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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Two X-Factors for U.S. Petroleum

There's been a sense that nothing can stop the "miracle" of U.S. unconventional oil and gas.

Output has indeed been rising from petroleum plays across the country. Spurred by the introduction of new drilling and completion technology--especially multi-stage hydraulic fracturing, or fracking.

But this drilling revolution has also attracted a lot of attention from the public. With a number of groups appearing to be making progress in opposing fracking.

The past week we saw not one, but two such developments. In Ohio and California.

The news from Ohio is the most substantive. Where the state Environmental Protection Agency introduced new rules last Friday on monitoring methane emissions from oil and gas wells.

Going forward, producers will be required to do regular testing to find leaks--and plug them quickly when detected.

The new rules will add cost and time to drilling and production here. But they're far less extreme than the steps being pursued in California.

The state legislature there gave a first pass to a bill imposing a temporary moratorium on fracking. Which would completely shut off this technique for drillers throughout the state, while regulators study effects on health and the environment.

The frack ban is still a ways from passing. Having yet to go through the State Assembly and the Governor. The bill may well die before completing those stages. But it's worth keeping an eye on. With fracking already having become a go-to technique for many producers in the state.

Whatever the outcome, the growing anti-fracking movement should be more than just a side show for investors. This is one factor that could represent a real impediment to unconventional development across the country.

Conventional wisdom is that the U.S. drilling revolution is today a given. With a lot of investor dollars riding on the sector. If things get slowed or derailed by new regulations in key plays, it will be an "x-factor" few observers have factored in.

We'll see what the next steps are.

Here's to new rules,

By Dave Forest


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