About a year ago I warned that O&G companies should start preparing for backlash against hydraulic fracking and the potential for public perception that it is directly correlated to groundwater contamination. In recent weeks, the EPA issued a report that supposedly found a possible link between groundwater pollution and hydraulic fracturing beneath Pavillion, Wyo. The EPA found chemical compounds likely associated with fracking in the groundwater beneath the small community where residents complain their well water reeks of chemicals. Health officials last year advised residents not to drink their well water after the EPA found low levels of hydrocarbons. The impact could be quite severe if there is suspected contamination in the North Dakota Bakken region.
Lynn Helms, Director of the North Dakota Department of Mineral Resources has said he believes there will be a moratorium on fracking because of the history of many-months moratoriums in Alabama, when the EPA, because of an environmental lawsuit, revoked Alabama’s underground injection program until the state wrote new rules specific to fracking under Class II well standards. Helms recently stated:
“I believe it will be stopped cold for 12 to 24 months. The best case is 15 months and that’s only if we red-lighted everything else and got nothing else done,”
The EPA has since denied a moratorium is imminent, but there is a push underway for drillers to disclose exactly which chemicals they use in fracking. If that comes to fruition, and news of chemicals that are harmful to humans reaches local mainstream media in the regions, the backlash and pressure put on the EPA could be severe. In a worst case scenario, if drilling is stopped for even 6-12 months, “Pure Play” O&G companies in the region could see significant pressure on their stock prices with 50% drops not out of the question. For investors looking to hedge their risk, buying protective puts against stock positions may provide defense against a “doomsday” scenario in the region.
We will continue to keep our eyes out for this as news develops…..Stay tuned.