The oil and gas industry welcomed the Environmental Protection Agency's new regulations on the release of smog forming emissions that are released in the process of hydraulic fracturing. The new rules will push companies to invest in technologies that capture gases such as methane and toxic chemicals such as benzene that are part of the 'flowback' after the process of fracturing is complete.

However, gas explorers such as Anadarko Corp. (APC) will have until January 2015 to put in place the necessary equipment and can resort to flaring the waste gases up to that time. Exxon Mobil (XOM) became the largest producer of natural gas in the U.S. after it acquired XTO energy two years ago.

We have a $90.30 price estimate for Anadarko Corp, which is at a 25% premium to its current market price.

Pollution control

The new regulations seem to be a tentative step from the EPA to regulate the fracking process, which has been at the center of a heated environmental debate. While recent advances in the field of fracturing have led to unlocking of massive gas reserves in the U.S., environmentalists have highlighted that the process could result in pollution of ground water and the release of green house gases. The long-awaited regulations are targeting the release of pollutants in the air while some state regulation has asked companies to release a list of chemicals that are mixed with the water used for fracturing wells.

With shale exploration leading to a renaissance of the energy industry in the U.S., government agencies seem to be cautious in burdening the industry with excessive regulation. The move to push the implementation of the new rules to 2015 has received support from energy companies, which are already under pressure because of low gas prices in North America.

Anadarko and other companies produce much of their oil and gas onshore output in North America by tapping shale reserves and fracturing. Any restrictions on the practice of fracturing could have a significant impact on their future production estimates.