Why Is It So Hard To Apply Common Sense In The Fracking Debate?

| About: Encana Corporation (ECA)
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Have you heard the news? Of course you have.

The EPA announced that it had linked contamination of drinking water wells in Pavillion Wyoming to natural gas wells drilled by Encana (NYSE:ECA). Here is the EPA press release:

Denver, Colo. –December 8, 2011) The U.S. Environmental Protection Agency (EPA) today released a draft analysis of data from its Pavillion, Wyoming ground water investigation. At the request of Pavillion residents, EPA began investigating water quality concerns in private drinking water wells three years ago. Since that time, in conjunction with the state of Wyoming, the local community, and the owner of the gas field, Encana, EPA has been working to assess ground water quality and identify potential sources of contamination.

EPA constructed two deep monitoring wells to sample water in the aquifer. The draft report indicates that ground water in the aquifer contains compounds likely associated with gas production practices, including hydraulic fracturing.

Quite surprisingly, despite all of the negative publicity hydraulic fracturing has received this is the very first instance that the EPA has linked the process to water contamination.

Not surprisingly, Encana quickly responded to the conclusion of the EPA with a press release of its own that disagreed with the conclusions of the EPA:

The EPA's draft report and current view is based on a possibility, not a conclusion built upon peer-reviewed science. The cause of the compounds in the water remains inconclusive.

We live and work in the communities where we operate and we care about the impacts of energy development on the environment. We work very hard to ensure our operations do not impact groundwater. That's why Encana has worked extensively with the EPA and the Wyoming Department of Environmental Quality in their investigations into this matter. Encana disagrees with the EPA's statement that the source of the compounds in the groundwater is likely associated with hydraulic fracturing from natural gas development.

The Pavillion area natural groundwater has a long history of poor quality. Recent drinking water sample results are consistent with studies published by the U.S. Geological Survey and others over the past 50 years, prior to natural gas development in the area. The poor water quality is due to sulfates, sodium, total dissolved solids and pH which commonly exceed state and federal drinking water standards. The nature of the area geology is that natural gas has always been known to exist at shallow depths in the Pavillion natural gas field.

It's important to note that:

  • The EPA tested domestic water wells and found no indication of impacts from oil and gas development.
  • The EPA drilled two deep monitoring wells into a natural gas reservoir and found components of natural gas, which is an entirely expected result. Natural gas developers didn't put the natural gas there, nature did.
  • The characterization of the ground water as highly contaminated is not supported by the data. Encana continues to test and document well bore integrity under the direction of the Wyoming Oil and Gas Conservation Commission.

Since this announcement by the EPA the anti-fracking movement has embraced this information as support for banning hydraulic fracturing. Meanwhile the oil industry has been shooting holes in the EPA process and denying any link between the contamination and hydraulic fracturing.

And this is typical of this public debate. One side claims fracking can’t be done safely and needs to be banned, and the other claims the process is completely safe.

Why does it have to be one or the other? Why can’t we just use some common sense?

Oil Industry – Use Some Common Sense

There is risk in all forms of energy. Nuclear reactors leak. Deepwater wells have blowouts. Coal power stations emit harmful greenhouse gases. Even wind farms kill thousands of birds.

It was inevitable that a well that used hydraulic fracturing would contaminate something. Realistically this process does need to be carefully monitored and properly regulated. There is no sense simply denying that there is no risk. The industry needs to work with regulators and show them that the process can be carried out safely.

Mistakes and accidents are going to happen. To suggest otherwise is unrealistic.

Anti-Fracking Movement – Use Some Common Sense

Nine in ten oil and gas wells in the United States employ hydraulic fracturing today. The process has been utilized since the 1940s. In the Barnett Shale alone over 14,000 wells have been drilled that use hydraulic fracturing.

Despite all of this fracking, we maybe have one documented instance of the process polluting a groundwater water well.

Given those numbers, doesn’t common sense tell you that this process can be carried out safely? Airplane travel has worse safety statistics.

Pavillion Wyoming is a Unique Instance

If I had a gun to my head and had to guess whether Encana had caused the water issue in Pavillion I’d say yes. But I can’t say for certain.

What is important to note about Pavillion is that what has gone on there has virtually no similarities to a typical shale well:

  • The Pavillion wells were vertical wells (typical shale wells are horizontal)
  • The Pavillion wells lacked surface casing which means almost all of them lacked protection from leakage at depths from which people draw water (typical wells have cemented casing down past the deepest water levels)
  • The Pavillion wells were abnormally shallow with the fractures occurring at 1,200 feet while the water extended to 800 feet (typical shale wells are a mile and a half underground with thick rock between the well and underground water)

Even the EPA disclosed that its results were of a very local nature to Pavillion:

The draft findings announced today are specific to Pavillion, where the fracturing is taking place in and below the drinking water aquifer and in close proximity to drinking water wells – production conditions different from those in many other areas of the country.

Thousands and thousands of wells have been fracked over the past several years. Clearly this process can be performed safely. Both sides of this issue tend to be extreme in their views. Wouldn’t it be more productive if both sides used some common sense and agreed that while there are risks, carefully planned fracking can be done safely? Then we can focus on improving the process and providing the world with much needed affordable energy.

Fracking touches virtually every company that operates in North America today. Personally, I would have avoided Encana even without potential liability from Pavillion anyway because it is so heavily weighted towards natural gas.

For other companies that rely heavily on fracking, I don't think this EPA release impacts their attractiveness as investments.

But what I have done is focus on Canadian E&Ps who are opening up unconventional resources using this technology. So if you are afraid of what the EPA might do under President Obama you might want to check out the following:

Crescent Point Energy (CSCTF.PK)

Petrobakken (PBKEF.PK)

Arcan Resources (OTCPK:ARNBF)

Penn West Energy (PWE)

Second Wave Petroleum (OTC:SCSZF)

Disclosure: I am long PBKEF.PK, SCSZF.PK.