Latest Hydraulic Fracturing Headlines

U.S. Silica Holdings (NYSE: SLCA) reported second quarter profits of $19.5 million, triple the same period last year, driven by demand for proppants, which are used by the oil and gas industry during hydraulic fracturing. The company is the second largest producer of commercial silica in the United States, including its Ottawa White and Shale Frac branded proppants.

Canadian Pacific Railway formed a partnership with Smart Sand, another silica producer. Under the deal, CP Railway will ship drilling sand to areas hosting unconventional oil and gas plays in North America, including the Bakken and Marcellus Shale formations. BNSF Railway recently signed a similar deal with US Silica.

Meanwhile, the US Occupational Safety and Health Administration (OSHA) recently issued a hazard alert to employers engaging in hydraulic fracturing operations, requiring those employers to take adequate steps to protect workers from silica exposure. According to OSHA, “workers who breathe silica day after day are at greater risk of developing silicosis, a lung disease.” The National Institute of Occupational Safety and Health studied 11 fracking sites in five states and found that nearly 80 percent of all air samples taken showed exposure rates above federal recommendations.

One of the most commonly used hydraulic fracturing chemicals is guar. Verenium Corporation has obtained Environmental Protection Agency authorization to sell its next-generation cellulase enzyme for non-food applications, such as breaking down the guar-based gel used in hydraulic fracturing. The company estimates the addressable market in the U.S. for guar breakers in hydraulic fracturing is $250 million.

The Fort-Worth Star Telegram has a lengthy piece on Frac Tech Services (now FTS International). Founded in 2000, the company grew to more than $2 billion in annual revenue and 3,700 employees last year, making it one of the largest hydraulic fracturing companies in the world. PacWest estimates that fracking is a $30 billion industry in the United States.

The Wall Street Journal reports on a leaked memo from Nationwide Mutual Insurance Company indicating that it will not cover damage related to a gas drilling and hydraulic fracturing. According to the memo: “After months of research and discussion, we have determined that the exposures presented by hydraulic fracturing are too great to ignore…”

The University of Texas at Austin announced that it will conduct an investigation into a report issued by its Energy Institute which found no evidence that hydraulic fracturing contaminates groundwater. Contrary to University requirements, the Institute’s director and author of the report, Charles Groat, failed to disclose that he is director and stockholder of Houston-based Plains Exploration and Production Company, a company that engages in hydraulic fracturing. Groat’s shares are reportedly worth about $1.6 million, or nearly 10 times his annual salary as a professor.

A report from Earthworks concludes that the New York State Department of Environmental Conservation, the agency in charge of enforcing fracking regulations, has a staffing shortage and rarely inspects existing conventional gas wells. From 2001 to 2010, the number of annual inspections of oil and gas wells dropped by more than 1,000, the group found, while the number of wells increased by about 1,000 during the same period. Overall, it found that more than 75 percent of the state’s active oil and gas wells go uninspected each year.

In a recent New York Times op-ed, Jody Freeman, a Harvard law professor, writes that “Congress must lift the regulatory exemptions for hydraulic fracturing.” This would clear the way for a system of federal oversight that will promote confidence in hydraulic fracturing and provide the industry with uniform standards without overregulating it.

By contrast, the Petroleum Technology Alliance Canada (PTAC) recently published “The Modern Practices of Hydraulic Fracturing: A Focus on Canadian Resources.” The report concludes that existing Canadian provincial regulations are sufficient “to protect the environment, water and human health”

Hydraulic Fracturing News Roundup

According to the Wall Street Journal, Baker Hughes Inc (BHI) has warned it is facing a difficult adjustment as companies such as Chesapeake Energy Corp (CHK) retreat from natural gas drilling amid a 10-year low in the commodity’s price. Are the issues unique to Baker Hughes, or will the problems spread to other oil services companies such as Halliburton and Schlumberger?

In Pennsylvania, Judge Keith Quigley of the Commonwealth Court ordered a 120-day halt to provisions of Act 13 of 2012 set to take effect on Monday related to land use and local zoning regulations. The lawsuit, filed by seven Pennsylvania municipalities, accuses the state’s General Assembly of enacting an “unconstitutional” statewide zoning ordinance “by way of an improper use of its police powers and by enacting zoning regulations without consideration of zoning districts, comprehensive plans or how the zoning enactments would serve to protect the health, safety, morals or welfare of local communities.”

Act 13 of 2012 has also the focus of national attention because of concerns it imposes a “gag order” on doctors. Some medical professionals are concerned because they will have to sign a confidentiality agreement in return for access to proprietary information on chemicals used in hydraulic fracturing. The president of the Pennsylvania Medical Society has said the provision could have a chilling effect on research and on doctors’ ability to diagnose and treat patients who have been exposed.

According to Bloomberg, at a conference yesterday U.S. Energy Secretary Steven Chu indicated that the federal government needs to play a larger role in overseeing new technologies for developing oil and natural gas so as to prevent damage to natural resources. “The technology for recovering oil and gas through hydraulic fracturing has really raced ahead,” Chu said. “That’s something I believe that can be developed very responsibly. There has to be a regulatory role because there may be some people who want to cut corners.”

On the heels of Secretary Chu’s statement, President Obama released an executive order that will coordinate the administration’s activities on natural gas. The order creates a working group that includes various White House offices such as the Council on Environmental Quality and National Economic Council, as well as relevant cabinet departments and agencies like Interior, EPA and Department of Homeland Security.

Developed by the Ground Water Protection Council and Interstate Oil and Gas Compact Commission, turned one year old this week. About 130 companies have logged the chemicals used in hydraulic fracturing of more than 15,000 wells over the past year. The site has been visited by about nearly 150,000 unique visitors. Officials for the website estimate that 75 percent of all wells drilled in the United States are logged on FracFocus, based on scrutiny of a recent Baker Hughes‘ monthly rig report.

In New York, Ulster County executive Mike Hein issued an executive order today to prevent the spreading of brine from hydraulic fracturing on any county-maintained roads, including “the purchase of any liquid waste product from hydraulic fracturing operations (fracking waste brine) or the use of such fracking brine by any part of Ulster County government.”

Climategate Anniversary

It’s been nearly two years since the “Climategate” scandal, an episode I have analyzed in-depth with Raghu Garud.

On the heels of the controversy, Richard Muller, a Berkeley physicist and self-proclaimed climate skeptic, launched the Berkeley Earth Surface Temperature (BEST) project to review for himself the temperature data underpinning climate change concerns. A major sponsor of Muller’s study was the Charles G. Koch Foundation (of California Prop 23 fame).

This week Muller announced the results of his project in an op-ed in a Wall Street Journal article entitled: “The Case Against Global-Warming Skepticism.” The piece is subtitled: “There were good reasons to doubt, until now.” As part of the announcement, Muller’s research group released four papers, which collectively corroborate the climate consensus:

The group estimates that over the past 50 years the land surface warmed by 0.911°C: a mere 2% less than NOAA’s estimate.

Although Muller’s study is one more vindication of the science, it is hardly good news for humanity. Moreover, as Jon Stewart points out, Muller’s study isn’t getting nearly the coverage that Climategate did. Perhaps it’s because when it comes to policy decisions facts are so, well, unnecessary.

For further coverage, see the Economist.