Canadian producers keep wary eye on U.S. fracking probe

Canadian oilpatch insiders are keeping a wary eye on potential changes to U.S. natural gas drilling regulations after an environmental agency reported industry activity was the likely culprit tainting drinking water in Wyoming.

The U.S. Environmental Protection Agency draft report on contaminated water in the tiny hamlet of Pavillion released Thursday was immediately disputed by oilpatch supporters as inconclusive and hailed as a call to arms by environmental groups.

The bigger question for companies involved in drilling and fracturing was how politicians south of the border would react, given already vocal public opposition to the technology in New York, Pennsylvania and several other states.

"In the long run it probably won't impact (Canadian producers) but it could create delays to their programs down the road if the U.S. decides to implement greater regulation because here are a heck of a lot of wells being drilled," said analyst Chad Friess, with UBS Securities.

The head of one of Canada's largest oilfield services companies said industry likely would be able to work alongside regulators if reviews were initiated, but did not anticipate delays in U.S. drilling and fracturing projects.

"I think we will continue to see further regulation, in terms of disclosure of fracturing fluids in particular," said Dale Dusterhoft, chief executive of Trican Energy Services. "But in terms of a link directly from the Wyoming stuff to the rest of the work that's done in the U.S., we don't really see that having an impact on things."

Trican operations in the U.S. account for more than 30 per cent of its business.

Hydraulic fracturing pumps fluids at high pressure into reservoirs to squeeze out natural gas and increasingly, light oil. The technology has been around for 50 years but has become popular recently when used with horizontal drilling to crack tight oil and gas formations.

The EPA report reiterated concerns Sierra Club of Canada has voiced about the increased pace of hydraulic fracturing. The environmental group acknowledged fracturing technology has been used for half a century, but not at the levels now being seen in Canada and the U.S. by producers cracking previously tight formations.

"Previous fracking was to try to extend the life of a few wells here and there, but now companies are just going out an fracking everywhere," said spokesman John Bennett. "We are concerned about the potential that there could be an escape of the chemicals that are put into the water that is injected, if there is a break in the pipe or the cementing isn't right."

The EPA's investigation into reports of foul-tasting drinking water in wells in Pavillion, found concentrations of benzene and dissolved hydrocarbons near pits used to store drilling waste in the water. The EPA report also revealed dissolved chemicals and methane associated with fracking in two wells drilled in late 2010 and early this year 200 to 300 metres down into the drinking water aquifer.

The operator of the wells, Calgary-based Encana Corp., questioned the science behind the report, noting the region had a long history of poor water quality.

The agency itself noted the findings were specific to Pavillion and the geology of the area, said Encana spokesman Alan Boras.

"This is a small area and it is a unique circumstance where the geology is such that there is natural gas prevalent at very shallow depths," Boras said. "And that's why when they drilled their 900 foot well, they drilled into a natural gas reservoir and found components of natural gas."

Public perception around fracturing definitely concern companies such as Calgarybased Calfrac Well Services, but are likely isolated and often caused by poor wellbore construction.

"Normally, they are blown way out of proportion, and normally there is a relatively defined way to fix them," said chief executive Doug Ramsay. "Going forward in our business, because of good regulation and best practices which we follow all the time, these circumstances will be mitigated."

The EPA report suggests modern technology and best practices could have prevented the migration of fracking fluids by ensuring adequate cementing on well bores and distances from water tables be maintained.

"Given that you can apply logic to this and prevent any kind of risk to the water table, I think that the Canadian industry will be a little bit more reasonable about this than the potential reaction from the U.S. side of things, where the political climate is very difficult to predict," Friess said.