Tuesday, August 24, 2010

Watch Your Language

The oil and gas industry has New Yorkers screaming “Frac’ No!” What might sound like foul language is actually a reference to a process known as fracturing used to stimulate oil or gas wells. Industry workers fondly refer to it as a “frac job” or “frac’ing.” The technique involves creating or enhancing fractures in rock formations around oil or gas deposits by pumping large amounts of water mixed with sand and chemicals into the rock formations around the well bore. It is a particularly handy technique for very deep deposits where the porosity of the rocks keeps the oil and gas from forming up and entering the well bore.

There have been some concerns about the use of hydraulic fracturing, especially where large amounts of chemicals could end up in the rock formations. Environmentalists cite the potential for contamination of aquifers.

That concern is not lost on New Yorkers, who are worried about the long-term impact of the use of fracturing in the northern part of their beloved state by natural gas developers. The U.S. Environmental Protection Agency delayed a hearing until September 2010, to hear comments on the use of hydraulic fracturing.

The state of New York is blessed with Marcellus Shale, an energy-rich geological formation the runs under New York, Pennsylvania, Ohio and West Virginia. Gas developers have been courting landowners throughout these states to get exploration and drilling rights. The economics of the signing bonuses and royalties are very appealing to landowners since the gas wells have so far not disrupted existing lands use.

Things were going well - no pun intended - until the gas leases started running up against New York’s coveted water supply. Unlike citizens in other states, New York is also blessed with excellent tap water that handily wins those blind taste tests against fancy bottled waters. The bounty comes from New York’s numerous sandstone aquifers.

New Yorkers are organizing to present the EPA with a case against further hydraulic fracturing. They have some ammunition. There have been accidents, including three recent spills in the state of Pennsylvania involving wells owned by Cabot Oil and Gas (COG: NYSE) . Its operations at those wells were suspended. Since the BP’s (BP: NYSE) major error in the Gulf of Mexico support has waned for well drilling without proper safeguards. New Yorkers also have support in Congress where legislation has been proposed to close up the so-called “Halliburton Loophole” that allows oil and gas drillers to inject chemicals directly into or near underground drinking water sources.

Personally, if have to choose between water to drink and gas for heat, I would prefer to layer on an extra blanket next winter so that I can arise to drink coffee made from crystal clear tap water.

Neither the author of the
Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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