Department of Interior to Release Federal Rules on Fracking Disclosure

The U.S. Department of Interior will be releasing federal regulations for the production of oil and gas from shale deposits across the U.S. ^[1] The regulations will be applicable on fracturing activity going on in public lands and will serve as a model for state regulation regarding the controversial process. The deputy interior secretary David Hayes said that the regulations will be compatible with existing regulation in Texas, Wyoming and other states. The regulation will require disclosure of the chemicals used in the fracturing process with ‘limited exemptions for legitimate trade secrets’. Shale exploration has resulted in a major revitalization of the exploration and production industry in the U.S., boosting revenues for oilfield services players like Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB) and Baker Hughes (MYSE:BHI)

We have a $53 price estimate for Halliburton, which is at a 40% premium to its current price.

Click here for our full analysis of Halliburton.

Safe exploration

According to the U.S. Energy Department, the country holds enough gas reserves to meet local demand for more than a 100 years. ^[1] Over the past few years, rising interest in shale exploration has reshaped the natural gas industry with increasing adoption of new techniques such as horizontal drilling and hydraulic fracturing. The process of hydraulic fracturing has caused much opposition from environmentalists, who say that the activity involving pressure pumping in millions of gallons of water laced with chemicals, results in pollution of ground water resources. Taking up the issue in his recent State of the Union address, President Barack Obama took a middle path calling for safer exploration of shale resources.

Apart from requiring disclosure of chemicals used, federal regulations will also set standards for well construction to prevent ground water contamination. ^[1] Shale gas contributes to a third of the natural gas produced in the U.S. According to some estimates, fracturing is used in the production of almost 90% of onshore gas in the country. Regulations could result in higher compliance costs for oilfield services players.

Understand how a company’s products impact its stock price on Trefis

1. Fracking Rules on U.S. Lands Seen by Interior as Model, Bloomberg [↩] [↩] [↩]