This post is for the Fox Creek community, hit with another earth quake (2.6M, green, location approximate) on August 9, 2015, the first since the 4.6M on June 13, 2015:
Previous 2013-2015 earth quakes (blue) in and near the AER’s deregulated, play-based, blanket approval frac experiment, plotted by Earth Quakes Canada with yesterday’s quake (green, location approximate):
According to Earth Quakes Canada, there have been 30 events so far this year:
Fracking-Related Earthquakes Could Ding Credit Quality – The CFO Report – Wall Street Journal, August 5, 2015
More and stronger earthquakes, and the possible link to oil and gas drilling activities, could have far reaching economic implications, according to Standard & Poor’s Ratings Services.
“The earthquake trend has and will continue to have sharp economic consequences for home and business owners, mortgage lenders, insurance companies, and investors exposed to real estate in earthquake affected areas,” S&P analysts said.
S&P noted that Oklahoma, a popular site for horizontal drilling and hydraulic fracturing, or fracking, had 585 earthquakes last year. That’s up from an average of one or two a year before fracking was introduced in 2008 and more than triple the annual number in earthquake-prone California.
Companies exposed to these risks need to assess if they need earthquake coverage, and whether their policies change if the earthquake is declared man-made.
“Whatever the cause,” wrote S&P credit analyst Andrew Foster, “we believe the potential for property damage from increased incidences of earthquakes may be a liability.” [Emphasis added]
Earthquake Case Could Doom Fracking In Oklahoma by James Stafford, April 01, 2015, Oilprice.com
The rise in earthquakes as a result of fracking poses a massive problem for the oil and gas industry.
… Oklahoma has become the earthquake capital of the United States, surpassing even tremor-prone California. Oklahoma has averaged less than two earthquakes of a magnitude 3.0 or greater over the last 30 years. Shockingly, however, that rate has skyrocketed in recent years. In 2013, the state experienced 585 earthquakes with at least a 3.0 magnitude. And if the current rate of earthquakes continues, Oklahoma could have 875 by the end of 2015.
The oil and gas industry in Oklahoma has downplayed the induced seismicity from disposal wells, but the frequency of earthquakes – rising to several earthquakes each day – has become too hard to ignore. That is leading to the prospect of a flurry of lawsuits against fracking companies. Continental Resources, one of the most active companies in Oklahoma, even included legal action and state regulation related to seismic activity on its list of risks in its financial statements.
Legal action in neighboring states offer an indication that costs will rise for Oklahoma drillers as the backlash ensues. Chesapeake Energy and BHP Billiton paid an undisclosed sum to settle [and gag] a 2013 case in Arkansas over earthquake activity.
Energy companies can deal with paying off plaintiffs one by one, although it will raise the cost of doing business. But the big threat to drillers is a court case going against them, saddling the industry with the costs of earthquake-related damage and raising the liability for all future drilling. In essence, the subsequent cost of insurance needed by drilling companies could make oil and gas production unviable.
One case in particular could determine how bad costs could get for the industry. A woman named Sandra Ladra has brought a case against two oil companies – New Dominion and Spess Oil Co. – after her chimney collapsed amid a 5.7 magnitude earthquake, and the falling bricks severely injured her. The 2011 earthquake was the strongest in Oklahoma history and destroyed 13 homes. A 2013 peer-reviewed study pointed to injection wells nearby that were used to dispose of fracking wastewater as the cause of the earthquake.
The Ladra case has now moved to the state supreme court. A court ruling in her favor will amount to a huge blow to the industry statewide, raising costs of operating and possibly contributing to a significant reduction in drilling over the long-term. [Emphasis added]
S&P: Fracking and ‘Man-Made’ Earthquakes Are A Credit Risk by Amey Stone, August 5, 2015, barrons.com
The use of horizontal drilling and hydraulic fracturing, or fracking by energy companies has accompanied an increase in earthquakes in affected areas, Standard & Poor’s notes in a new report. That “increasing frequency and intensity of earthquakes in unlikely locations” is changing the credit picture.
S&P analyst Andrew Foster does not come right out and say that fracking causes earthquakes, but he certainly makes a connection.
He points out that Oklahoma averaged one or two earthquakes a year before fracking began in 2008. But the number grew to 20 in 2009, 42 in 2010 and 585 in 2014 — triple the number in California that year. If you include so-called micro quakes in the count, Oklahoma had 5,000 quakes. [What are all those quakes doing to the caprock and groundwater? How much frac’d methane is seeping into and accumulating in businesses and homes?] Foster writes:
Whatever the cause, we believe the potential for property damage from increased incidences of earthquakes may be a liability for the energy and insurance industries, lenders, property owners, and real estate investors.
S&P: Fracking, Quakes Could Open Fissures In Credit Quality Press Release by Standard and Poors, August 5, 2015, Bloomberg
DALLAS (Standard & Poor’s) Aug. 5, 2015–The increasing frequency and intensity of earthquakes in unlikely locations partially tell the broader story of how the U.S. energy landscape has been radically transformed in the past decade–starting with massive oil discoveries in the Dakotas and continuing to the rapid increase in horizontal drilling and hydraulic fracturing, or fracking, to extract natural gas and oil from shale rock.
Standard & Poor’s Ratings Services believes these changes haven’t just altered the physical backdrop, though. They’ve also altered credit trends across the country. The earthquake trend has and will continue to have sharp economic consequences for home and business owners, mortgage lenders, insurance companies, and investors exposed to real estate in earthquake affected areas. (see “How Fracking And Earthquakes Could Open Fissures In Credit Quality,” published Aug. 5, 2015).
Oklahoma averaged one or two earthquakes a year before 2008 and the introduction of fracking. That number suddenly escalated to 20 in 2009, 42 in 2010, and 585 in 2014–nearly triple earthquake-prone California’s annual totals. Furthermore, if we count so-called micro quakes (a magnitude of 2 or less), Oklahoma had 5,000 temblors in 2014 alone.
“Whatever the cause, we believe the potential for property damage from
increased incidences of earthquakes may be a liability for the energy and
insurance industries, lenders, property owners, and real estate investors,”
said credit analyst Andrew Foster.
We believe earthquakes near fracking sites introduce a unique risk for
investors that have exposure to real estate in affected regions. In particular, determining whether or not earthquake coverage is required, how this coverage may be affected by “man-made earthquakes” and other policy restrictions, and who is responsible for obtaining coverage could affect real estate investor returns. Investors may need to consider other factors, including the potential for laws and regulations that may be enacted to
We also used research from Morgan Stanley Research, Nomura, “Oklahoma Sun
Times,” “Time Magazine,” Reuters, R Street Institute, Bloomberg, “Dallas
Morning News,” “Wall Street Journal,” and the Insurance Information Institute.
Under Standard & Poor’s policies, only a Rating Committee can determine a
Credit Rating Action (including a Credit Rating change, affirmation or
withdrawal, Rating Outlook change, or CreditWatch action). This commentary and
its subject matter have not been the subject of Rating Committee action and
should not be interpreted as a change to, or affirmation of, a Credit Rating
or Rating Outlook.
The reports are available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a
RatingsDirect subscriber, you may purchase copies of these reports by calling
provided. [Emphasis added]