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April 09, 2010
Shareowner Activists Applaud EPA Study of Hydraulic Fracturing
    by Robert Kropp

The impacts on drinking water resources of the controversial method of natural gas extraction, which is the subject of shareowner resolutions with 12 companies this proxy season, will be the focus of an EPA study.

As reported here in January, a group of investors led by Green Century Capital Management and the Investor Environmental Health Network (IEHN) filed shareowner resolutions with 12 companies engaged in hydraulic fracturing, requesting improved transparency regarding the environmental impact of the practice and better mitigation of risks. Investors have engaged with approximately 20 companies via letters, phone calls, and meetings.

Hydraulic fracturing is used by natural gas companies to extract reserves from pockets underground. The process requires the injection of as much as 7.5 million gallons of water per well, as well as toxic chemicals, to crack open rock and allow the natural gas to flow to the surface.

The efforts by the investor group have been bolstered by the recent launch of a
research study of the relationship between hydraulic fracturing and drinking water resources by the US Environmental Protection Agency (EPA). The EPA study is being undertaken in response to a request from the US House of Representatives Appropriation Conference Committee included in its Fiscal Year 2010 budget report.

In its request, the Committee asked the EPA to "carry out a study on the relationship between hydraulic fracturing and drinking water, using a credible approach that relies on the best available science, as well as independent sources of information."

The EPA has defined three major categories for the initial phase of its study. It will seek to characterize the hydraulic fracturing lifecycle through an assessment of the impacts of the practice on humans and the environment. The assessment will include an evaluation of the proximity of drinking water resources and water availability, the protection of Underground Sources of Drinking Water (USDWs) and geologic confining layers, and the effectiveness of best management practices (BMPs) for the storage, treatment, and disposal of produced water.

The EPA will also study the potential impacts to drinking water resources of chemicals and fluids used in the fracturing process, biogeochemical and physical-chemical reactions triggered by hydraulic fracturing, leakage from gas-bearing formations, and on-site runoff.

Finally, the EPA will seek to identify the health risks and environmental issues related to hydraulic fracturing, which will include the consideration of socio-economic factors by incorporating community health and environmental concerns.

Shareowner activists were quick to support the EPA study proposal. In a
statement presented to the Agency, Richard Liroff, Executive Director of IEHN, said, "Currently, investors lack sufficient information on the environmental health hazards of fracturing--which carry litigation, reputational, competitive, and regulatory risks."

In addition to expressing support for the EPA's lifecycle approach of the study, Liroff recommended that the Agency "take a hard look" at the volumes of chemicals used, many of which are toxic in minute amounts. In a three-million gallon fracturing, he pointed out, up to 15,000 gallons of these chemical can be used.

Liroff also recommended that the EPA consider the cumulative regional impact of fracturing. He strongly supported the Agency's goal of engaging stakeholders in its study.

Larisa Ruoff, Director of Shareholder Advocacy for Green Century Capital Management, stated, "Companies and regulators must ensure natural gas drilling is done in a way that protects the environment, especially our drinking water, and therefore mitigates potential regulatory, legal and other risks to company bottom lines. We commend the EPA for taking this important step that will help investors and companies make well informed decisions."


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