Apr 30 2012

Is This Best From Range?

Formal Complaint Filed with Texas State Bar Association;

Says Range Resources Lawyer Violated Rules of Professional Conduct

In Attempt to Silence Critics

“We do the right things for the right reasons because that is who we are.”

Ray Walker, Senior Vice President – Chief Operating Officer

on Range Resources’ Web Page, “Our Commitment.”

http://www.rangeresources.com/Our-Commitment.aspx

[…Music up and out, accompanied by birds singing…]

Sadly, Walt Disney is dead; and they don’t make movies like that any longer.  But energy companies still project “good neighbor” fantasies in their PR and marketing outreach.

Meanwhile, Range Resources COO Ray Walker should talk to company attorney David P. Poole about the company’s commitment to being a “good neighbor” and doing “the right things for the right reasons.”

Attorney Poole and two colleagues at an outside law firm have been named in a formal complaint to the Texas Bar Association by former DISH, Texas, Mayor Calvin Tillman.  The details follow:

Violated Rules of Professional Conduct?

The complaint alleges that Poole and his colleagues violated the Rules of Professional Conduct in an attempt to silence critics of Range and the nat gas industry.  (See Links & Resources section below for access to documents cited here.)1

Range Resources (NYSE:  RRC) is a company that investors keep an eye on – perhaps because its 2011 revenue is over one billion dollars and the company is on a short list of nine “most likely takeout targets,” as noted in a UBS research report on Energy Sector Mergers & Acquisitions.2

In addition, the socially responsible investors with whom I communicate want Range to be the best it can be in order to retain its social license to operate.

The formal complaint to the Texas Bar Association by Tillman – and the dueling letters that preceded it – throw sunlight behind the glitzy corporate brand management efforts often seen in the energy industry.

Shareholder Value?

Tillman gets to the heart of the problem faced by Range Resources and many energy companies:  The industry’s sense of entitlement contributes to its loss in public trust.  With continuing behavior like this, will it also lose its social license to operate?  (It happened to the nuclear industry in this country.)

In the last paragraph of a March 11, 2012, reply to Attorney Poole, former Mayor Tillman cautions:

 “It would be interesting to discover what the shareholders of Range Resources would feel about the use of these intimidation tactics.  Not to mention the tens of thousands of dollars that these tactics cost the shareholders in legal fees.  Therefore, this intimidation not only destroys the public image of Range Resources, but costs a tremendous amount of money, and simply does not add value.  Perhaps if Range Resources would like to be viewed as the good neighbor that is portrayed in paid advertisements, you should start acting like one.”1

In the formal complaint presented to the Texas Bar Association, Tillman states that Range Resources issued subpoenas for documents and depositions to Tillman and Sharon Wilson, author of a well-read blog titled Bluedaze Drilling Reform at: http://www.texassharon.com/

According to Tillman, at least two subpoenas were issued to him.  The complaint alleges that Range claimed it needed to depose Tillman and Wilson in order to collect information for its defense against specific lawsuits.

On the contrary, says Tillman (emphasis added), “this tactic is used to silence those who are critical of the natural gas industry and has no substantial purpose, other than to embarrass, delay or burden a third person not involved in the matter.”

The best insight into Range and energy industry behavior is found in the two letters exchanged in March between Range Attorney David Poole and former Mayor Calvin Tillman.  These letters preceded Tillman’s formal complaint to the Texas Bar Association1

In his letter of March 5, Attorney Poole suggests he is not aware of any depositions issued to Tillman.  In Tillman’s March 11 response, he points out that Poole’s name is on every subpoena – and he uploads all the related files to Google Documents.  “Perhaps you have forgotten the numerous depositions you have requested,” Tillman chides.

Platitudes vs. Principles

Poole issues heroic declarations on behalf of Range Resources that sound like a triumph of platitudes over principles.

For example, in his March 5 letter, Poole writes that, “Range respects the rights of those with an interest in our industry….  Range also welcomes an active discourse …. We do, however, expect that dialog to be fact based and to accurately reflect Range.”1

Excellent.  Here are some questions for executives at Range Resources who are committed to doing “the right things for the right reasons.”  These are the kind of fact-based questions investors might ask:

1)    Range Resources says on its website and Attorney Poole can’t resist repeating in his letter:  “We’re proud … to have been the first company to voluntarily disclose hydraulic fracturing fluids on a per well basis.”1, 3  

May we assume that declaration means FULL disclosure?

Perhaps not.  According to a recent research report published by the Sustainable Investments Institute (emphasis added):  “The company [Range Resources] discloses chemicals in accordance with state requirements; it discloses only chemicals determined hazardous by OSHA in Pennsylvania and provided broader disclosure in Texas.  The company does not include proprietary exemptions.4

Which is it?  Is Range Resources proud to voluntarily disclose SOME or ALL chemicals in its hydraulic fracturing fluids?  If it is some – but not all – why not say that?  Would not that exemplify doing “the right things for the right reasons?”

2)    On the subject of voluntary disclosure and welcoming “an active discourse” – will Range champion unsealing legal settlements with landowners? 

Why does the industry force confidentiality and non-disclosure agreements upon property owners and leaseholders?  Why did two newspapers in the Pittsburgh area seek to unseal such a lawsuit settlement involving Range Resources, MarkWest Energy Partners and Energy Group.5  Isn’t it easier to have a fact-based conversation if all the facts are on the table?

3)    How did Range Resources fail to accurately read its own production volumes in Western Pennsylvania in 2010?  How can the company command respect for its operational excellence from both investors and leaseholders?

Range Resources sent letters to gas leaseholders in Western Pennsylvania in August of 2010 claiming that royalties were overpaid for “several production periods.”  As a consequence, it would deduct the alleged overpayment from future royalty checks.

Does Range have a public explanation for why it cannot accurately manage leaseholder and company finances in a task that is fundamental to the industry?  I tried repeatedly at the time to engage in “active discourse” with Range but it declined to respond.

This is not small potatoes, according to the company’s 10-K filing for 2010 with the U.S. Securities and Exchange Commission.

Specific to its operations in the Marcellus Shale in Pennsylvania, Range states on p. 22 (emphasis added):

“This has been our largest investment area over the last three years.  We had 422 proven drilling locations at December 31, 2010.  Our 2010 production was 166% greater than 2009.  During 2010, we drilled 113.6 net development wells and 3.9 net exploratory wells in the Marcellus Shale, of which 114.4 net wells were successful.” 6 

How credible is the 166% increase in production when the company admitted in the same year that it had misread its production volumes?

And how many leaseholders across those more than 400 “proven drilling locations” received letters in which Range said it apparently could not accurately read production and allegedly overpaid royalties?

But if everything is copacetic, why not answer questions?  “Do the right thing for the right reasons” – because that’s who you are.  Aren’t you?

Links & Resources

1 Links to three documents involved in a complaint to Texas State Bar Association follow.  The complete list of documents (with links) can be found in Tillman’s March 11 response to Attorney Poole (below).  This includes subpoenas, deposition requests, quash requests.

2 UBS Investment Research: Energy Sector M&A – Specific to Range, the report notes: “We believe it is a matter of when not if Range Resources is acquired.”  pdf file (See especially pp. 1, 4-8):  EnergySectorMA

3 Range Resources Web Page “Commitment To The Environment, Safety, Health & Local Communities – See first paragraph after intro paragraph (in blue) where the company states: “In 2010, Range was the first company to voluntarily disclose hydraulic fracturing fluid contents on a per well basis.”  http://www.rangeresources.com/getdoc/fecf2d47-a7e9-4b8e-b80d-395fc52f98ea/Commitment-to-the-Environment,-Safety,-Health—Lo.aspx

4 Discovering Shale Gas:  An Investor Guide to Hydraulic Fracturing (March 8, 2012) – published by Sustainable Investments Institute with funding support from IRRC Institute; see pp. 64-65.  You can download a pdf file of the 74-page report at this link: http://www.irrcinstitute.org/projects.php?project=56

5 Two newspapers have sought to unseal a “highly publicized” lawsuit settlement with landowners critical of Range Resources and other energy companies.

6 Range Resource Corp Form 10-K filed with the U.S. Securities and Echange Commission for the fiscal year ended December 31, 2010 – Pdf file:  RangeResources_10K_20110301

NOTE:  This article is cross-posted on the Accountability Central website at this link: http://www.accountability-central.com/nc/single-view-default/article/voices-from-the-shale-formal-complaint-filed-with-texas-state-bar-association-alleges-range-resou/  Accountability Central is part of the Governance & Accountability Institute, Inc.


 

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