Concern over fracking regulations jumps in industry survey
A new report suggests American oil and gas companies increasingly are worried about stepped up regulation of hydraulic fracturing and the impact of climate change legislation.
The report was conducted by the professional services firm BDO USA LLP, and is based on the risk factors listed on the 10-K filings of the top 100 exploration and production companies.
Charles Dewhurst, partner and leader of BDO USA's natural resources practice, said it's no surprise that hydraulic fracturing — known as fracking — is high on the list.
"I think fracking has been very much at the front of the public mind in this past year," he said. "It's really developed from maybe being an issue with environmental groups to being a much broader issue in the mainstream news and the business news."
Seventy-four percent of the top energy companies listed hydraulic fracturing regulation as a concern, up from only 52 percent last year.
Dewhurst said there is a range of concerns, from potential groundwater contamination to minor earthquakes traced to drilling. Industry groups and environmentalists differ over how much — if at all — fracking can be blamed for those problems, but Dewhurst said the industry is taking such concerns seriously. For instance, he said, natural gas firms are using new methods of horizontal drilling in an attempt to cut down on the potential for earthquakes.
He said legislation in Pennsylvania, which allows drilling to continue in the Marcellus Shale but also creates new revenue for the state, is a good example of compromise.
"I think to be practical — it's going to be a balanced approach between reasonable state and federal regulation and proactive self-regulation by the industry," he said. "That is, by far, the best solution for the industry."
John Tucci, an audit partner in BDO's Woodbridge office, said New Jersey companies are keeping a close eye on Pennsylvania, as well. He said solar is increasingly popular here, but natural gas has an edge.
"That seems to be the most cost-efficient, in the near-term," he said.
Energy companies also listed concern about demand for oil and gas, with 87 percent of respondents identifying changes in demand as a risk factor, up from 76 percent last year. Dewhurst said that's likely tied to the economy, as concerns linger that a slow or nonexistent recovery could tamp down demand.
Aside from the economy, Dewhurst said politics likely played a role in many concerns. Eighty-one percent of the energy companies cited concerns about the impact of climate change and greenhouse gas legislation, up from 69 percent last year. Seventy-three percent of companies cited the possible elimination of federal income tax deductions as a risk factor, up from 52 percent last year.
"I think the industry has seen, over the last four years, that they've moved from being a favorite child to being a less-attractive stepson," Dewhurst said. "And the industry has had concern for some time about being the focus of increased taxes and increased legislation, and when you add in the election," those concerns increase.
Though the industry can fight legislation and regulation, Dewhurst said some of the risk factors cited are virtually unavoidable. He noted that among the top five concerns are volatile oil and gas prices, operational hazards — including blowouts, spills and personal injury — and natural disasters and extreme weather conditions.