Marcellus Shaping Up as a Frac Battleground

In August, I questioned whether investors should fear the FRAC Act, a legislative effort to increase oversight of the oil and gas industry practice of hydraulic fracturing. For an education on the subject, make sure to check out the comments section of that article. The firsthand experiences of our fellow Fools working within the industry are invaluable to gaining an understanding of this nuanced debate.

One commenter, Wildcat79, argued that basic cementing requirements would allay most hydrofracking concerns. That's a view shared by Michael Nickolaus, special projects director for the nonprofit Ground Water Protection Council and former director of Indiana's state Oil and Gas Division. I think these guys are dead on, and cementing requirements should be a bigger part of the conversation going forward.

Responding to my concerns about the potential for regulatory capture, another commenter (who managed to snag the user name Fool) noted that "anyone who thinks the state regulators and the industry are in bed with each other haven't worked in Pennsylvania or New York!"

That's a fine point, Fool! Late last week, the Pennsylvania Department of Environmental Protection ordered a halt to all of Cabot Oil & Gas' (NYSE: COG  ) hydrofracking operations in Susquehanna County following a trio of reported chemical spills. Cabot, which was employing the services of Halliburton (NYSE: HAL  ) and Baker Corp. (not to be confused with Baker Hughes (NYSE: BHI  ) ) to exploit the Marcellus shale, has a few weeks to study the spills and develop a new pollution prevention plan.

As with neighboring operators like Chesapeake Energy (NYSE: CHK  ) and Range Resources (NYSE: RRC  ) , frac jobs are absolutely critical to Cabot's horizontal drilling operations in the Marcellus. These are what allow such magnificent results as a 30-day initial production rate of 10.8 million cubic feet per day on the company's most recently completed well. That's higher than the well's 24-hour rate!

No wonder, then, that Cabot is taking this matter so seriously. Most E&P companies don't bother to issue a press release about a surface spill like this. Then again, the suspension of hydrofracking is an extreme response by regulators, and shows just how high tensions are running in battleground shale states like Pennsylvania.

Cabot is rated a surprisingly low two stars (out of a possible five) in Motley Fool CAPS. Think the company will fare better than other Fools seem to expect? Then rate the stock to outperform right here.

Fool contributor Toby Shute doesn't have a position in any company mentioned in this article. Check out his CAPS profile or follow his articles using Twitter or RSS. Chesapeake is a Motley Fool Inside Value selection. The Fool owns shares of Chesapeake and has a dynamite disclosure policy.


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