Are the Feds Intent on Fouling Fracking?

If you're an aficionado of energy investments you may agree that the august Wall Street Journal committed the journalistic gaffe of "burying the lede" on Friday. As you may know, the term refers to discussing the key fact(s) in an article only after less important information has already been dispensed.

On page two of Friday's Journal there appears a piece entitled "U.S. to Set Rules for Fracking on Federal Land." As the headline implies, within a matter of days the Interior Department will advance "sweeping new environmental-safety rules for hydraulic fracturing on federal land, setting a new standard that natural-gas wells on all lands eventually could follow."

That's hardly a shocking development. The current administration is usurping almost daily functions that heretofore were within the provinces of the states.

Wrapped up by the lede?
What is surprising is that readers need to work their way to the next-to-last paragraph of a total of 18 in the article before coming upon the information that "Companies say state officials are in a better position than federal officials to regulate hydraulic fracturing because they understand the local geology and community concerns." In the next -- and last -- paragraph, Kathleen Sgamma, vice president of the Western Energy Alliance, is quoted as saying, "There's no way that adding these additional requirements is not going to slow down further permitting on federal lands."

On that basis, had I written the article -- I must confess to having previously been a journalism professor -- my initial paragraph would have begun with something like, "Over the objections of industry executives and state officials, the Obama administration will soon issue sweeping... ." Not long thereafter, I'd have noted that yet another nail is apparently being driven into the coffin containing the 10th amendment to the U.S. Constitution.

Through that addition to the last item in the Bill of Rights, the founding fathers expressly intended that "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." However, I'd venture that few would maintain that the Bill of Rights' caboose member has not been whittled away essentially to nonexistence in the past few years.

Contrasting contentions
"The expected rules are aimed at ensuring the (fracking) process doesn't contaminate groundwater. Environmental groups, among the most vocal opponents of the drilling method, say hydraulic fracturing should be stopped until experts can confirm it is environmentally safe," the Journal says in explaining (if not justifying) the imminent rules. As I see it, however, the difficulty there is that:

  • The very next paragraph in the article admits that "The U.S. government hasn't produced any evidence that contamination occurs." Further, a recent test by the Energy Institute of University of Texas at Austin concluded that hydraulic fracturing of shale formations hasn't been connected to groundwater contamination.
  • The Environmental Protection Agency, or EPA, has recently backed off on earlier contentions that hydraulic fracturing by Encana (NYSE: ECA  ) and Cabot Oil & Gas (NYSE: COG  ) had resulted in groundwater damage in Wyoming and Pennsylvania, respectively.
  • I'm really not sure what is meant by "environmental groups," a term that's long been bandied about willy-nilly. I've never met anyone who would gleefully soil our planet. Perhaps the term targets those bent on hindering the production of fossil fuels under the guise of being environmentally more sagacious than the rest of us.
  • For its part, the oil and gas industry is hardly running amok, treating environmental damage as simply an unavoidable result of hydrocarbons production. Indeed, numerous oil and gas companies, including ExxonMobil (NYSE: XOM  ) and Apache (NYSE: APA  ) , have consulted with the administration on fracking rules, especially those issued by the EPA. Beyond that, a group of 11 of the largest companies operating in the Marcellus and Utica shales, such as Anadarko Petroleum (NYSE: APC  ) , have formed the Appalachian Shale Recommended Practices Group, or ASRPG, to create advisable standards for gas and oil production in the Appalachian shales.

Crucifying oil and gas companies?
All of this is occurring against a backdrop of the contretemps created by Al Armendariz, the EPA boss man in Texas, Oklahoma, and other states in the south-central U.S. As he said in 2010 to employees at an EPA meeting, his recommended "philosophy of enforcement" for oil and gas companies is "...like how the Romans used to conquer little villages in the Mediterranean. They'd go into a little Turkish town somewhere , they'd find the first five guys they saw and they would crucify them. And then you know that town was really easy to manage for next few years."

But the subsequent apology and resignation of Armendariz has not assuaged the pique of many who are disdainful of Washington's approach to the energy industry. As the Journal itself began in an editorial, "It's no secret that the bosses at the Environmental Protection Agency hate fossil fuels." And the Daily Caller noted that Oklahoma's Republican Senator James Inhofe, the ranking member of the Senate Committee on Environment and Public Works, said that while he approved the administrator's resignation, "the EPA under President Barak Obama, still has a problem with how it treats American energy producers."

The Foolish bottom line
With Sen. Inhofe's intent on moving forward with a previously initiated investigation of EPA practices, with feds likely having stepped over a regulatory line that had long been consigned to the states, and with oil industry executives less than thrilled about the incursion, we're bound to see further fireworks generated long before Independence Day.

In the meantime, I continue to believe that energy is perhaps the single most important sector on the investing horizon. Of the companies above, as I noted recently, I'd urge Foolish investors to keep a close eye on Anadarko Petroleum, beginning by adding the solid company to your own version of My Watchlist.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned in the article above. Motley Fool newsletter services have recommended buying shares of ExxonMobil. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (11) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 07, 2012, at 4:32 PM, dockofthebay wrote:

    This article is just a politically slanted rant, with nothing useful in the way of company specific information contained in it. The author apparently believes that the oil and gas industry should be allowed to determine what the "recommendedt practices" should be and to then regulate itself without government oversight.

    We've all seen how well that works.

  • Report this Comment On May 07, 2012, at 5:19 PM, revealedin71 wrote:

    This just underlines how important this year's election is. If we are to achieve true energy independence, the lip-service liberals (who hate oil and gas and coal, no matter what) must be removed from power. We need it all...gas,oil, coal, wind,solar, geothermal, nuclear..not some... ALL!!

  • Report this Comment On May 07, 2012, at 9:03 PM, Calgarykid2003 wrote:

    Ask Japan how nuclear is working for them...

  • Report this Comment On May 08, 2012, at 11:05 AM, Danno45 wrote:

    One persons red tape is anothers clean ground water and safe livestock.

  • Report this Comment On May 08, 2012, at 1:22 PM, mdk0611 wrote:

    Danno - Unless you're Encana or Cabot, where the red tape proved to be false accusations. Just an attempt to crucify the innocent.

  • Report this Comment On May 08, 2012, at 1:24 PM, rfaramir wrote:

    "Ask Japan how nuclear is working for them..."

    You mean the government-run plant that was supposed to be deactivated, but bureaucrats pushed for extension until it failed? Other than that one, pretty well.

    A private firm, with real liability for its actions, would have replaced or upgraded the reactor sooner. Accountability produces effective self-regulation. When government is involved in production, there is no accountability possible. When government grants immunity there is distortion as well, witness the $75M cap on liability for deep drilling in the gulf (since removed, illegally after the fact).

    We need more articles like this from The Motley Fool. Investors should be all about the free market. Not free of the constraints of accountability, of course, but accountable to property owners (e.g., land being fracked under), not to politicians. The more statists and socialists complain about them, the better you know you're doing.

  • Report this Comment On May 08, 2012, at 1:45 PM, TinyBlueDot wrote:

    Please watch this movie called Gasland and then talk about the reasons why the EPA is backing off....

  • Report this Comment On May 08, 2012, at 5:44 PM, friscobeats wrote:

    If Exxon etc "have consulted with the administration on fracking rules" and the EPA is set to reveal new fracking rules, I don't see how the administration can be accused of doing anything as dramatic as "crucifying" the energy industry.

    If indeed you have studied journalism, then you ought to understand that journalism is about reporting fact, not assigning blame. Journalism is even less concerned with assigning blame for an outcome that is based on speculation (namely that the new rules will be overly burdensome and hamper the sector's ability to grow).

    As far as constitutional issues are concerned, the federal government is directly responsible for administering federal land. I think setting rules for drilling certainly qualifies. If fact many rules already exist for well established forms of energy extraction such as traditional drilling. I don't see why similar rules shouldn't exist for a new technique such as fracking. As far as state rights are concerned, Ohio has already issued a moratorium on hydrolic fracking waste water disposal citing concerns over seismic effect.

    The US energy sector is booming at unprecedented levels. Natural gas drilling is the new gold rush. The very nature of energy extraction and production is experiencing a paradigm shift. Let's everyone take a minute to make sure we aren't causing earthquakes or contaminating the water supply, and then we can all get back to the business of retooling America's energy infrastructure for the next century of profitable growth. Sounds pretty reasonable to me.

  • Report this Comment On May 08, 2012, at 11:24 PM, gcp3rd wrote:

    Oooooh! Some politics for a change. Well I like that and at least it appears we can have a decent discussion without pointless flames so far.

    My comment is that if capitalism successfully self-regulated itself there would be no need for an EPA or a myriad of other (granted often times bloated) agencies. But capitalism is a concept, not a thinking person that can reason. Give it enough room and it will harm the standard of living for the very people it exists to serve - just go read a history of slavery (I highly recommend "1493" by Charles Mann - basically the history of the start of globalism beginning at day 1). Slavery made sense because it's a capitalist dream - free labor! An over simplification but you get the point. What's better for energy production businesses, regulations or none at all?

    At this point in history some companies are stewards of the world we live in and some aren't. But capitalism will always and forever seek the most efficient way to a profit. That's its' point. If we don't regulate at least lightly along the way, it will run amok and create a world that makes things worse for all of us.

    So the Fed weighing in on, if not also enforcing, guidelines/rules for Federally managed land doesn't sound like that big of a deal. This is America - capitalism will find a way!

  • Report this Comment On May 09, 2012, at 10:04 AM, CluckChicken wrote:

    "A private firm, with real liability for its actions, would have replaced or upgraded the reactor sooner. Accountability produces effective self-regulation."

    It is scarey that people actually believe a line that. What private companies actually do is look at the profit line and try and determine what are the chances that something will go wrong and how much that will cost them if and when it does.

    Look at what BP was doing with gulf spill. Over a week after the spill was know BP was providing low def video of the spill even though they high def video to all the groups trying to determine how to fix the issue and how bad it really was.

    Ford famously desided to save $11 per car then to make the Pinto a safer car. Heck today they like to make claims as to how safe their cars are, yet they still will not spend the $20 per car to add automatic lights or day time running lights, even though study after study says it is safer to drive with lights on then off. And how many early evenings has a car suddenly appeared semingly out of nowhere because they didn't have their lights on?

    Mining industry surely has little care over developing safer standards on their own, or even following the ones the government mandates or what they do to the enviroment.

    Insurance companies are famous for the deney claims first policy and then see what happens in court.

    In late April Anadarko Drilling was caught knowingly dumping drilling water into a creek without permitts. Now the Texas enviroment agencies are known to turn a blind eye to drilling companies so the chaces of any legal action are near nothing.

    All of these are private compaines that knowingly do not care about regulating themselves for the safety of their customers, enviroment or even employees.

  • Report this Comment On June 05, 2012, at 5:12 PM, Darwood11 wrote:

    @Calgarykid2003 it would be better if you asked "how is nuclear working for the U.S.?"

    According to the EIA "There are currently 104 commercial nuclear reactors at 65 nuclear power plants in 31 states. Since 1990, the share of the nation's total electricity supply provided by nuclear power generation has averaged about 20%, "

    We can eliminate nuclear at any time the electorate decides to cut their electrical energy consumption by 20%. In other words, turn off everything in your apartment for about 2.5 months per year. No Problem!

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