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Natural Gas "Bubble" Report: Market Tinkering or Shoddy Reporting?

By Jon Entine - July 1, 2011

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For reasons never explained, the Times determined that Berman and Groppe were less Chicken Little and more banking analyst Meredith Whitney, for their fingerprints are all over its story. But even a cursory background check of the cited sources raises unanswered questions, some of which may have resulted in market manipulations that could yet raise the ire of regulators in Canada and the U.S.

Financial Conflicts of Interest

Times' editors present this story as an independent investigation, as blowing the top off a conspiracy of silence from natural gas "insiders." It brags in a special section headlined "Industry Privately Skeptical of Shale Gas" of reviewing, over six months, "thousands of pages of documents related to shale gas, including hundreds of industry e-mails, internal agency documents and reports by analysts."

The Times posted some of the emails, although they are heavily redacted "to protect the confidentiality of sources." Readers are left with hyperbolic but anonymous fragments of criticism, many years out of date, sprinkled with derisive comments from Berman and Rogers.

Berman is described as a "geologist who worked two decades at Amoco and has been one of the most vocal skeptics of shale gas economics." There is no reason to begrudge Berman (or Groppe) from holding strong beliefs and trying to profit from them by selling their investment advice to hedge funds or other investors. But the responsibility of the Times is different. Context is the difference between truth and manipulation. Disclosure is a central canon of journalism ethics.

What didn't the Times disclose? Berman has financial ties to a range of critics of shale gas. For example, In January, Berman testified as a paid expert witness before the Indiana Utility Regulatory Commission in support of Indiana Gasification, a unit of Leucadia National Corp., detailing the benefits of buying natural gas made from coal instead of from shale. “My work with Indiana Gasification (IG) as an expert witness is a common and legitimate role for experienced oil and gas experts,” Berman said in an email response. “There is nothing unusual about my relationship as a paid expert witness for IG or any other entity.”

Berman (and Groppe) are also "strategic partners" and "consultants" to Middlefield Capital in Toronto, according to Dean Orico, its president. They are both on retainer and are prominently featured on the company’s website.  Middlefield offers more than 30 funds and limited partnerships, including the Groppe Tactical Energy fund, which follow the two advisers' anti-shale gas investment outlook. It has sizable investments in key competitors to shale gas drillers, most prominently Canadian tar oil producers, an industry with far more environmental questions than the natural gas industry.

Berman was a paid speaker at an event sponsored by the Canadian Imperial Bank of Commerce, according to CIBC and Berman. Both Middlefield and CIBC World Markets have clients who would profit from Berman taking an aggressive public stance. Moreover, if any of their clients, or indeed the fund managers at Middlefield, knew that the Times story was coming out, they could face charges of market manipulation under Canadian and U.S. securities law. (Orico said that Middlefield was never contacted by the Times and only found out about the story after it appeared. Berman asserts that he told no one at CIBC or Middlefield that he would be featured in a Times story challenging the financial feasibility of the shale gas market.)

Did Berman tell his strategic partners and clients, and directly profit from the Times story? Did Middlefield's funds or clients or CIBC's clients with knowledge of the Times’ piece hold short interest in shale stocks or long interest in competitors' stocks? Did the Canadian oil sands industry, which includes Middlefield Capital, seek to influence the U.S. fracking debate, which could be a potential violation of the Foreign Agents Registration Act? Did Middlefield's funds or clients or CIBC's clients have short interest in shale stocks ahead of the Times report? Is the Times' key source dealing in inside information? Recall that Martha Stewart went to jail after being accused by the government of conspiracy, obstruction of justice, securities fraud and insider trading for getting advance word on market-moving news.

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Jon Entine directs the Genetic Literacy Project and is a senior fellow at STATS and the Center for Health and Risk Communications at George Mason University.

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