Seeking Alpha
Long only, deep value, contrarian, momentum
Profile| Send Message|
( followers)

Summary

  • There are now 422 fracking bans in the USA and more are being proposed everyday.
  • Apache Corporation is successfully testing a process that could eliminate the earthquake danger from fracking.
  • Political and legal battles over fracking are heating up in a number of states including Colorado.
  • Fracking will be a major issue in this year's political campaigns in a number of states.

There's good news and bad news for companies that rely on fracking, such as the Apache Corporation (NYSE:APA), Devon Energy (NYSE:DVN), and Chesapeake Energy (NYSE:CHK).

The good news is that researchers have discovered methods of alleviating the effects of fracking, such as earthquakes and ground water contamination. The bad news is the number of fracking bans and attempts to ban fracking are increasing.

Fracking Foes Are on the March

Here are a few facts about the anti-fracking movement that energy investors need to consider:

  • Around 422 fracking bans have been implemented in the United States, according to the Food & Water Watch website. Most of the bans are in the Eastern U.S. and were implemented by local governments, according to the site's map.
  • Statewide fracking bans are on the ballot in a number of states, including California and New Mexico. Most of the bans have been imposed on the municipal or county level, but there is an organized movement to get fracking bans on the ballot.
  • The current focus is on Colorado, where a number of media outlets including Reason Magazine and television station KDVR (Fox 31 Denver) have falsely claimed that Congressman Jared Polis, a Democrat supports a statewide fracking ban that might appear on the fall ballot.
  • Since this article first appeared Rep. Polis's office contacted my editor and stated that these media accounts are wrong, Polis does not support the statewide fracking ban. Scott Overland a member of Polis's staff sent Seeking Alpha an e-mail that made the following statement:

"In that article, Mr. Jennings states that Congressman Jared Polis supports a statewide ban on fracking. This is 100% false. He may support ballot initiatives this fall that would allow for some manner of local control of fracking, but is not supporting, nor would he support a ban on fracking."

So it looks like there is more political support for fracking than we thought. Polis seems to be straddling the fence on the issue.

  • The right of local governments to ban fracking is under challenge in the courts. New York State's Court of Appeals (state Supreme Court) is considering a challenge to zoning-based fracking bans brought by a driller and a property owner. Colorado's Oil and Gas Association has sued the town of Lafayette in an attempt to overturn a fracking ban. There have been no rulings yet in Colorado, but New York courts have upheld fracking bans.
  • The latest attempt to ban fracking in the small city of Loveland, Colorado, was defeated by 902 votes on June 24, 2014. News reports indicate that 10,844 Loveland residents opposed the ban, but 9,942 supported it. Around 50% of the city's registered voters participated in the election.

How Science Could Make Fracking Safer

Okay, that's the bad news; fracking supporters are in for a series of long, costly, and probably very nasty political and legal battles. Now for a little good news: alleviating the effects of fracking that scare the public the most, such as earthquakes and water pollution, is doable and economical.

The cause of fracking quakes appears to be the dumping of flow back, the waste water created by fracking, down deep wells. Deep well injection is used because water used in fracking is highly contaminated by chemicals.

The Apache Corporation may have found an alternative to this process, Environmental Engineering Consultant Dr. Richard W. Goodwin, P.E., noted in a recent paper. Apache crews fracking in the South Permian Basin discovered it was cheaper to recycle water than use the deep well method. It cost Apache 29¢ to recycle a barrel of water but $2.50 to have the same barrel hauled away for disposal.

Apache has been able to drill around 50 waterless wells that don't require hauling in extra water, Goodwin claimed. He claimed that this technique has reduced drilling costs by around $350,000 and saved Apache $17.5 million.

"Recycling frac waters would not only save operators money and secure 'fast track' permits, but reuse would avoid deep well injection removing a high potential contributing factor to localized earthquakes," Goodwin predicted.

Recycling of frac water would also reduce the amount of pollution and the danger of groundwater contamination which is one of property owners' major fears about fracking. Less released means less pollution.

Goodwin's results could help fracking supporters make the case that the fracking bans have no scientific basis in court. It should be noted that science rarely affects political outcomes and court decisions, which are usually based on emotion rather than facts.

Fracking Is Highly Profitable

Apache's results indicate that energy companies can avoid some of the worst effects of fracking and reduce costs at the same time. If these results can be believed, recycling might increase revenues by making fracking easier and cheaper. That is good news for investors because the fracking business is highly profitable to begin with.

That could definitely help Apache, which has seen its TTM revenue fall in the last year. In March 2013 Apache reported a TTM revenue figure of $16.49 billion; in March 2014 it reported one of $16.65 billion.

In contrast, Devon Energy reported an increase in TTM revenue of over $3 billion; in March 2013 Devon reported a TTM revenue figure of $8.97 billion; in March 2014 it reported $12.15 billion. Chesapeake reported an even more impressive increase of nearly $6 billion. In March 2013 Chesapeake reported a TTM revenue figure of $13.32 billion; in March 2013 it reported $19.13 billion.

Hydraulic fracking has proven to be a profitable and highly effective means of extracting oil and gas. Apache Corporation has demonstrated this process can become safer and more efficient with its recycling technology. Unfortunately fracking opponents may not give oil and gas companies an opportunity to utilize wastewater recycling in their quest to replace science with hysteria.

Disclosure: The author is long CHK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Fracking Bans Spread Even As Science Reduces Perceived Dangers