Oil and Gas

UPDATE 2-Penn regulator says shale gas drilling method safe

* State finds no evidence ‘fracking’ contaminates water

* Says some contamination caused by above-ground spills (Adds details after second paragraph)

HARRISBURG, Pa., Oct 1 (Reuters) - Pennsylvania’s chief environmental regulator said on Friday he saw no evidence that the shale gas drilling process known as hydraulic fracturing contaminates underground water supplies with chemicals.

“It’s our experience in Pennsylvania that we have not had one case in which the fluids used to break off the gas from 5,000 to 8,000 feet (1,500-2,400 m) underground have returned to contaminate ground water,” said John Hanger, secretary of the Department of Environmental Protection (DEP).

Hanger told Reuters that officials have found cases of water contamination caused by spills and leaks of drilling materials on the surface of so-called “fracking” operations during Pennsylvania’s drilling boom.

There have also been cases of water contaminated by the migration of methane from gas wells, he said in an interview.

Energy companies have maintained there has been no proven water contamination from hydraulic fracturing. Hanger said perceived health risks were generally exaggerated.

“There’s a lot of focus in the media and the public on the problems that we have not had,” he said during an hour-long interview in his office.

Energy companies have been drilling for shale gas in the Marcellus Shale field stretching across parts of Pennsylvania, New York, Ohio and West Virginia. Estimates say the Marcellus holds enough gas to meet U.S. needs for a decade or more.

The Marcellus, which underlies about two-thirds of Pennsylvania and parts of surrounding states, has proved even more productive than optimistic projections, and has proved that it is one of the world’s biggest gas fields, Hanger said.

Since drilling began in 2008, the Marcellus has shown very high volume, very high quality, and some of the lowest costs of any U.S. shale reserve, he said, adding: “It’s no accident that companies from around the world have rushed here.”

In August, Rex Energy Corp REXX.O sold Marcellus acreage to a unit of Japan's Sumitomo Corp 8053.T, which followed purchases by Mitsui & Co 8031.T, Norway's Statoil STL.OL and India's Reliance Industries Ltd RELI.BO. [ID:nSGE67U0JL]


Hanger said Houston-based Cabot Oil & Gas COG.N, has drilled faulty wells around the northeast Pennsylvania town of Dimock, leading to methane migration into private water wells.

Dimock residents are getting a new municipal water supply to replace private wells contaminated by methane from Cabot’s drilling, Hanger announced on Thursday.

He called Cabot’s challenge to the DEP’s findings “riddled with errors and incredibly unfortunate.”

Ahead of November polls to elect a governor, Hanger warned that the fast-growing Marcellus drilling industry must be properly regulated to prevent environmental damage. He said DEP has doubled the number of oil and gas inspectors in the last year and opened offices in gas-drilling areas.

Hanger said it was unclear whether lawmakers will enact a production tax on natural gas drilling proposed by Democratic Governor Ed Rendell. The plan is opposed by Republican Attorney General Tom Corbett, who leads polls for the governor’s race.

Plans from Republican and Democratic lawmakers are far apart, but Senate Republicans have not ruled out passing the tax in some form, Hanger said.

Public support for the tax has risen to about 80 percent as support for the industry has waned in the last year. (Reporting by Jon Hurdle; with additional reporting by Eileen Moustakis; Editing by Daniel Trotta, Walter Bagley, Braden Reddall and David Gregorio)