling is still a good investment according to the analysts:
The blowout from the EOG well is not the first in the area. In September 2009, Cabot Oil & Gas Corp. (NYSE: COG—News) stated that faulty piping connections had led to two spills totaling 7,980 gallons of drilling fluid in Susquehanna County and a third leak resulted from a ruptured hose during a pressure surge.
We continue to remain optimistic on the company’s operational excellence and steady management that will enable it to experience further organic growth in the resource base. —Zachs Investment Research
The question is will the heft of New York’s multibillion-dollar pension fund be enough to push Cabot, EOG, and other gas-drilling companies toward improved practices?
We will soon see.
However, there is another hairy issue lurking around the corner.
With the state in a financial bind, the pension fund is currently the single bright light in New York’s financial picture. Will the need to keep that light shining somehow affect the state’s investments? Shareholder resolutions become meaningless if they aren’t bolstered by promised shareholder divestment.
Will the Comptroller be able to say no when the analysts on Wall Street are all saying yes?
Conversely, will the success of the pension fund have any influence on energy policy in New York State?
Since May 28, shares in Cabot have risen 6.8 percent. |
