Last summer, I asked whether investors should fear the FRAC Act. That's the piece of legislation seeking to subject the oil industry practice of hydraulic fracturing to federal oversight. This duty currently falls to the states.
Investors in companies like Range Resources (NYSE: RRC) and Devon Energy (NYSE: DVN) need to keep an eye on the battle over hydraulic fracturing because the process underpins the natural gas boom that is reshaping the energy landscape. Just a few years ago, it looked like imports of liquefied natural gas (LNG) would be required to supply North American energy needs. Now, with the market so well supplied with domestic output, companies like Apache (NYSE: APA) are looking to secure LNG export capacity. Frac fluid -- the water, sand, and chemical mixture blasted into downhole formations to get the gas flowing out of tight sandstones and shales -- made this possible.
There are two frac-related news items that I want to bring to your attention. The first is that the EPA has launched a comprehensive, peer-reviewed study "to investigate the potential adverse impact that hydraulic fracturing may have on water quality and public health." I am hopeful that this study will put some of the more alarmist concerns to bed, while perhaps cracking the whip on some chemical compounds that should be banned from frac fluids.
Speaking of which, the race by oil services companies to develop "green" -- i.e. nontoxic -- frac chemicals is well under way. A Bloomberg piece today highlights some efforts by Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB) to replace traditional biocides, which make up about 0.001% of a typical fracture fluid. Halliburton, for example, is attempting to use ultraviolet light to kill the bacteria that can muck up a gas well.
I remain confident that these companies can figure out ways around using the most offensive chemicals. The faster they implement these alternatives, the more likely they are to defuse opposition in frac battlegrounds like New York and Pennsylvania, and avoid unnecessary regulations. That should be a win-win for all stakeholders.
