Kansas Has a Fracking Good Time With Oil and Gas Exploration

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Some states have gotten all the attention in America's rush toward unconventional energy plays. North Dakota and Montana benefit enormously from the Bakken shale. The Appalachian-girding Marcellus shale has caused controversy in Pennsylvania and New York due to methods used to extract oil and gas from the ground. Energy-conscious investors took notice of Colorado when Anadarko Petroleum (NYS: APC) found major oil and gas reserves in the Wattenberg formation.

Kansas might be the next state up to bat.

Fracking in the USA
Thus far, much of Kansan exploration and production has taken place on the eastern border with Missouri. Recent developments have shifted attention southward, where Kansas borders the Woodford shale and the Anadarko geologic formation of Oklahoma. There, SandRidge Energy (NYS: SD) , Royal Dutch Shell (NYS: RDS.A) , and Chesapeake Energy (NYS: CHK) are all leasing thousands of acres in south-central Kansas in preparation for a major hydraulic fracturing effort.

Chesapeake has a significant presence in the Anadarko basin, where oil flows have increased at a faster rate than the company's natural gas production. Chesapeake's commitment to unconventional plays makes it an ideal operator in an area of the state that's thus far been underutilized due to the higher costs of extraction. SandRidge is in a similar position, but has a stronger foothold in south-central Kansas, which is the northern part of the Anadarko shelf, in which the company has leased a million acres.

Frack daddies
Much of the state is well-explored (pardon the pun), as nearly a quarter-million wells have been sunk in Kansas since 1947. The state's lax fracking policies are doubtlessly attractive; Kansas requires no disclosure of the chemicals companies use in the fracking process. Even historically pro-drilling Texas has adopted chemical disclosure rules for 2012. Will that non-policy be maintained as the procedure comes under greater scrutiny?

With 90% of Kansas' future wells slated to use hydraulic fracturing techniques, the state's largest natural gas producers also have a stake in what happens in southern Kansas, regardless of whether or not they drill in the area. BP (NYS: BP) , ExxonMobil (NYS: XOM) , Occidental Petroleum (NYS: OXY) and Anadarko together control 35% of the state's natural gas production, and would be disproportionately harmed by any frac-tastrophe.

Chesapeake has already been forced to pay frack-related fines in other states. However, SandRidge has opened up about its processes, claiming fewer chemical additives in its process than most competitors. Shell has been on a public relations offensive to charm since the summer, pushing publicly for full disclosure on fracking chemicals. If Chesapeake can keep itself in line, and promising new reserves pan out, the whole state (and those who invest in its winners) will doubtless benefit from increased production.

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At the time this article was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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