Chevron Continues to Rally Amid Fallout from Pennsylvania Fracking "Boom"

Michael Teague  |

Ever since the ExxonMobil (XOM) Valdez tanker disaster that spilled hundreds of thousands of barrels of oil into Alaska’s Prince William Sound, major integrated oil and gas companies have come to accept that public opprobrium is simply a cost of doing business.

The public relations budgets of the super-majors have swelled in the years since that terrible event. Indeed, the science underlying the global warming thesis has more or less gained the status of common sense, and as BP plc’s (BP) 2010 mishap in the Gulf of Mexico amply demonstrated, operational failures, whatever their origin, are a frequent occurrence in the business.

Incidents and developments such as these have made public relations an absolutely indispensable component of the industry, and one whose purpose is no secret. The rosy picture that is projected by rebranding campaigns, for example British Petroleum’s transformation into the acronym BP, replete with a high-tech looking green and yellow logo, and the suggestion that the company is striving to go “beyond petroleum,” stands in stark contrast to its recent attempts to legally undermine settlement payments from the Gulf catastrophe. Much the same could be said of Royal Dutch Shell’s ($RDS.A) so-called “science slams” that have been so popular in Europe of late.

This contradictory behavior has become a sort of best practices for the industry as a whole, not just its biggest companies, and regardless one's interpretation of the logic on which it rests, it has become a template that oil and gas producers have executed reflexively.

Or so we thought, until Feb 16, when one of the heaviest hitters on the market, Chevron (CVX) fumbled this public relations formula with unfathomable incompetence and insensitivity.

Five days prior, on Feb 11, one of its freshly drilled hydraulic fracturing wells in Bobtown, Pennsylvania exploded for reasons that are still undetermined, killing one contractor, 27-year old Ian McKee, injuring another, and resulting in a fire that burned for several days before it could be put out.

The explosion was bad enough, and could yet turn out to fuel an ongoing debate about methane emissions at fracking wells, which the industry claims are negligible (Chevron’s well near Bobtown had just been completed, and production had not yet even begun). Still, the incident had not made national headlines, at least not until the media got wind of the attempt to compensate the town’s residents.

On Feb 16, the company hit the streets to distribute door-to-door 100 coupons it had purchased from a local pizzeria to the residents of the town. The coupons were good for one free pie along with a bottle of soda, and included a statement that read: "Chevron recognizes the effect this has had on the community. We value being a responsible member of this community and will continue to strive to achieve incident-free operations. We are committed to taking action to safeguard our neighbors, our employees, our contractors and the environment."

According to CNN, one resident claimed that the voucher and accompanying apology were the first the town’s residents had heard from the company in any form since the explosion (it should be noted that the same resident also stated his desire to remain anonymous due to Chevron’s strong presence in the area). Another resident stated his intention to move his family out of the town, citing the fact that the exploded well was just one of several in the vicinity.

In all, the pizza coupons cost the company some $1,200 of the $21.43 billion of its 2013 profits, but their obtuse gesture could end up carrying a much larger price tag, as the story has snowballed over the course of the week, thanks mainly to a chorus of derision on social media outlets. Not to be outdone, traditional media has jumped all over the story as well, with writers and anchors variously joining in on the mockery and outrage, as if oblivious to their own failure to cover the deadly explosion until it had taken such an aberrant turn.

What happens next for Chevron will depend on a number of factors, the most determinant of which is likely to be the results of the investigation into the cause or causes of the blaze. As the operator of the well, the company is already responsible for the Bobtown tragedy, but if it turns out that negligence played a role there’s no telling how ugly a turn this previously ignored incident could take.

Be that as it may, investors seemed to shrug off the news in Wednesday trading, and shares for CVX continued to rally as they have for over the past few sessions, up almost a percent and a half ahead of the closing bell to $115.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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