(BP) U.S. Environmental Protection Agency Requests Information From Natural Gas Firms

The U.S. Environmental Protection Agency (“EPA”) has sought information from nine natural gas service companies about the chemicals used in hydraulic fracturing (or fracking) – a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals. In the first-of-its-kind request, the federal regulator has formally asked the firms to provide a list of the chemicals they inject into natural gas wells. According to EPA, the details will be used for a study on potential threats of well fracking on drinking water.

The Background

The controversial technique, which is used for capturing natural gas from vast underground fields, has been hailed as a major breakthrough for U.S. energy supplies and has played a major role in boosting domestic natural gas reserves in recent years.

However, citizen activists and environmentalists, who believe that the drilling practice is far too loosely regulated, have long demanded well service companies and producers to reveal the chemicals they mix with water and inject into wells, citing evidences of possible water contamination. The public backlash has further intensified following the BP plc (BP) oil spill in the Gulf of Mexico. In fact, a growing number of inhabitants in Texas, Pennsylvania, Colorado, and other states argue that the technique has fouled the underground water table, public health and the environment.

Validating these concerns, the EPA has requested the list of chemicals from who’s who of gas-drilling companies that include Halliburton Co. (HAL), Schlumberger Ltd. (SLB), Patterson-UTI Energy Inc. (PTEN), and Weatherford International Ltd. (WFT). The agency has told the companies to reply to its request within seven days and to voluntarily provide the information within thirty days, failing which it will explore legal alternatives. Initial result of the study, which is likely to begin in January 2011, is expected to be published by the end of 2012.

The EPA maintains that natural gas, though an important part of the nation’s energy future, should not come at the expense of safe water and healthy communities.

Industry View

The natural gas industry maintains that hydraulic fracturing is safe with the fluids being almost entirely a mixture of sand and water, with just trace amounts of chemical lubricants, thickeners and other compounds. In fact, most of the companies have refused to divulge their formulas, arguing that the exact components are proprietary trade secrets. They further say that none of the compounds come in contact with the water table and till date there has been no evidence that show that the techniques are unsafe.

Conclusion

The industry, which has long resisted efforts to identify those chemicals, is putting a brave face about the EPA study, agreeing to fully cooperate with the agency’s request. However, we believe this could significantly impact companies like Halliburton, forcing it to reveal the make-up of its fluids, and potentially destroying its competitive advantage in the high-end pressure-pumping market (an umbrella term used to describe a number of vital services performed on new and existing wells).

Zacks Investment Research

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