Obama’s methane limits seen wiping out the marginal driller

A proposal by the Obama administration to strengthen methane regulations threatens to wipe out marginal drillers already teetering on the edge of closing because of low oil and natural gas prices, according to Oppenheimer & Co.

The proposed rules from the Environmental Protection Agency target for the first time oil wells, compressors and other equipment as part of a broad effort to reduce leaks of methane, a more intense greenhouse gas than carbon dioxide, by 40 percent to 45 percent by 2025 from 2012 levels.

Natural gas prices are close to the cheapest seasonally in a decade, and crude oil’s hovering near a six-year low. Some small, high-cost drillers who can’t afford to shoulder more costs will probably have to shut operations, said Oppenheimer analyst Fadel Gheit.

“In a low oil and gas price environment, every penny counts,” Gheit said by phone on Tuesday. “For those companies that are very small,” the additional regulatory costs will be devastating, he said.

The inefficient producers that were slow to prepare for stricter regulation, even as environmental concerns over hydraulic fracturing mounted, will probably fold, Gheit said. “They’re killing themselves — it’s not like it came from left field,” he said. (Fuel Fix, Bloomberg)