I started reading a new book a few days ago. It was a bestseller, highly recommended, and apparently a favorite at my local library. At first I didn’t like it. It was quite different from the genres that I had read recently, and for a little while I considered putting it aside. There have been several occasions in recent months where I just couldn’t stand to finish a book, perhaps because of the subject matter or perhaps because the book was poorly written. There are many reasons to set aside a book. After all, our time is precious. We only have so much, and we never know just how much we have left.
In any event, I risked a few more hours on this book. As the story developed, the characters came to life for me and the plot gained my interest. Now I’m hooked. I’m glad I took the risk. I don’t know the final outcome of my decision at this point, but I’m content with my decision to give the book a chance.
It was an all-together different item concerning risk that caught my attention in the business section of my local paper this morning. I’ll get to it in a moment, but I would like to provide a little background first. Stick with me here, please take the chance, I’ll try not to disappoint you.
Up until recently I worked in a rural and relatively poor corner of my county. The people there were generally friendly, and even when I didn’t always agree with the opinions they shared with me, I took time to listen to their reasoning. They were mostly what could be described as “salt-of-the-earth” types, good-hearted and generous if not always prosperous. Of course there were idiots, tweakers, and others I didn’t care for, but they exist everywhere and I mostly just ignore them. But the vast majority of folks were decent people who needed a break to go their way. You see, his area has steadily been losing employment opportunities over the years.
Recently, they got a break. At least some of them did. The gas drillers came to town. More specifically, companies involved in obtaining natural gas through the process known as hydraulic fracturing, known generally as “fracking,” entered the market area and began buying leases enabling them to drill on many of the area farms. Many people got a nice chunk of money for their mineral rights, with the promise of more from royalties in the future.
Others in the area got a break of another sort. These companies began hiring people to work on the drilling sites. Believe me when I tell you, this area was in need of jobs and these were good paying jobs, and lots of people were getting work, directly and indirectly as well. I hoped for the best. Like I said, these guys needed a break, and it seemed that one was coming their way.
But if you haven’t figured it out yet, I will tell you that I’m somewhat of a skeptic. If you know me, perhaps this revelation isn’t a big shock. Anyway, these companies began a large advertising campaign explaining that their drilling process was safe, and that they planned to become a good neighbor and valuable member of the community. I maintained a hopeful stance and tried to bury my skepticism.
Now I understand a bit about how businesses work, and the purposes of advertising. It isn’t usually necessary to spend lots of money advertising something like milk. Milk is good and is good for you, and there isn’t a great deal of money spent to tell you that. But there is some money spent in that regard. On the other hand, much more money is spent advertising cigarettes (even though we no longer allow TV ads for them). Cigarettes are not good for you, and they’re only really good once you become addicted. Still not good for you though. They spend much more money advertising cigarettes than they do milk.
So the frackers’ advertising made me more wary, but I still held out hope. Sometimes, you just need to get the information out there, like with milk. Our community needed a break, and I was all for them getting one. Lots of people, including people that had earned my respect, told me that the process was generally safe, the technology had been refined, and the risks were minimal. Now I know that anytime we extract anything from the earth, there exist risks. However, I feel that we have to take certain risks in order to enjoy the level of civilization that we have come to expect. I’m not willing to do without electricity. I know that we can produce it through renewable sources, but until that technology is widespread, we need to burn fossil fuels to get electric. Natural gas is a cleaner fuel to use than coal, and I would like to see more gas used than coal, even if it will cost us some coal jobs in this area of the country.
Anyway, as I did more personal research on hydraulic fracturing, I grew more wary. There were lots of bad side effects, lots of potential problems, in short lots of things that go wrong. But I’m an equal opportunity skeptic, and my skepticism cuts both ways. As I said, I know that any time we extract things from the earth, there are risks. We have to take some of them. We have to assess the risks as accurately as possible and act in our best interests. I don’t believe everything I read, and you shouldn’t either. And as I said before, a good economic break was sorely needed in this area.
Which brings me back to this morning’s news story, as reported by The Associated Press, which said: “Nationwide Mutual Insurance Company has become the first major insurance company to say it won’t cover damage related to a gas drilling process that blasts chemical-laden water deep into the ground.” This is an insurance company, an expert in risk assessment, a company that will insure against monetary loss from a wide range of catastrophes that it knows will happen to some people, but not others. It has decided to no longer insure against fracking. Think about that, because it speaks volumes.
The article goes on to point out another important point: “It [referring to a leaked memo] said ‘prohibited risks’ apply to landowners who lease land for shale gas drilling and contractors involved in fracking operations, including those who haul water to and from drill sites.” That is an important point, and partly answers a question I had about why the drilling companies were willing to pay so much for mineral rights when the price of natural gas is at an historic low. It’s because the landowners are apparently shouldering some of the financial responsibility if something goes wrong.
Insurance companies are experts in risk. The reason that they don’t want to see the Affordable Care Act fully implemented, despite the fact that they helped write the law, is that among other things, the law requires them to insure people with pre-existing conditions. There is no risk assessment involved with people who already have an illness. The insurance companies know that they will be required to pay out, and it will cost them money. While I may think they’re being cold-blooded in my fuzzy little heart, that cold, calculating part of my business-trained brain fully comprehends their logic. No rational business willingly signs up to lose money (they may take a loss in the short run, counting on a large future gain, but generally speaking, no business wants to lose money).
In the case of fracking, the first major insurance company has stated that it is not willing to take the risk. Not take the risk at any price. That worries me. These guys aren’t tree-hugging liberals taking a stand for the environment. Not even close, they are trained in the ways of business and out to make a profit, as they should be. Others will probably join Nationwide, probably soon. We’ll see.
In the meantime, I will offer this small piece of advice to my old friends of southern Stark County who may have received a recent windfall from the sale of their mineral rights: DON’T SPEND ALL OF THE MONEY. You won’t be covered by insurance if something goes wrong. And if you haven’t already figured it out, the big gamblers, the ones that really understand the odds, are betting that it will.
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