Exxon-XTO Deal to Terminate If Congress Passes 'Anti-Fracking' Law

(THE WALL STREET JOURNAL via Dow Jones), Dec. 16, 2009

Exxon Mobil Corp.'s $31 billion deal to acquire gas-producer XTO Energy Inc., announced Monday, includes language that would terminate the deal if Congress passes laws making hydraulic fracturing illegal or "commercially impracticable."

Hydraulic fracturing, or fracking, is the method XTO and other natural-gas companies use to produce gas from hard shale rock formations. Critics contend that it can cause pollution, especially to drinking water, a charge the industry rejects.

Washington observers said they don't believe Congress will pass any legislation before the Exxon-XTO deal closes in the second quarter of 2010. Only one bill has been introduced so far that would regulate fracking, under the Safe Drinking Water Act.

But Rep. Ed Markey (D., Mass), chairman of the House Energy and Environment Subcommittee of the Energy and Commerce Committee, said Tuesday he would hold a hearing early next year into Exxon's acquisition of XTO. Markey said he plans to look at environmental concerns related to air pollution and water contamination from hydraulic fracturing.

William F. Hederman, senior vice president of energy policy for Concept Capital, a Washington research group that advises institutional investors, said until the Exxon-XTO disclosures, he had never seen warnings about the political risks involving fracking.

Even so, he said, bad publicity is probably more of a potential problem in the near term than congressional legislation.

"There is probably headline risk, but we don't see any serious risk of legislation that would trigger the clause," he said.

The inclusion of this clause in the Exxon-XTO merger agreement highlights the increased attention regulation of hydraulic fracturing is receiving in the industry.

Hydraulic fracturing involves high-pressure pumping of liquids to break up dense shale rocks and free gas molecules.

If Congress passes new regulation either banning the use of hydraulic fracturing or, more likely, requiring practices that increase the cost of drilling and completing wells, this could have an impact on the valuation of many companies involved in shale gas development.

An Exxon spokeswoman didn't have an immediate comment.

Copyright (c) 2009 Dow Jones & Company, Inc.


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Mitch Elkins  |  December 21, 2009
We can all thank the "Clean Coal" lobby for their efforts in inadequately educating the regulators on this matter. The Coal Lobby knows that natural gas is a far cleaner source of energy and therefore need to cut it off at the knees. Any anti-fracing law will render shale resource plays uneconomical and force years worth of clean energy to be left in the ground.
Damon  |  December 19, 2009
This is just INSANE. Have Washington & Environmental Comittee show the proof where hydrolic fracturing has contaminated drinking water sources. Fresh water reserviors are shallow, Oil & Gas pays are 2000-5000+ deeper than any fresh water structure. The only concern that should be looked upon is the fresh water consumption. Fresh water is used in the fracture process & hundreds of thousands of gallons are used from an aquifer. Consumption Not Contamination is the issue.
Phil Anderson  |  December 18, 2009
I have heard rumblings about these laws for about a year now. I believe they originated in Colorado. Not only would this terminate the jobs of tens of thousands of E&P employees, it would shut of vast amounts of natural gas until repealed. Those resources have created a semblance of economic stability for the areas that are exploiting them amid the economic storm in the rest of the U.S. Passage of this and the "Cap and Trade" legislation will put a dagger into one of the few remaining productive industries in the nation. Sad days are ahead should Congress succeed with this.
Bill M.  |  December 18, 2009
Fracking a shallow shale formation could in certain instances contaminate an aquifer, but if there is a thick impervious interval between the shale and an aquifer above it, and the well is cemented correctly, there can be no contamination. A blanket no-frack law/EPA rule would be incredibly stupid.
Nelson  |  December 17, 2009
Being a worker who makes a living doing this kind of work, banning the technique of hydraulic fracturing would put a lot of hard-working people out of work, and not just including the hydraulic fracturing end of it. You would have wireline, water transfer, tracing, transports, sand hauling, and everything that goes with it unemployed to.
Art Vandeley  |  December 17, 2009
I would like to see the greenies and oil producers have a two-day moratorium on using any product that is derived, manufactured or uses any petroleum products in the United States. Many people's feelings would change toward these anti-domestic oil and gas measures this administration is pushing. Live without it for two days and see how much you really want to save the speckled mud frog.

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