Wednesday, October 28, 2009

Chesapeake Won't Drill in NYC Watershed

While it's not directly related to the Haynesville Shale, I noted with interest an article in yesterday's New York Times that Chesapeake Energy succumbed to public pressure to not drill its New York Marcellus Shale leases located in the watershed for New York City. Ultimately, however, I think Chesapeake made the right decision.

A fairly big battle has been waged in the Marcellus Shale in the past few months over natural gas drilling and the potential impact to drinking water. The pressure was especially intense in New York City because the high quality of the city's water has allowed the city to defer billions of dollars in infrastructure improvements. Any damage to the watershed would have a huge negative economic impact for the city and the state.

Chesapeake's decision was very smart, both from a PR and an operating perspective. The lease in question only covers about 5,000 acres acquired through the purchase of Columbia Natural Resources a few years ago. Why would Chesapeake want to mess around with a tiny amount of lesser acreage in New York when it can invest its resources in more productive land in Pennsylvania?

The decision might embolden environmental and political activists in the fight against natural gas, but it might be the first step to a larger compromise. The states in the Northeast need companies like Chesapeake to develop the Marcellus Shale, especially in these tough economic times. Environmental protections are also important, at least psychologically, for the citizens. Ultimately there has to be a balance, but unfortunately a compromise might leave everyone unhappy.

Chesapeake is a headstrong company that hates to lose, but CEO Aubrey McClendon is smart enough give up a pawn to protect the queen.

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