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Onshore disposal is fracking’s next battleground

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Wastewater injection may be the wedge that fracking opponents have been seeking.

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Onshore disposal is fracking’s next battleground

  1. 1. Onshore disposal is fracking’s next battleground Brandon Barnes, Vincent G Piazza, Cheryl Wilson Bloomberg Intelligence analysts
  2. 2. Fracking’s next legal battle may center on wastewater disposal
  3. 3. Low prices aside, the next big challenge for domestic oil and natural gas production may be wastewater disposal. For years, fracking has been a moving target for environmentalist lawsuits. At first, plaintiffs cried foul over water contamination. Then class actions claimed harm from emissions exposure. Others tried to stop water withdrawals, or pass local zoning ordinances banning well stimulation. None of those theories stuck. Wastewater injection may be the wedge opponents have been seeking.
  4. 4. Waste may be next frontier for challenging shale development
  5. 5. Fracking opponents may have hit upon a winning strategy to curb the drilling technique by targeting how wastewater is disposed of. Challenging wastewater treatment carries with it the opportunity for requiring federal oversight over what is generally a state- specific operation. Disposal as a portion of total drilling costs can reach 19%, so regulatory changes could materially impact well economics. The specter of earthquakes linked to fracking activities also carries headline risk.
  6. 6. Oil, gas waste disposal depends on geography, cost of treatment
  7. 7. Disposal options for wastewater from fracking oil and gas wells vary by state, and on-site recycling options can depend on local geology. In the Marcellus region, naturally occurring radioactive materials may be present in the flowback from wells, requiring special treatment. State rules may incentivize certain disposal methods. In Pennsylvania, deepwell injection isn’t an option. In the Permian where drought conditions can exist, flowback and wastewater recycling is encouraged through fast-track permitting.
  8. 8. E&Ps finding ways to deal with water-handling pressures out west
  9. 9. Water use and conservation, especially in the typically warmer climate of the western U.S., is a growing concern as municipalities and user groups debate the ever-increasing demands placed on this scare resource. Along with recycling efforts, E&Ps have implemented various steps to mitigate the environmental impact and rein in costs related to disposing waste water from wells. For example, Concho is focused on transporting waste water by pipeline rather than by truck, which reduces costs and is more efficient.
  10. 10. Fracking litigation: Drilling and production stage
  11. 11. Concerns about mass litigation involving groundwater contamination from fracking that were prevalent a decade ago have largely failed to materialize, though new litigation claiming disaster looms large. Lawsuits alleging fracking waste re-injected into waste wells causes earthquakes may be the next major threat, either by spurring state regulators to limit waste disposal options or through findings of legal liability. Groups are suing the EPA to change how waste is classified, which may increase operational costs. Regulatory costs could cut into already slim margins. New wells, as of May 12, are regulated at a $640 million cost, while existing wells are likely the next target.
  12. 12. Costs would jump if oil & gas waste is regulated as hazardous
  13. 13. The true impact of the lawsuit against the EPA is on the industry, which could shoulder a cost burden associated with a regulatory push away from Class II disposal wells. For operations outside of Pennsylvania, disposal via Class II wells are a low-cost option. Class I disposal wells, for hazardous wastes, have stricter permitting and monitoring requirements, more restrictive siting conditions, and thus are typically more expensive than Class II wells. Current disposal costs are estimated at 5%-19% a well.
  14. 14. Bloomberg Intelligence offers valuable insight and company data, interactive charting and written analysis with government, credit insights from a team of independent experts, giving trading and investment professionals deep insight into where crucial industries start today and where they may be heading next.

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