Fracking’s Public Relations Problems Both a Threat and Opportunity for Gas Investors

It's hard to believe, but fracking's reputation is getting worse and worse. It's also becoming a major factor in the future of U.S. gas producers.

Apr 9, 2014 at 5:00PM

It didn't seem possible, but fracking's terrible public relations problems just got a whole lot worse. The pollution from fracking sites could be worse than we thought, and state efforts to protect fracking operations from public opposition could be making the situation worse.

A recent lawsuit alleges that the state of Pennsylvania deliberately withheld information about possible contamination of well water by fracking from private property owners, The Pittsburgh Post-Gazette reported. The suit takes aim at a state law called Article 13 that requires environmental regulators to tell public water system operators, but not private well owners, about contamination complaints.

Basically, property owners in Pennsylvania cannot figure out if pollution concerns are real or not. That raises the suspicion that oil and gas exploration operations have something to hide. It also fuels the public backlash against drillers and makes them an easy target for politicians and environmentalists.

Texas air study could pose a bigger threat to fracking
The situation in Texas could even be worse, as the city of Flower Mound is now requiring a 1,500-foot setback between drilling operations and homes or churches. The regulation was prompted by a study written by a researcher at the University of Texas at Austin's Community and Regional Planning Program.

The review found that air pollution generated by fracking problems could create health problems in children. To be fair, the author of this study, Rachel Rawlins, does not appear to be a doctor or an expert in public health. Still, we can see how the media and bloggers are already spinning this study.

Rawlins also accuses the Texas Commission on Environmental Quality (TCEQ) and the EPA of not properly monitoring levels of a pollutant called ozone. A blog called "Downwinders" is already citing the study in demands for increased local regulation of fracking operations. Such regulation is already possible in Pennsylvania, where the State Supreme Court ruled that local governments have the power to restrict fracking with local zoning regulations.

ExxonMobil revelations could make the situation worse
If all this wasn't bad enough, ExxonMobil (NYSE:XOM) could soon make fracking's PR problems a whole lot worse. The Wall Street Journal reported that the oil and gas giant has agreed to release a lot of details about its fracking operations in an effort to appease New York City's pension fund, which owns $1.02 billion worth of ExxonMobil shares.

This move could make things worse because it verifies popular suspicions that big oil is hiding something about fracking. Even if the report reveals there are no problems, fracking opponents will not believe it. If ExxonMobil acknowledges any problems from fracking, opponents will jump on it as a pretext for banning the practice.

This move comes at a time when opposition to fracking is growing fast. The Pew Research Center found that 49% of Americans opposed fracking in September 2013. That marked an 11% increase from March 2013, when 38% of American's were against the practice.

Will opposition hurt or help energy stocks?
Fracking's dismal reputation and possible restrictions could be both a problem and an opportunity for energy producers. Obviously, restrictions could help companies like Chesapeake Energy (NYSE:CHK) and Devon Energy, which already have a lot of gas wells drilled.

Limiting the number of new wells could raise gas prices and generate more revenue for owners of existing fields. The companies like Chesapeake that got in early would find themselves in a good position.

An end to fracking or legal limitations on the process could put the brakes on the oil and gas boom and plans for the export of U.S. natural gas. The losers here would be exploration companies like Range Resources, Freeport-McMoRan (which is entering the energy market), and Anadarko Petroleum. They might find themselves stuck with worthless leases and equipment they cannot use.

Opposition to fracking in the U.S. also shows that there is logic behind moves like ExxonMobil's investments in Russia. The world will still need natural gas if fracking is banned, it just won't be buying it from us.

Okay, there's no guarantee that opposition to fracking will lead to bans or limits on the process. In the bizzaro world of American politics, popular support or opposition doesn't always change the laws. 

The oil and gas industry has a lot of friends in political office and a lot of money as well. Given American political realities, banning or severely limiting fracking might just be impossible even with the public relations problems.

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Daniel Jennings has a position in Chesapeake Energy. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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