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September 15, 2010
Investors Support EPA Study on Hydraulic Fracturing
    by Robert Kropp

As record numbers of shareowners support resolutions addressing the risks of hydraulic fracturing, the EPA revisits the effects of the practice on water resources.

Although the Bush-era Environmental Protection Agency (EPA) concluded in 2004 that "the injection of hydraulic fracturing fluids into coalbed methane (CBM) wells poses little or no threat to underground sources of drinking water (USDWs)," record numbers of investors in 2010 indicated that they think otherwise.

In the aftermath of the 2004 study, Congress passed the Energy Policy Act in 2005, which exempted hydraulic fracturing from regulation under the Safe Water Drinking Act.

Coordinated by
Green Century Capital Management and the Investor Environmental Health Network (IEHN), shareowner resolutions were filed with 12 companies engaged in hydraulic fracturing, a process which extracts reserves of natural gas from underground pockets. The process requires the injection under extreme pressure 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 companies that engage in hydraulic fracturing have claimed for years that the toxic chemicals used in the process constitute proprietary information, and need not be disclosed.

The resolutions, which requested that companies report on the environmental impact of fracturing operations, went to a vote at six of the companies, winning support that was unprecedented for first-time resolutions. Forty-two percent of shareowners at Williams Cos. voted in favor of the resolution, and votes in excess of 20% were recorded at the other five companies.

Larisa Ruoff, Director of Shareholder Advocacy at Green Century, told, "We're very concerned about the risks the companies face as a result of their hydraulic fracturing operations, including the state of wastewater and the management of chemicals."

"The strong votes that were received at all of the companies sends a strong message to those companies that their shareholders are deeply concerned about this issue, and require more information about the risks associated with the fracturing operations," she continued.

Investor concerns were underscored by incidents of spills and contamination of wells in Pennsylvania, leading to a suspension of operations there by Cabot Oil & Gas as well as penalties imposed on Range Resources by the Pennsylvania Department of Environmental Protection (DEP). Cabot also faces a lawsuit by more than a dozen families in Dimock, PA, where the contaminated wells are located.

Acknowledging increased public concerns about the effects of hydraulic fracturing on drinking water supplies, the EPA has revisited the issue, announcing that it would conduct a new scientific study of the effects of the practice. In 2009, Congress directed the Agency to "determine whether hydraulic fracturing has an impact on drinking water and the public health of Americans living in the vicinity of hydraulic fracturing wells."

"The new study that the EPA began in 2009 will address the more comprehensive concerns that investors have," Ruoff said. "The new study addresses concerns about hydraulic fracturing and drinking water. The Agency's advisory board has recommended that it use a life-cycle analysis for this study, so we believe the results of this new study will better address investor concerns."

At an April meeting of the EPA's Panel on Hydraulic Fracturing, Richard Liroff, Executive Director of IEHN, stated, "Currently, investors lack sufficient information on the environmental health hazards of fracturing--which carry litigation, reputational, competitive, and regulatory risks. We also have insufficient information to distinguish the companies that fully understand and are addressing the risks attendant to fracturing from those that are not."

Liroff supported the EPA's decision to take a life-cycle approach in the study, because "the fracturing of each well requires moving literally millions of gallons of water, chemicals, and wastewater; environmental hazards are present at every step in this process." He also recommended that the Agency address the volume of toxic chemicals sued in the process, which, he stated, could amount to at least 15,000 gallons in a three million gallon fracturing job.

"The points I was making in my opening remarks were supportive of taking a life-cycle approach, stakeholder engagement, and best management practices to mitigate risks," Liroff told "The issue is about the movement of vast amounts of chemicals to the drill site, the storage on the site, and the dispersal of waste materials."

Last week, the EPA sent
letters to nine natural gas service companies, "seeking information on the chemical composition of fluids used in the hydraulic fracturing process, data on the impacts of the chemicals on human health and the environment, standard operating procedures at their hydraulic fracturing sites and the locations of sites where fracturing has been conducted."

The EPA requested that such information be provided within 30 days; if not, the Agency stated, it "is prepared to use its authorities to require the information needed to carry out its study."

In response to investor pressure as well as the EPA study, companies have begun disclosing the chemicals they use in the hydraulic fracturing process, increasing the likelihood that such disclosure will rapidly be considered best practice for the industry.

"This summer, Range Resources began to disclose the chemicals it uses on a well by well basis in Pennsylvania," Ruoff said. "Other companies have followed with plans to disclose the chemical constituents used in their operations. This level of disclosure is quickly emerging as best practice."

"There seems to be a massive acceleration of the pressure to disclose, with three companies already agreeing to disclose the chemicals used," Liroff said. "That these three companies have makes it that much more difficult for companies claiming that they need to keep the information confidential."

"As investors, we are very supportive of the comprehensive request for information by the EPA and Congressional committees," Ruoff said. "Without transparency it's difficult for investors to determine which companies are effectively managing the risks associated with the practice."

The EPA plans to initiate the study in early 2011, and have initial study results available by late 2012.


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