Last month, some fracking chemicals allegedly found their way into a Wyoming aquifer. Then there were a pair of mild earthquakes in Ohio, which some geologists claim were caused by fracking in that state.
It still seems highly unlikely that the EPA would institute any sort of blanket ban on fracking – particularly given that the U.S. is now a net refined fuel exporter – but even a small chance could cause worry within a private equity sector that has invested tens of billions into such projects over the past couple of years.
So I rang up a private equity exec whose firm has made several large shale bets to see how he's hedging against the potential for EPA action.
He began by saying that you need to bake in the likelihood of tighter regulations going forward, since this is still an emerging industry – particularly in terms of emissions management and waste disposal. In terms of a doomsday hedge, he says the key is making sure the fund also has plenty of existing production properties (either conventional or already fracked):
"If fracking was totally banned, then existing production would be worth a whole lot more because natural gas prices would suddenly spike on the decreased supply," he explains. "If you ban fracking the supply of natural gas evaporates in the course of a month, so commoidty prices expand from $3 to $7 in a heartbeat... Unconventional assets are obviously the future, but you need to protect yourself by also having some of the past."
Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com
KKR again bets big on shale.
Kohlberg Kravis Roberts & Co. (KKR) this morning announced the largest leveraged buyout of 2011, agreeing to acquire privately-held oil and gas company Samson for $7.2 billion. KKR is being joined on the deal by Crestview Partners, Natural Gas Partners and Japan's Itochu Corp.
Under terms of the agreement, KKR and its partners will acquire all of Tulsa, Okla.-based Samson's assets, with the exception of its MOREDan Primack - Nov 23, 2011 9:10 AM ET
Deal activity in the U.S. oil and gas sector is going gangbusters. Here's why.
KKR yesterday announced that it has sponsored the formation of RPM Energy, a new platform that will partner with exploration and development companies in the "unconventional resource" space (read: shale). Not only is this the latest in a series of oil & gas deals for KKR, but also is part of a much broader M&A trend.
According to MOREDan Primack - Oct 27, 2010 10:26 AM ET
|Obama wants to expand overtime pay|
|Inside the underground sex economy|
|NJ agrees to ban Tesla direct sales|
|Plug the financial leaks, now!|
|Veronica Mars: Will it score at box office like it did on Kickstarter?|