Off to Washington:Exxon-XTO Merger Hearing Will Have To Deal With 'Fracking' Rule

Last Updated Jan 17, 2010 8:05 PM EST

The scheduled Congressional hearing next week on ExxonMobil's acquisition of independent oil and gas producer XTO Energy has been billed as a discussion on the potential impact the deal will have on U.S. energy markets. But when the only invited witnesses are the heads of the two companies, and a clause buried deeply in the 76-page merger agreement stipulates Exxon can back out of the dealif Congress regulates hydraulic fracturing, I think it's safe to assume the fracking subject will come up. It has to because a $31 billion merger hangs in the balance.

If anything, ExxonMobil Chairman and CEO Rex Tillerson and XTO Energy Chairman Bob Simpson, who are both scheduled to testify, will be the ones asking the questions and pushing Congress not to regulate the technique essential to unconventional gas production.

Exxon announced last month its $31 billion all-stock purchase of XTO, the company's biggest in more than a decade. XTO Energy holds large stakes in unconventional gas plays including the Marcellus Shale. Soon after the announcement, William Hederman of Concept Capital discovered an escape clause of Exxon within the lengthy 8-k filing form. If Congress made changes to a law that makes hydraulic fracturing -- and similar processes -- illegal or commercially impracticable, Exxon can call the whole thing off.

Hydraulic fracturing is a technique used in unconventional wells that pumps water mixed with sand and chemicals under high pressure. The pressure cracks shale deposits and releases the trapped natural gas. The method is a considerably valuable process because it allows drillers to reach more gas than a conventional well. It also has drawn the ire of environmentalists who contend the process could threaten water supplies.

Legislation introduced last year would end an exemption for hydraulic fracking within the Safe Water Drinking Act; and regulation would fall under the Environmental Protection Agency's authority.

The hearing will be held Wednesday by the House's subcommittee on Energy and Environment.

See additional BNET Energy coverage on hydraulic fracking and the ExxonMobil-XTO deal: