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Wednesday, August 12, 2015

Potential for Earthquakes from Wastewater Disposal Could Cause Lender Requirements to Change

This Oklahoma home was damaged by an earthquake
which scientists later linked to an injection well
From SNL:
Property owners, mortgage lenders and insurance companies need to take another look at earthquake risks near the wastewater disposal wells associated with hydraulic fracturing, Dallas-based S&P credit analyst Andrew Foster says. 
With earthquakes dramatically increasing in Oklahoma and Texas, the potential for property damage from these quakes may soon raise some perplexing liability issues, he said. 
"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," Foster said in an Aug. 5 note. "It's unclear who will be liable in any given circumstance. However, future risks clearly exist." 
Oil and gas producers routinely dispose of wastewater and flowback water from shale wells outside Pennsylvania's Marcellus Shale by pumping it into nearby disposal wells. The geology of Pennsylvania does not lend itself to disposal wells, and drillers there recycle most wastewater for use in future fracking operations. 
Earthquake insurance is not widely held by homeowners, even in areas where earthquakes are common. Only about 10% of homeowners in California have policies, Foster said, citing the Insurance Information Institute. Therefore, the potential risk to insurers is small but may be greater for owners and lenders uninsured against the earthquakes.
Click here to read the rest of this article.

If you talked to people around the Youngstown area, especially a couple of years ago after a series of earthquakes that were linked to an injection well, it would be easy to understand how worrisome this subject can be.  Although the frequency and the strength of these induced earthquakes has been downplayed by the industry, - and the ODNR has added regulation to help protect against similar problems in the future - it is not a surprise to hear that this could be a major subject of concern to lenders and property owners when they are dealing with a nearby injection well, not only here in Ohio but all over the country.

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