The state attorney general has sent subpoenas to three energy companies as part of an inquiry into whether they gave investors an accurate picture of the profitability of their natural gas wells, a person briefed on the investigation said Thursday.
The person, who spoke on condition of anonymity because subpoenas are not public documents, confirmed that Attorney General Eric Schneiderman wants documents related to claims the companies made about drilling costs and long-term productivity of their shale gas wells.
Subpoenas were sent to Range Resources Corp., based in Fort Worth, Texas; Goodrich Petroleum Corp., based in Houston; and Cabot Oil & Gas Corp., also based in Houston. The person said Schneiderman also asked Chesapeake Energy Corp., based in Oklahoma City, to respond to similar questions. New York's pension fund has more than $45 million invested in the four companies, which are active in the gas-rich Marcellus Shale region underlying New York, Pennsylvania, Ohio and West Virginia.
Goodrich released a statement Thursday acknowledging it had received fact-finding subpoenas from the attorney general and the Securities and Exchange Commission requesting information relating to its gas wells and reserves in the Haynesville Shale of Louisiana and eastern Texas. The company said that there was no allegation of wrongdoing and that it was cooperating fully with the requests.
"All of Goodrich's annual proved reserve estimates have been prepared in accordance with all applicable SEC regulations by an independent petroleum engineering firm," the company said.
A spokeswoman for Schneiderman declined to comment. The other companies didn't immediately return calls seeking comment. The investigation was first reported by The New York Times.
The person briefed on the investigation said the subpoenas were sent in response to documents made public in a series of Times articles in which industry insiders questioned whether companies were misleading investors about how much gas their wells will produce and how much it will cost to extract it.
Schneiderman has the power under the state's Martin Act of 1921 to subpoena virtually any document from any business operating in the state and can keep his findings secret or make them public. He also has used the Martin Act to investigate major Wall Street banks involved in the mortgage-backed securities crisis.
Natural gas drilling in the Marcellus Shale has been on hold in New York since 2008, when the Department of Environmental Conservation began an environmental review that is expected to be completed by early 2012.
In Pennsylvania, Marcellus Shale gas production continued its rapid rise in the first half of 2011. The Pennsylvania Department of Environmental Protection reported that the state's 1,632 producing Marcellus wells generated 432.5 billion cubic feet of gas during the first six months of 2011, a 60 percent increase over the second half of 2010.
The Marcellus Shale Coalition, an industry group, called Schneiderman's action a political move.
"I think what he's about to learn, grudgingly, from this exercise is that the shale phenomenon is real, it's producing volumes of energy no one previously thought possible, and that it has the very real potential of delivering once-in-a-generation type benefits to folks all across New York state in a safe and efficient way," the coalition said in a statement.
Anti-drilling groups commended the inquiry.
"The natural gas propaganda machine has convinced the public that shale gas will power America for a hundred years while making us all rich," the group Frack Action said in a statement. "But significant questions have been raised about how much gas can actually be extracted from shale, and whether this industry is in fact profitable. This investigation is critical not only for investors, but for the landowners who staked their future on the claims of the gas industry."