Tuesday, August 14, 2012

Oil and gas fracking disclosures show why transparency cannot be left to industry or its trade groups

Bloomberg carried an article on disclosure of fracking wells by oil and gas firms that illustrates why transparency cannot be left to companies in the industry or their trade groups.

What the oil and gas industry has done parallels what has occurred in the financial sector with banks and structured finance securities.

Seeking to quell environmental concerns about the chemicals it shoots underground to extract oil and natural gasApache Corp. (APA) told shareholders in April that it disclosed information about “all the company’s U.S. hydraulic fracturing jobs” on a website last year. 
Actually, Apache’s transparency was shot through with cracks. 
In Texas and Oklahoma, the company reported chemicals it used on only about half its fracked wells via FracFocus.org, a voluntary website that oil and gas companies helped design amid calls for mandatory disclosure. 
Energy companies failed to list more than two out of every five fracked wells in eight U.S. states from April 11, 2011, when FracFocus began operating, through the end of last year, according to data compiled by Bloomberg. 
The gaps reveal shortcomings in the voluntary approach to transparency on the site, which has received funding from oil and gas trade groups and $1.5 million from the U.S. Department of Energy.
“FracFocus is just a fig leaf for the industry to be able to say they’re doing something in terms of disclosure,” said U.S. Representative Diana DeGette, a Colorado Democrat. DeGette, along with Pennsylvania Senator Robert Casey, introduced legislation in March 2011 that would require companies to disclose fracking chemicals. The bills haven’t advanced in either the House or Senate. 
With FracFocus, “companies that want to disclose can do it but the other ones don’t have to,” DeGette said.
 Kind of like Libor.
Bloomberg compared oil and gas well records from eight states -- Arkansas, Colorado, Louisiana, Montana, Oklahoma, Texas, Utah and Wyoming -- against disclosures that companies made for those states on FracFocus. While the state data didn’t reveal whether wells were fractured, regulators in each state said that at least 85 percent of their wells were fracked. The Congressional Research Service puts the national estimate at more than 90 percent. 
In the eight states, companies told regulators that 18,158 wells were readied for production or were newly producing from April 11, 2011 through Dec. 31, 2011. They disclosed 8,555 of them on FracFocus. If 85 percent of the total wells were fracked, that means 45 percent of the fracks weren’t disclosed on the website. 
Bloomberg’s analysis, covering states that accounted for 64 percent of U.S. gas production in 2010, shows the difficulty of getting a full picture of the industry’s transparency....
That difficulty is intentional as the industry doesn't want transparency.
Oil and gas companies have gotten better at listing their fractured wells on the website over time, said Dan Whitten, a spokesman for America’s Natural Gas Alliance, one of two industry groups that help pay operational costs for the website. Some states now require companies to make disclosures on FracFocus, he said. 
“ANGA operators are committed to transparency, and support public disclosure of the additives used in the hydraulic fracturing process,” Whitten said in an e-mail. “If you were to look at a complete timeframe of FracFocus, you would see a progressively higher rate of participation.”
Sounds a lot like the British Bankers' Association describing Libor.
Companies participating in the voluntary system agree to disclose information about wells on the website once they have been fractured, which is the start of the completion process. ....
At the same time, concerns center on the hundreds of chemicals -- including known carcinogens -- used in the process.
Homeowners in Pennsylvania, Texas and Wyoming have complained that their well water was contaminated with chemicals or methane gas from nearby frack jobs. The U.S. Environmental Protection Agency last year linked the method to contaminated drinking water in Pavillion, Wyoming; the agency is now retesting some of those findings. The EPA has little authority to regulate fracking; Congress in 2005 stripped it of most such power....
Is there a parallel here to toxic mortgage-backed securities?
Oil and gas executives say the FracFocus website helps eliminate the need for any new federal oversight that might unify the regulatory approach.

“Rome wasn’t built in a day,” said Cal Cooper, manager of special projects for Apache. “This is a positive thing. It shows industry can get its act together and make things happen in a short amount of time.”....
Bringing transparency to the $15 trillion in structured finance securities could be accomplished in 18 months.  Seems like that is a much bigger IT effort than tracking oil and gas wells.

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