Are the Feds Intent on Fouling Fracking?

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If you're an aficionado of energy investments you may agree that the august Wall Street Journal committed the journalistic gaffe of "burying the lede" on Friday. As you may know, the term refers to discussing the key fact(s) in an article only after less important information has already been dispensed.

On page two of Friday's Journal there appears a piece entitled "U.S. to Set Rules for Fracking on Federal Land." As the headline implies, within a matter of days the Interior Department will advance "sweeping new environmental-safety rules for hydraulic fracturing on federal land, setting a new standard that natural-gas wells on all lands eventually could follow."

That's hardly a shocking development. The current administration is usurping almost daily functions that heretofore were within the provinces of the states.


Wrapped up by the lede?
What is surprising is that readers need to work their way to the next-to-last paragraph of a total of 18 in the article before coming upon the information that "Companies say state officials are in a better position than federal officials to regulate hydraulic fracturing because they understand the local geology and community concerns." In the next -- and last -- paragraph, Kathleen Sgamma, vice president of the Western Energy Alliance, is quoted as saying, "There's no way that adding these additional requirements is not going to slow down further permitting on federal lands."

On that basis, had I written the article -- I must confess to having previously been a journalism professor -- my initial paragraph would have begun with something like, "Over the objections of industry executives and state officials, the Obama administration will soon issue sweeping... ." Not long thereafter, I'd have noted that yet another nail is apparently being driven into the coffin containing the 10th amendment to the U.S. Constitution.

Through that addition to the last item in the Bill of Rights, the founding fathers expressly intended that "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." However, I'd venture that few would maintain that the Bill of Rights' caboose member has not been whittled away essentially to nonexistence in the past few years.

Contrasting contentions
"The expected rules are aimed at ensuring the (fracking) process doesn't contaminate groundwater. Environmental groups, among the most vocal opponents of the drilling method, say hydraulic fracturing should be stopped until experts can confirm it is environmentally safe," the Journal says in explaining (if not justifying) the imminent rules. As I see it, however, the difficulty there is that:

  • The very next paragraph in the article admits that "The U.S. government hasn't produced any evidence that contamination occurs." Further, a recent test by the Energy Institute of University of Texas at Austin concluded that hydraulic fracturing of shale formations hasn't been connected to groundwater contamination.
  • The Environmental Protection Agency, or EPA, has recently backed off on earlier contentions that hydraulic fracturing by Encana (NYS: ECA) and Cabot Oil & Gas (NYS: COG) had resulted in groundwater damage in Wyoming and Pennsylvania, respectively.
  • I'm really not sure what is meant by "environmental groups," a term that's long been bandied about willy-nilly. I've never met anyone who would gleefully soil our planet. Perhaps the term targets those bent on hindering the production of fossil fuels under the guise of being environmentally more sagacious than the rest of us.
  • For its part, the oil and gas industry is hardly running amok, treating environmental damage as simply an unavoidable result of hydrocarbons production. Indeed, numerous oil and gas companies, including ExxonMobil (NYS: XOM) and Apache (NYS: APA) , have consulted with the administration on fracking rules, especially those issued by the EPA. Beyond that, a group of 11 of the largest companies operating in the Marcellus and Utica shales, such as Anadarko Petroleum (NYS: APC) , have formed the Appalachian Shale Recommended Practices Group, or ASRPG, to create advisable standards for gas and oil production in the Appalachian shales.

Crucifying oil and gas companies?
All of this is occurring against a backdrop of the contretemps created by Al Armendariz, the EPA boss man in Texas, Oklahoma, and other states in the south-central U.S. As he said in 2010 to employees at an EPA meeting, his recommended "philosophy of enforcement" for oil and gas companies is "...like how the Romans used to conquer little villages in the Mediterranean. They'd go into a little Turkish town somewhere , they'd find the first five guys they saw and they would crucify them. And then you know that town was really easy to manage for next few years."

But the subsequent apology and resignation of Armendariz has not assuaged the pique of many who are disdainful of Washington's approach to the energy industry. As the Journal itself began in an editorial, "It's no secret that the bosses at the Environmental Protection Agency hate fossil fuels." And the Daily Caller noted that Oklahoma's Republican Senator James Inhofe, the ranking member of the Senate Committee on Environment and Public Works, said that while he approved the administrator's resignation, "the EPA under President Barak Obama, still has a problem with how it treats American energy producers."

The Foolish bottom line
With Sen. Inhofe's intent on moving forward with a previously initiated investigation of EPA practices, with feds likely having stepped over a regulatory line that had long been consigned to the states, and with oil industry executives less than thrilled about the incursion, we're bound to see further fireworks generated long before Independence Day.

In the meantime, I continue to believe that energy is perhaps the single most important sector on the investing horizon. Of the companies above, as I noted recently, I'd urge Foolish investors to keep a close eye on Anadarko Petroleum, beginning by adding the solid company to your own version of My Watchlist.

At the time this article was published Fool contributorDavid Lee Smithdoesn't own shares in any of the companies mentioned in the article above.Motley Fool newsletter serviceshave recommended buying shares of ExxonMobil. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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