UPDATE 2-US fracking firms may have broken enviro law-probe

* BJ Services, Halliburton used diesel in fracking-probe

* Firms had agreed to stop use of diesel in fracking

* Firms lacked permits for diesel use

(Adds comments from Halliburton, Baker Hughes)

By Ayesha Rascoe

WASHINGTON, Jan 31 (Reuters) - Several energy companies may
have violated environmental rules by injecting diesel into the
ground without permits as part of a controversial natural gas
drilling technique, according to findings from Congressional
probe released on Monday.

The probe of diesel use in hydraulic fracturing, a practice
that has allowed drillers to tap abundant shale gas, found that
oil services firms such as Halliburton (HAL.N) and BJ Services,
which was bought by Baker Hughes Inc (BHI.N), injected millions
of gallons of fluids containing the fuel into wells between
2005 and 2009. A total of 12 companies were cited in the probe
for using diesel without proper permits.

Critics say the chemicals used in the process, called
"fracking," can contaminate drinking water.

In 2003, the Environmental Protection Agency entered into a
voluntary agreement with Halliburton, BJ Services and
Schlumberger (SLB.N) to eliminate the use of diesel fuel in
hydraulic fracturing fluids injected into coalbed methane
wells.

In addition, a 2005 energy law exempted hydraulic
fracturing, or fracking, from regulation under the Safe
Drinking Water Act, except when diesel is used.

Still, the probe found that no oil and gas service
companies sought or were issued permits for the use of diesel
fuel in fracking between 2005 and 2009.

Democrats who sponsored the probe in the House of
Representatives urged the EPA to look into this matter.

"This appears to be an area of significant noncompliance
with the requirements of the Safe Drinking Water Act," House
Democrats Henry Waxman, Edward Markey and Diana DeGette said in
a letter to the EPA outlining their investigation.

The fracking probe was initiated by House of
Representatives' Energy and Commerce Committee last year when
it was headed by Waxman. [ID:nN18198199]

"EPA has embarked on an expeditious effort to clarify the
permitting process as it relates to diesel use in hydraulic
fracturing operations," the agency said in a statement in
response to the investigation.

EPA said it hopes to put in a clear framework for
permitting, so firms using diesel in fracking "receive the
review required by law."

EPA modified its website to address fracking operations
using diesel in the summer of 2010, a Halliburton spokeswoman
said in a statement. But Halliburton does not believe that
these changes "constitute proper rulemaking," she said.

Halliburton said there are currently no federal
requirements that companies obtain permits for the use of
diesel in fracking and therefore it does not believe its
"activities have resulted in a violation of the Safe Drinking
Water Act or any other federal environmental law."

Gary Flaharty, a Baker Hughes spokesman, said BJ Services
no longer uses diesel in its fracking operations, but during
the period in question there were no federal rules regarding
diesel and fracking.

The EPA's position in the past has been that federal
regulations do not expressly address or prohibit the use of
diesel in fracturing fluids, Flaharty said. "Retroactively
imposing a permit requirement is clearly improper," he said.

Fracking injects a mixture of water, sand and chemicals
into rock formations at high pressure to force out oil and
natural gas.

The spread of the technique to new areas has prompted a
backlash from homeowners near shale gas developments who
complain the practice has contaminated their drinking water.

Some lawmakers have called for federal regulation of the
practice beyond the use of diesel fuel, but with Republicans
now in control of House such legislative action appears
unlikely.

In their letter to the EPA, the lawmakers said Halliburton,
Schlumberger and BJ Services told the committee they no longer
use diesel fuel in coalbed methane formations located in
underground sources of drinking water.
(Additional reporting by Timothy Gardner, Editing by Lisa
Shumaker and Sofina Mirza-Reid)