The head of ExxonMobil Corp. Wednesday told a House Energy and Commerce subcommittee that its pending $41 billion merger with unconventional gas powerhouse XTO Energy Inc. would be called off if Congress takes any action to limit or restrict the use of hydraulic fracturing (hydrofracing) in the prolific shale gas plays.

“That’s correct” the pending marriage would be canceled, ExxonMobil CEO Rex W. Tillerson told Rep. Fred Upton of Michigan, the ranking Republican on the Energy and Environment Subcommittee, during a hearing to review the merger. The proposed merger, which was disclosed in December, is expected to close by the end of June barring no unfavorable action by Congress on hydrofracing (see Daily GPI, Dec. 15, 2009).

“If you remove hydraulic fracturing as one of the key enabling technologies, this [shale] resource can no longer be recovered. So obviously our deal would make no sense,” he said. “Without hydraulic fracturing, the gas that’s locked in the shale rock stays locked.” Hydrofracing involves the injection of fluids into wells at extremely high pressures to crack underground formations and stimulate the flow of oil and gas. More than 90% of oil and gas wells in the United States employ hydrofracing.

Irving, TX-based ExxonMobil inserted the clause on hydrofracing into the merger contract to protect its shareholders, according to Tillerson. “I think it’s just a recognition that we see a lot of regulation that comes out of the Congress and the U.S. government that provides little benefit…There’s an enormous propensity to regulate in this country, so it’s just a recognition that that’s a risk.”

Bob R. Simpson, chairman of the board of XTO Energy, noted that the technique of hydrofracing has allowed the nation to go from a “psychology of shortage” with respect to natural gas to “one of abundance” in the last 30-40 years. And because of that, “I just don’t believe that…there’s any real risk of legislation that would prohibit that [hydrofracing] practice,” he said.

“It is incredibly telling that this kind of merger has to be conditioned on the government not pursuing an irrational policy, which will lock up our own natural resources,” said Rep. John B. Shadegg (R-AZ).

“I commend the people who have put this deal together. I believe it is in our nation’s interest, and I think it is time that we focus on producing American energy in America,” he said.

In producers’ minds, Rep. Diana DeGette (D-CO) is leading the anti-hydrofracing movement in Congress, but she says nothing could be further from the truth. “My bill would not make hydraulic fracturing [ExxonMobil contract language] illegal nor would it make it commercially impracticable. I support the use of hydraulic fracturing…But I also support it being done in an environmentally responsible way,” she told the ExxonMobil and XTO Energy officials.

“Currently there’s no requirement under federal law to disclose the chemicals used in hydraulic fracturing, although we know that many of those chemicals may be highly toxic. Frankly all of our constituents have the right to know what chemicals are being used in their communities, particularly if they are near underground sources of drinking water.

“What my bill would do is simply restore the EPA’s [Environmental Protection Agency] ability to ensure that hydraulic fracturing does not endanger drinking water under the Safe Drinking Water Act [SDWA].”

In effect her legislation would turn over oversight of hydrofracing, which is currently handled by the states, to the federal government. Producers’ hydrofracing activities are now exempted from federal regulation under the SDWA, and producers want it to stay that way.

Upton called on policymakers who are opposed to hydrofracing to take notice of recent comments by Energy Secretary Stephen Chu, who Friday said he believes hydrofracing can be done right without fluids leaking into the water table (see Daily GPI, Jan. 20).

“It would be detrimental to this country if they outlaw that practice,” said Rep. John Sullivan (R-OK).

Rep. Joseph R. Pitts (R-PA) called the pending merger the “biggest endorsement yet for shale production,” and would “create the largest natural gas producer in the United States.”

The merger agreement, which is subject to XTO stockholder and regulatory approval, would add around 45 Tcfe to ExxonMobil’s resource base and lift its gas weighting to 45%. ExxonMobil would have a substantial unconventional gas and oil resource base in the United States to complement its holdings in Canada, Germany, Poland, Hungary and Argentina.

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