How a natural-gas tycoon tapped into Corbett | Philadelphia Daily News | 06/29/2011

How a natural-gas tycoon tapped into Corbett | Philadelphia Daily News | 06/29/2011.

How a natural-gas tycoon tapped into Corbett

By WILL BUNCH
Philadelphia Daily News

bunchw@phillynews.com 215-854-2957

IN THE OIL-AND-GAS business, it’s called a wildcat well – when a prospector takes a big risk drilling deep in an unexplored area.

In 2004, a flamboyant Oklahoma City multimillionaire took out his hefty checkbook for what you could call the political equivalent of a wildcat well – and he struck a gusher, right here in Pennsylvania.

The $450,000 in campaign checks that energy mogul Aubrey McClendon wrote that fall helped elect a man he said he’d never even met – a relatively obscure GOP candidate for Pennsylvania attorney general, Tom Corbett.

That investment arguably changed not just the history but also the political direction of the state. The influx of cash helped Corbett narrowly win the closest attorney general’s race in Pennsylvania history and propelled him toward the governor’s mansion, where he has now pledged to turn the Keystone State into “the Texas of the natural-gas boom.”

Meanwhile, the hard-charging company run by McClendon, Chesapeake Energy, is the largest and most active driller for natural gas both in Pennsylvania and across the United States – and its environmental record here is under fire for two major well accidents in the past year and allegations from upstate residents of tainted well water.

The donations also spun a political mystery that may never be answered.

Did Oklahoma gas driller McClendon see the coming boom in drilling in the gas-rich, Pennsylvania-centered formation known as the Marcellus Shale back in 2004? And did he see his massive campaign contributions – filtered through an obscure GOP committee – as a shrewd down payment on future political access and influence?

Or was it merely a case of what McClendon and Chesapeake officials have maintained all along – that the energy millionaire was simply writing so many checks for conservative causes that year, including $250,000 for the notorious John Kerry-bashing Swift Boat Veterans for the Truth, that he wasn’t even aware that his cash was going to the state’s future top prosecutor?

“The contribution occurred long before Chesapeake had any activity in Pennsylvania,” said Matt Sheppard, a company spokesman. “It is terribly misguided to imply that this contribution was made with future political considerations in mind. The [committee] . . . gave the money to the Corbett campaign without notifying Chesapeake or Mr. McClendon.”

Environmentalists say the motive for the 2004 donation doesn’t matter so much as the impact: Pennsylvania’s Republican-dominated statehouse is now headed by a governor so tight with the natural-gas industry that he continues to resist levies on drilling – saying yesterday that he would veto even a modest fee plan on wells that was postponed last night in the state House. Rather than tax drillers like Chesapeake, Corbett is instead poised to sign a budget that slashes $270 million for Philadelphia schools and deeply cuts social programs such as job training and aid for day care.

The gift

No Republican has lost an election for Pennsylvania attorney general since the job became an elected post in 1980. But for much of the fall of 2004, polls showed a slight lead for the Democrat, Philadelphia lawyer Jim Eisenhower. Eisenhower’s cause was helped by the fading Pennsylvania popularity of GOP President George W. Bush, who was on the brink of losing the state to Kerry.

The AG’s race didn’t get much hype, but the candidates presented a clear contrast. Eisenhower pledged he’d be like other activist Democratic prosecutors elected in neighboring states, taking on issues such as corporate pollution and consumer protection.

The low-key Corbett – a former U.S. attorney in Pittsburgh who’d served a short stint as interim attorney general in the 1990s – was backed by big business, befitting the years he’d just worked as a lawyer for the trash-hauling giant Waste Management.

Then, in the final weeks of the race, came a game-changer. An obscure campaign committee out of Washington called the Republican State Leadership Committee – heavily funded by tobacco and insurance as well as energy companies – poured $720,000 into the Corbett campaign.

Ironically, according to political insiders, the cash came so late in the race that it was impossible to buy TV time, so instead the donations paid for radio ads aimed at conservatives – especially the Religious Right – in exurban parts of the state such as York and Lancaster counties.

The strategy worked. Corbett won those right-leaning counties by a larger margin than Bush did, and he beat Eisenhower statewide by just 110,000 votes (with 50.4 percent of the total) in a race so close the Associated Press erroneously called it for the Democrat at first. Had Corbett lost that night, the GOP lawyer might have returned to the obscurity of private practice; instead, he jumped to the front of the list of candidates to follow Gov. Ed Rendell.

But in defeat, the Democrats and Eisenhower took the unusual step of pressing through legal action to learn where the RSLC had gotten the $720,000 from, and with good reason. Many national donors to the committee were corporations, and corporate money is banned in Pennsylvania elections.

Under that legal pressure, the RSLC said that none of the Corbett cash was from corporations – that some came from bank loans but the biggest source was its largest individual donor. (Unlike most states, Pennsylvania does allow unlimited campaign contributions from individuals).

That donor was Aubrey McClendon of Oklahoma City. McClendon gave the RSLC $250,000 on Oct. 15, 2004, and $200,000 on Oct. 18, the same day the committee funneled $480,000 to Corbett.

McClendon is CEO and chairman of Chesapeake Energy, which despite its name operated largely in the Southwest at the time and did no business in Pennsylvania. Chesapeake officials portrayed McClendon as almost careless with his money in an election cycle in which he doled out nearly $2 million either to candidates or political committees like the Swift Boaters and a group opposed to gay marriage.

A Chesapeake executive, Tom Price Jr., told the Inquirer in 2004 that “we didn’t know anything about the race or the candidates” in the Pennsylvania election. In fact, he said, McClendon was upset that he was being portrayed “as trying to alter the will of the people in that state.”

That argument is echoed by Chesapeake officials today, and by Corbett’s 2010 campaign manager, Brian Nutt.

“The governor never met the fellow from Chesapeake, Mr. McClendon” in 2004, Nutt said, and the company has had no undue influence with Corbett since that time.

The 2004 news accounts didn’t state what the company would acknowledge in 2005, when it bought a natural-gas rival with operations in the Northeastern U.S.: that Chesapeake had been eyeing the Appalachian region, which includes Pennsylvania, and its natural-gas deposits since 2002.

Poster child for greed?

During his career, McClendon has been hailed for his philanthropic generosity – including large donations to his alma mater, Duke University – and held up by critics as a poster child for corporate greed.

When lower prices for natural gas caused Chesapeake’s share price to tumble in 2008, it wiped out much of McClendon’s $1.9 billion stake in the firm because it was obtained on margin, borrowed money. The company’s board of directors then did something that angered Wall Street analysts and some Chesapeake investors: It gave McClendon a massive bonus, raising his pay package to $112 million and making him the highest-paid corporate CEO in America that year.

That’s not all; the company also paid $12 million for a collection of vintage maps owned by the CEO, and it even put up $4.6 million to sponsor the NBA basketball team that McClendon partially owns, the Oklahoma City Thunder. Last year, McClendon’s overall compensation of $21 million was about double what comparable CEOs made, according to analysts, and earlier this month a proxy vote criticizing the company’s pay practices received a surprisingly large 43 percent, prompting Chesapeake to promise investors it would change its ways.

At the same time that McClendon has aggressively boosted his pay, state environmentalists charge that Chesapeake has taken an equally hard-charging approach to drilling here, moving ahead with more wells at a faster pace than its smaller rivals – and with consequences for the environment.

Chesapeake was among the first companies to secure leases in the Marcellus Shale region, which includes lswaths of northern and western Pennsylvania; in the past three years, one of every six drilling permits in the state was issued to Chesapeake. The firm now has 360 wells here.

Jan Jarrett, who heads the environmental group PennFuture, said that Chesapeake was aggressive in the mid-to-late 2000s in signing up rural property owners for five-year leases that are now expiring; that’s put pressure on Chesapeake to drill so many wells so quickly, and may be the cause of high-profile accidents.

“Over the last couple of months, one wonders if, in their haste to [drill] as fast as they can, they’re starting to let some things slip and not pay attention to the details,” Jarrett said.

In February, for example, Chesapeake workers were trying to close down a well in Avella, Pa., south of Pittsburgh, when “wet gas” that regulators say was being handled improperly burst into flames, causing five tanks to explode and injuring three workers. Residents saw an entire hillside on fire and thought that a C-130 cargo plane had crashed. The state fined Chesapeake $188,000.

The explosion made headlines statewide. Unlike in 2004, natural-gas drilling in Pennsylvania is now on the front burner, and Corbett – who has sided with the industry in seeking to prevent a severance tax and reduce regulations – is in the political hot seat.

Changing its ways?

Ironically, the first company linked to the governor, Chesapeake, seems to have changed its ways of doing business here. The Oklahoma firm did hire a well-connected Harrisburg lobbyist – Peter Gleason, a former top aide to GOP governors Tom Ridge and Mark Schweiker – but cut back on its political donations, with reportedly just $21,500 to Corbett from its officials in the last five years. McClendon reportedly stopped giving large political soft-money gifts in 2006.

Most of the $835,720 from natural-gas drillers that Corbett received in his 2010 campaign came from executives with other companies. Environmental insiders also say that Chesapeake has seemed agreeable to some kind of tax on drilling, while Corbett’s largest 2010 donor – natural-gas billionaire Terry Pegula, now owner of hockey’s Buffalo Sabres, whose family gave $305,000 – is adamantly opposed to a tax.

Indeed, the Corbett administration has made more news in 2011 for challenging Chesapeake than for helping it out; WHYY reported in late April that the governor asked Chesapeake’s representative on his Marcellus Shale Advisory Commission to step down – right after state regulators imposed large fines on the Oklahoma company for the Avella fire and for pollution caused by its wells in rural Bradford County.

‘Like a tornado’

For some residents of Bradford County, a more aggressive state posture toward Chesapeake is both too little and too late.

In May, state environmental officials imposed a $900,000 fine on Chesapeake for polluting the drinking water of some 16 families in the county, a three-hour drive north of Philadelphia.

“It’s just a mess,” said Michael Gleeson, a Bradford County lawyer who is suing Chesapeake on behalf of a family who wasn’t covered by the state environmental order but who say their well was also tainted by gas drilling. “It’s so bad you can go to the Susquehanna River three miles from here and see the methane bubbling into the river.”

Gleeson’s client Ed Bidlack, a heating contractor who has lived in the region his whole life, said that he and his wife thought they had built their dream home nine years ago, a ranch house constructed on a 5 1/2-acre property outside of Wyalusing, Pa.

Bidlack said in a phone interview that although he didn’t lease direct drilling rights to Chesapeake’s middlemen, he did ultimately lease indirect rights – the ability to tap gas under his property for five years – for $1,000 an acre. He said that things started changing rapidly at his household after Chesapeake started drilling on a nearby property in November 2009.

And it started with his family’s beagle, Sid.

About four months into the drilling, the Bidlacks noticed that the dog seemed suddenly addicted to his drinking water – and that he seemed to be ill.

Bidlack said that his wife took the beagle to the vet but that “it just got worse – he wouldn’t eat, he would shake and he had blood in his stool. He had many issues.”

By the fall, the vets had diagnosed the dog with lymphoma – no cause could be identified – and he was put to sleep several weeks later. By then, there were other problems with the well water at the Bidlacks’.

In late September 2010, Bidlack said, the well pump stopped working and the water was turning brown; some of it that was extracted from the wellhead, he said, appeared to be fizzing like Alka-Seltzer.

He said that state regulators and workers from Chesapeake and a subcontractor then came to look at the well; the subcontractor “took the cap off the well, and all these alarms went off, and he looked at me and said, ‘You’ve got gas.’ ”

In the days that followed, Chesapeake’s subcontractor brought a large temporary supply of drinking water – called a “water buffalo” – to the house, and Chesapeake even paid for a new dishwasher when Bidlack’s “seized up” a couple of days later. But Bidlack turned down their offer of a filtration system and filed suit against Chesapeake in December, claiming that pollution seriously damaged the value of his property.

One night, Bidlack said, he was watching rescue workers on TV bringing water to storm-ravaged families in Joplin, Mo., and it reminded him of the environmental damage he and some neighbors have felt in Bradford County. “Sometimes,” he said, “I feel like a tornado went through here.”

Chesapeake officials say that although they provided the Bidlacks with temporary water, they’re not responsible for pollution there.

“The Bidlacks’ water supply was tested in October after their concerns were expressed to us, and while methane was detected, the levels did not indicate the need for remedial action,” said Chesapeake’s Sheppard. “We are confident our operations are not the cause of any concerns the Bidlacks have voiced. Even so, we want to assist the Bidlacks because it is the right thing to do.”

Sheppard also said – regarding the broader problems in Bradford County that led to the $900,000 fine – that the company has expanded its testing protocol after discovering that the upstate region has “unique geology” with considerable shallow methane that it blames for contamination – some of which it claims was there before drilling began.

But methane hasn’t been Chesapeake’s only problem in Bradford County.

On April 20 of this year, a blowout at a Chesapeake site in Leroy Township that was caused by an equipment failure and raged for several hours led to potentially hazardous chemicals spilling into a local creek that feeds the larger Towanda Creek, which flows into the Susquehanna and eventually into Chesapeake Bay.

This major accident prompted a lawsuit against Chesapeake Energy from the Attorney General’s Office.

Not in Pennsylvania, however.

The company is being sued by the attorney general of Maryland.