Blast Backlash Hangs Over Drillers as 'Fractivists' Seek Limits

(Bloomberg) -- Two months after a Colorado home exploded near an Anadarko Petroleum Corp. well, the reverberations are still rattling the oil industry, driving down driller shares and raising fears of a regulatory backlash.

The April 17 blast, which killed two people and injured a third, was followed a month later by a second deadly explosion at an Anadarko oil tank in the state. The incidents have revived calls to restrict drilling near populated areas within Colorado’s rich Niobrara shale formation, the fourth-most productive shale basin in the U.S. They’ve also spurred the state to order new inspections around thousands of oil and natural gas wells.

While the repercussions aren’t expected to kill off operations in Colorado, they could raise costs for an industry already walking a financial tightrope, with oil prices down 14 percent this year. Since May 2, when authorities publicly tied Anadarko to the home explosion, company shares have lost about 14 percent, while the S&P 500 Energy Index is down less than 1 percent. 

“Something like that will be remembered," said Joe Ryan, an environmental engineering professor at the University of Colorado at Boulder who studies the industry. “Even if statistically it’s infrequent, that may be the kind of thing that pushes the public to say, ‘we have to see improvement.’"

Other drillers active in Colorado have also seen their shares slide, with Extraction Oil & Gas Inc. falling 8 percent and Noble Energy Inc. down almost 5 percent.

Anadarko, one of the world’s biggest independent oil and gas drillers, has a long history in Colorado, dating back more than 30 years. Since the April blast, the company has deployed more than 350 workers to comply with a state order to inspect underground pipelines, spokesman John Christiansen said in an email. It’s also voluntarily replacing gas-supply lines of the type implicated in the blast at thousands of wells.

“Our current focus is on taking the appropriate actions to help residents feel safe," Christiansen wrote. “We believe any legislative or regulatory action around this issue will be most effective when we have all the information from the investigation."

Still, investors remain nervous about the potential fallout, according to Michael Scialla, a Denver-based analyst with Stifel Nicolaus & Co. While Anadarko is likely to be fined, “the damage already pales in comparison to what they’ve lost in market value," he said in an interview. The company has shed more than $7 billion of its value since the end of March.

The April incident leveled a home in Firestone, just north of Denver. Fire officials blamed gas that had seeped into the house from an abandoned line connected to an Anadarko well 200 feet away. Five weeks later, on May 25, an explosion and fire at an Anadarko oil tank in nearby Mead, Colorado, killed one contractor and left three others hospitalized.

The U.S. National Transportation Safety Board is probing the first incident, while the federal Occupational Safety and Health Administration is looking into the second. Anadarko, based in The Woodlands, Texas, voluntarily closed thousands of wells for inspection after the Firestone explosion and has promised to cooperate with authorities in both cases.

Resident Fears

State officials have moved to dispel resident fears. Governor John Hickenlooper last month ordered drillers to inspect oil and gas lines throughout the state. Reports covering 17,000 wells had been turned in as of May 30 and are still being reviewed, according to the Colorado Oil & Gas Conservation Commission.

Through a spokeswoman, Hickenlooper, a Democrat and former petroleum geologist, declined to comment on whether he sees a need for more regulation.

What happens next is unclear. After the Firestone blast but before the Mead tank fire, the Republican-led state Senate blocked legislation to increase the buffer, or setback, required between new wells and other properties. The limit now stands at 500 feet for homes and 1,000 for schools and hospitals. The effort could be revived when lawmakers reconvene in January.

“We are in wait-and-see mode but we don’t think a major strategic policy shift is likely," said Ethan Bellamy, an energy analyst with Robert W. Baird & Co. in Denver. While “fracktivists in Boulder" will still fight drilling, “the practicalities of the state’s budgetary reliance on oil and gas revenue likely prevent any overly draconian changes."


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