In June, Democrats introduced the FRAC (Fracturing Responsibility and Awareness of Chemicals) Act via companion bills in the House and Senate. The FRAC Act seeks to amend the Safe Drinking Water Act so that hydraulic fracturing would be regulated on a federal level.
Hydraulic fracturing is the technique that, combined with horizontal drilling, has allowed domestic E&Ps like Devon Energy (NYSE: DVN ) , Southwestern Energy (NYSE: SWN ) , and XTO Energy (NYSE: XTO ) to unlock massive shale deposits like the Barnett and the Fayetteville.
Big Oil's lobbyist, the API, has been hootin' and hollerin' about the implications of federal frac fluid oversight, saying that domestic production would drop "significantly" if servicers like Halliburton (NYSE: HAL ) and Baker Hughes (NYSE: BHI ) had to report the chemical components added to the water that's pumped downhole and used to fracture hydrocarbon-bearing rock. One industry estimate puts the additional cost of compliance at $100,000 for each new natural gas well.
Big Oil (and especially Small Oil), you know I often stick up for you, but I suspect you're crying wolf this time.
The oil patch is an extraordinarily entrepreneurial place. If certain chemicals are banned from frac fluid, I have every confidence that the contractors will be able to formulate an alternative that doesn't break the economics of the stimulation job. Further, that compliance estimate sounds like a serious exaggeration.
Why am I sympathetic to this legislation? For one, state regulatory bodies can become quite cozy with industries that drive the local economy. Second, while the risk of polluting an aquifer seems remote, given that most horizontal drilling occurs much deeper in the earth, I do recognize that there are some rather nasty chemicals involved here, and they have been and will continue to be spilled on the surface. That poses enough of a threat to drinking water to get me concerned.
According to local media reports, a recent frac job performed by Schlumberger (NYSE: SLB ) for Chesapeake Energy (NYSE: CHK ) in the Haynesville shale play saw some frac fluid spilled, and 17 cows died.
To be clear, the outright ban of hydrofracking would strike an incredibly damaging blow to the industry and to our domestic energy supply (hello, Russian gas imports!), but I don't foresee such a threat to the overall practice. No matter what your opinion of members of Congress, I don't think any of them are that stupid.
As far as better chemical disclosure goes, I'm all for it. Let's just make sure that our representatives realize what a good thing we have going with shale gas, and that they don't strangle the goose that's laying golden energy eggs.