Hydraulic fracing dominates ExxonMobil-XTO merger hearing

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Jan. 21 -- A congressional hearing that ostensibly was supposed to consider a proposed merger’s market impacts quickly became a forum for debating whether to federally regulate hydraulic fracturing.

Chairman Edward J. Markey (D-Mass.) convened the Jan. 20 hearing of the House Energy and Commerce Committee’s Energy and Environment Subcommittee to examine energy market impacts of ExxonMobil Corp.’s proposed $41 billion purchase of XTO Energy Corp. “This merger heralds a fundamental long-term shift in US energy markets, and one that deserves our close attention,” he said in his opening statement.

But the discussion quickly turned to hydraulic fracing because the proposed combination’s agreement includes a termination provision if Congress enacts legislation making hydraulic fracing too costly and uneconomic.

“This country has a propensity to regulate. We need to protect our shareholders,” ExxonMobil Chief Executive Officer Rex W. Tillerson told the subcommittee.

ExxonMobil wants to acquire the Fort Worth, Tex., independent because XTO’s US unconventional gas resource base and technical expertise would go well with the major’s global reach, research and development capabilities, and financial capacity, Tillerson said.

“The development of our combined resources will create the opportunity for more jobs and investment in the production of natural gas across many parts of the United States,” Tillerson said. “It will support our nation’s economic recovery, strengthen [its] energy security, and help meet [its] environmental goals.”

Focus on gas
Bob R. Simpson, XTO chairman and founder, said the company’s management decided soon after it started to focus not only on gas, but also on long-lived, high-producing reserves. That led it to tight shale gas, where it eventually became an industry leader, he indicated.

“In reviewing our future path, we realized that we needed to look at options to take what we have achieved and bring it to a new level,” he testified. “We recognized that the opportunities before us could best reach their potential if we could find an organization that could bring additional scale, technology, and financial capacity to the work we have been doing. We found that organization in ExxonMobil.”

Markey suggested that the proposed merger has positive aspects, including the signal that another multinational oil company is willing to invest in developing unconventional US gas resources. But he also said that Congress wants to make certain those resources are developed safely, which is why it asked the US Environmental Protection Agency to study hydraulic fracing’s operating record.

Republicans on the subcommittee said the technology is safe. “It is well known that gas will play a more prominent role in a carbon-restrained world,” said ranking minority member Fred Upton (R-Mich.). “In fact, the success of any climate-change policy will need to rely heavily on gas. Yet some members of Congress are seeking policies that would take a majority of our domestic gas off the table.”

Several Democrats said the process uses toxic substances that would create serious problems if they entered drinking water supplies. Rep. Diana DeGette (D-Colo.), who is not a member of this subcommittee, was allowed to participate because she introduced a bill last year to federally regulate hydraulic fracing under the Safe Drinking Water Act.

“I support hydraulic fracturing,” she said. “My bill would not make it illegal or impractical. It simply would require disclosure of ingredients in an emergency situation while protecting proprietary information.”

Fluid confined
Tillerson and Simpson both said they would not have a problem as producers disclosing ingredients in hydraulic fracing fluid, which is primarily water. They also pointed out that the process occurs several hundred feet below drinking water supplies, and that concrete casing keeps hydrofrac fluid confined while it’s pumped below the surface.

States already regulate hydraulic fracing aggressively, they continued. DeGette immediately challenged that idea, noting that only four states have regulations that specifically deal with the process. The executives responded that several others have water-management regulations that serve similar purposes.

They also contended that federally regulating hydraulic fracing simply would add another layer to a process that states already regulate well. Restricting its use would harm conventional production too, Tillerson added. “A lot of conventional wells use hydraulic fracturing to make production commercial,” he said.

When DeGette asked them how much they think having to comply with SDWA regulations in using hydraulic fracing would cost their companies, the ExxonMobil and XTO executives said they did not know. “Much of it would depend on how EPA decided to implement its regulation,” Tillerson told her. “I don’t know what would be in it, and neither do you.”

Markey concluded the hearing by stating, “There is no secret plot on this side of the aisle to ban hydraulic fracturing.” But when he was asked by reporters afterward if he planned to schedule DeGette’s bill for markup, the subcommittee chairman replied, “I’m going to have to have further discussions with her on it before I decide.”

Contact Nick Snow at nicks@pennwell.com.

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