Fracking’s Funny Numbers

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By Asjylyn Loder and Isaac Arnsdorf,

from Bloomberg Businessweek,

Lee Tillman, chief executive officer of Marathon Oil (MRO), told investors last month that the company was sitting atop the equivalent of 4.3 billion barrels of oil in its U.S. shale acreage. That’s 5.5 times higher than the number Marathon reported to federal regulators.

Providing different numbers to regulators and investors is standard practice in the shale industry. The U.S. Securities and Exchange Commission has strict rules for how drillers calculate reserves. No such guidelines apply to companies when they calculate their resource potential—a less conservative estimate of their assets that drillers emphasize when pitching investors. Drillers also cite the higher forecasts when they lobby lawmakers to lift the 39-year-old ban on exporting crude oil, arguing that the U.S. has plenty and should be able to sell it on world markets.

That vision of energy self-sufficiency may be based more on hope than fact.

“The public is thoroughly misled” by such discrepancies, says Tad Patzek, chairman of the department of petroleum and geosystems engineering at the University of Texas at Austin. He says the industry’s figures suggest “we’re a new democratic Saudi Arabia. We aren’t. We’re not even close.”

U.S. oil production surged to a 28-year high this year, thanks mainly to fracking.

The average estimate of resource potential was 6.6 times higher than the proved reserves reported to the SEC, data compiled by Bloomberg show. The figures came from yearend 2013 SEC filings, marketing materials, press releases, company websites, and speeches made by executives of the 73 shale drillers.

A loosening of the export ban imposed after the 1973 Arab oil embargo would be worth billions to drillers such as Marathon, Pioneer, and Continental Resources (CLR) because the average price of oil on the international market over the past year has been 8.5 percent higher than the U.S. price.

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