Comments from Raymond James

[dan_s]

From the most recent Raymond James “Energy Stat of the Week,” as published August 9, 2010.

Especially in the wake of the Gulf of Mexico oil spill, it is understandable that the petroleum industry will need to brace itself for stricter scrutiny and some tough PR. The film Gasland, a recent example of these PR dynamics, contains many inaccuracies and exaggerations about the natural gas industry's environmental and health track record, particularly as it relates to hydraulic fracturing. Regardless of the inaccuracies, the frac issue is likely to continue making headlines in political circles. The development of the Marcellus has now made these scary drilling rigs actually visible to the East Coast political elites when they venture out of their cities to visit their country homes. Yes, New York, those drilling rigs develop the oil and gas that powers 80% of your lights, cars, and furnaces! Remember how scared you were when the lights went out a few years ago? Don't worry, the rest of us will keep drilling and frac'ing to keep your lights on.

Let's be blunt: The reality is that Democrats and the current administration haven't been especially friendly to oil and gas businesses. The deepwater drilling ban is only the tip of the iceberg. The Interior Department has made ordinary leasing rules (both onshore and offshore) more stringent, drilling permits are being delayed, and there is a slew of proposed oil and gas taxes. Additionally, there is increased regulation (particularly from the environmental side), and of course, the prospect of cap-and-trade still hangs over the industry, even though its odds are negligible in the near term. Is this a calculated plan to raise energy prices and promote "green" (and expensive) energy sources, or do our current leaders just not understand the consequences of their actions? Time will tell.

The EPA has previously ruled out any risk of water damage from frac'ing. Will the administration strong-arm the EPA into changing its tune? Again, time will tell. For now, we don't foresee any new frac'ing-related federal legislation being enacted, though some state-level action is to be expected. Once the EPA study concludes, a chemicals disclosure requirement (along the lines of the bill that's currently pending in Congress) could pass, but this would have minimal effect on the industry. To summarize, frac'ing has minimal environmental impact and poses essentially no risk to human health. If one is gullible enough to believe anything put on the big screen, vampires and werewolves would rank well above frac'ing on the danger scale. While it may not be relevant in today's robust economic environment, we should also note that gas drilling generates jobs and tax dollars in many areas where they are badly needed. On second thought, allowing safe drilling and frac'ing may be too pragmatic and sensible.

[prince_jake_33]

Good post.