EPA regulators announced the first set of rules for the quickly spreading drilling technique called fracking, or hydraulic fracturing, which uses a combination of water, sand, and chemicals to fracture rock layers. The process is used to release petroleum, natural gas, and other emissions. The extra emissions are what the EPA regulations address, according to The Wall Street Journal.
The rules would require drillers to capture the emissions that are released, and also allow them to sell it, though they won't be enforced until 2015. The EPA estimated that the industry might be able to save between $11 and $19 million per year, according to MarketWatch.
Intended benefits
Administrator Lisa Jackson said, "By ensuring the capture of gases that were previously released to pollute our air and threaten our climate, these updated standards will not only protect our health, but also lead to more product for fuel suppliers to bring to market."
The oil and gas industry responded to the EPA, claiming that controls on wells with low amounts of volatile organic compounds from drilling emissions would not be cost effective. American Petroleum Institute president and CEO Jack Gerard said that those controls should only be placed on wells that have a gas stream that is 10% or more of volatile organic compounds.
Meanwhile, some smaller private companies have been developing more environmentally friendly ways of fracking that do a better job of maintaining emissions.
Business section: Investing ideas
The new rules might make the fracking process more difficult for drillers, but the possibility of selling the emissions could help reduce the costs. Below is a list of oil and gas drilling and exploration companies that are more profitable than their peers. Do you think they can take advantage of the delay to overcome the rules?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. Ensco (NYSE: ESV): Provides offshore contract drilling services to the oil and gas industry. The company has a market cap of $12.05 billion. TTM gross margin at 48.57% vs. industry average at 34.31%. TTM operating margin at 29.91% vs. industry average at 18.01%. TTM pre-tax margin at 25.91% vs. industry average at 13.52%.
2. Patterson-UTI Energy (Nasdaq: PTEN): Provides onshore contract drilling services to oil and natural gas operators. The company has a market cap of $2.48 billion. TTM gross margin at 39.84% vs. industry average at 34.32%. TTM operating margin at 20.29% vs. industry average at 18.03%. TTM pre-tax margin at 19.9% vs. industry average at 13.54%.
3. Unit Corp. (NYSE: UNT): Engages in onshore contract drilling of oil and gas wells (for its own account as well as for other companies), exploration and production of oil and gas, and the gathering and transportation of natural gas primarily in the U.S. The company has a market cap of $1.93B. TTM gross margin at 52.36% vs. industry average at 34.32%. TTM operating margin at 26.79% vs. industry average at 18.03%. TTM pre-tax margin at 26.38% vs. industry average at 13.54%.
4. Rex Energy (Nasdaq: REXX): Operates as an independent oil and gas company in the Appalachian, Illinois, and Denver-Julesburg Basins. The company has a market cap of $478.22M. TTM gross margin at 34.88% vs. industry average at 27.47%. TTM operating margin at 15.31% vs. industry average at 8.54%. TTM pre-tax margin at 21.81% vs. industry average at 16.66%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
