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.
This article was originally published as
Marcellus Shaping Up as a Frac Battlegroundon
Fool.com
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