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The Shale Bust: What Can Be Next?

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Pipeline explosions that shut down whole towns. Floods that require evacuations of low-lying parts of long-established communities. And now some folks who are owed royalty checks say that there are drillers who take an exorbitant share of what's owed them by deducting entirely too many fees and expenses from the landowners' checks. Even ardent supporters of exploring for natural gas may rise up in protest in these ever-trying circumstances.

"This is robbery," complains Doug McLinko in Pennsylvania's natural-gas country, aka the Marcellus Shale. "People up here are fighting mad." He was speaking from what's got to be the country's largest field of natural gas. Prices were already depressed in this market, where some landowners have seen their payments go down to next to nothing or even gotten notices saying they owed the drillers money. The worldwide glut of petroleum products continues to take its toll not only on the market but people's tempers.

Here in Arkansas, as well as Texas, Ohio, Louisiana, Oklahoma and Pennsylvania, one company -- Chesapeake Energy -- is facing lawsuits over how much it's charging landowners. Those welcome checks were once the salvation of family farms. They were some folks' source of income. But now, in this market, folks may be examining their royalty checks with renewed interest -- and ire. Who can blame them? All the economic analysis in the world about how things that go up must come down, boost may only presage bust, and so dispassionately on may not help much when the wolf is at the door and yowling.

It was one thing when Chesapeake Energy was eager to negotiate all these royalty contracts and landowners were ready to sign on the dotted line, which many proceeded to do, but quite another when the tables were turned and the oil-and-gas money was turned off like an old-fashioned gas heater that no longer worked. The hiss, then pop, could be exasperating. Sellers' remorse set in with a vengeance. And the figures can be read to give Innocent Reader whatever result he preferred.

To quote the economist Bernard Coase, great champion of private contracts rather than ordeals by litigation, "If you torture the data long enough, it will confess to anything." To many landowners, they're due 12.5 percent of whatever the natural gas fetches on the once free market, citing the drillers' own sales pitches when they were looking for property owners to sign leases. But drillers may contend the royalty payments are calculated appropriately, considering the current market price -- but minus all the after-the-fact deductions for transportation and processing.

After shaking the couch cushions to see what they might turn up, that's about the end of some businessmen's search for investment. Though once upon a time, before the boom burst, they would never have needed to resort to such measures. The money just kept rolling in, and people got used to depending on it.

The free market offers many answers but, alas, no panaceas. And those who would make it an object of worship can become as deluded as anyone else who has adopted a false god as his own. And just as adept at turning into a snake-oil salesman who believes he's discovered the secret to it all -- whether he's a money crank, a supposed scholar who believes the Earl of Oxford wrote under the name of William Shakespeare, or ... well, pick your own favorite "scholarly" delusion.

Just wake us when it's over because even to watch this show is painful, let alone participate in it. But duty calls, and there's no more escaping it than any other of life's obligations great, small and in-between. 

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