How can you turn $3.2 billion into $500 billion in a day?

If you are Vladimir Putin, the prime minister of Russia, and Rex Tillerson, the chief executive of Exxon, you announce a deal that allows Exxon to explore for oil in Russia’s Arctic waters. According to Putin, who last week said, “It’s scary to utter such huge figures,” the deal could reach $500 billion. According to Exxon’s news release, all that’s been agreed so far is an investment of $3.2 billion. The only certainty is that the energy industry’s numbers game sometimes resembles the magical calculations the financial industry relied on before the 2008 crash.

Take natural gas. There has been a flood of recent investment in the effort to extract gas from the Marcellus shale, a geological formation that runs underground from Virginia to New York. Drilling rights have been snapped up as everyone tries to get a piece of the hazardous action. Few seem concerned that it involves an extraction technique, known as hydraulic fracturing—it uses chemicals and explosives to release deposits of oil or gas that are trapped in rock formations—that can poison water tables. The technique, which has been around for decades, is now being applied far more frequently than before and has come under intense criticism by environmental and health groups.

The investments have been encouraged by bullish numbers from, among others, the US Energy Department’s Energy Information Administration, which earlier this year estimated that the Marcellus contains an astounding 410 trillion cubic feet of natural gas. The fossil fuel industry loves suggestions of bountiful supplies because that means more investment, more drilling, and more profits, and it was not thrilled when the New York Times reported in June that some Energy Department officials were doubting the estimates:

“Am I just totally crazy, or does it seem like everyone and their mothers are endorsing shale gas without getting a really good understanding of the economics at the business level?” an energy analyst at the Energy Information Administration [a branch of the Energy Department] wrote in an [April 27 e-mail] (http://www.nytimes.com/interactive/us/natural-gas-drilling-down-documents-5.html#document/p33/a25205) to a colleague. Another e-mail expresses similar doubts. “I agree with your concerns regarding the euphoria for shale gas and oil,” wrote a senior official in the forecasting division of the Energy Information Administration in an April 13 e-mail to a colleague at the administration.

In August, the U.S. Geological Survey, which is part of the Interior Department, published its own estimate of Marcellus reserves, and its number was 84 trillion cubic feet—about 80 percent less than the Energy Department’s estimate. How can the figures be so different? Even under the best of circumstances, accurate estimates are difficult to get, but as the Times noted, it turns out the Energy Department outsourced much of its work to consultants with close ties to the oil and gas industry. By relying on consultants who appear to have accepted industry data at face value, the department acted much like the financial rating agencies that took Wall Street at its word and doled out triple-A ratings to mortgage securities that were doomed to fail. Thanks to the diligence of the Geological Survey, which relies on its own geologists to do the number crunching, the Energy Department abruptly announced that it will cut its estimate of Marcellus reserves by 80 percent—essentially adopting the Geological Survey numbers.

The Exxon deal, meanwhile, is attention-getting not just for its roulette of numbers but because it involves drilling in Arctic waters. The risk of an accident is higher there, due to only-in-Arctic perils that include icebergs crashing into drilling rigs. And even more worrying, the consequences of a spill are far greater than in less remote regions, since cleanup would be extremely difficult in the harsh weather and winter darkness of the Arctic. More and more, industry declarations about high safety standards—Exxon said it “will use global best practices to develop state-of-the-art safety and environmental protection systems”—seem akin to AIG giving paternal assurances to investors that its derivatives business was being managed in a way that would prevent a meltdown if the housing market declined.

The BP spill in the Gulf of Mexico last year revealed the terrifying inadequacy of oil companies’ efforts to prepare for an offshore blowout. And just last month, after coming under pressure from environmentalists, the government of Greenland, which is based in the city of Nuuk, released an almost comical containment plan prepared by a Scottish company that is drilling exploratory wells in its Arctic waters. If an iceberg is stained with oil, the plan calls for cutting off the affected areas and towing them to shore, where they would be hoisted into a heated warehouse to separate the oil from the water. Needless to say, this has never been done before and sounds like an idea hatched by the editors of the Onion. In regard to other problems, the plan is dismally honest. Noting that Greenland’s coastline is rocky, it admits that “in some circumstances oil shorelines are best left to recover naturally.” In other words, no cleanup.

So it’s no surprise, given the secrecy and uncertainty and occasional chicanery in the fossil fuel industry, that the deal announced by Putin and Tillerson could amount to less than what Tillerson says—or, who knows, more than Putin hopes. Luckily for the Arctic environment, there’s a chance it will be less. This is not the first time an ambitious plan of this sort has been announced in Russia. Earlier this year—at a point when its drilling rights in the Gulf of Mexico were still suspended over last year’s spill—BP reached a similar deal with Rosneft, the state-owned firm that is now Exxon’s partner. But it dramatically fell apart due to objections from a different Russian firm that BP was allied with in other projects, and the situation has deteriorated to the point that, in late August, Russian police raided BP’s Moscow office. There are other ways for such a deal to founder. If foreign oil firms are seen as doing too well in Russia, the reward can be nationalization—in 2006, Royal Dutch Shell, after spending more than $20 billion dollars on a project off Sakhalin Island, was forced to sell half its stake to a state-owned firm.

Even if Putin and Tillerson find nothing to argue about, and even if no icebergs crash into an Exxon rig, the project can fizzle because nobody knows for sure whether or where oil might be found under Russia’s Arctic waters. Even the best estimates by USGS geologists are simply educated guesses about amounts of oil and their location. Cairn Energy, the Scottish company drilling in Greenland’s waters, is spending at least $600 million on wells that have so far failed to find enough oil to justify full-blown extraction. The irony (and last-ditch hope for environmentalists if exploratory drilling gets underway in Russian waters) is that western energy companies might pour billions of dollars into the Arctic and get nothing more valuable from their efforts than a belated awareness that they were victims of their own irrational exuberance.