A deal to sell a controversial central Wyoming natural gas field has fallen apart amidst allegations that drilling there has caused water pollution.

Texas-based Legacy Resources backed out of a $45 million deal to buy the field near Pavillion, Wyo., from EnCana last week, soon after the Environmental Protection Agency said it had detected cancer-causing benzene at 50 times the level safe for humans and other carcinogenic pollutants during its latest round of sampling.

The cancelled sale could signal difficulty for companies trying to turn over aging gas fields if there are environmental or health concerns related to their operations.

“Although Encana retained responsibility for any outcome resulting from the ongoing groundwater investigation undertaken by EPA, due to the continued attention surrounding the investigation, and uncertainty regarding further development, Legacy is not prepared to go forward with the transaction,” said EnCana spokesman Doug Hock, in an email to ProPublica.

Legacy Resources did not respond to a call requesting comment.

Legacy Resources announced it had agreed to buy EnCana’s Pavillion-area wells, which produce an estimated 13 million cubic feet of gas a day, on Nov. 1. At the time, the company also said it planned to drill new wells in Pavillion to tap the 45 billion cubic feet of gas it believes lies underground.

But the prospects for future development have dimmed.

Residents had long complained of widespread water contamination and alleged that fracking was to blame. EnCana had trucked in replacement drinking water to some residents. The company faced increasing controversy when the EPA announced in late 2009 that it had found hydrocarbon contaminants in residents’ drinking water wells. The agency advised residents not to drink their water and to ventilate their homes when they showered or washed dishes. ProPublica began reporting on concerns about water contamination in Pavillion in 2008.

On Nov. 9 the EPA announced more test results from samples taken in Pavillion, this time from two water monitoring wells drilled to 1,000 feet – far below most drinking water wells in the area. It found benzene, along with acetone, toluene, naphthalene and traces of diesel fuel. It also detected a solvent called 2-Butoxyethanol (2-BE) that is commonly used by the drilling industry to fracture wells. It also can be used for cleanup at well sites.

EnCana has maintained that the pollutants found in Pavillion-area wells occur naturally, and that drilling is not to blame. “Nothing EPA presented suggests anything has changed since August of last year – the science remains inconclusive in terms of data, impact, and source,” Hock wrote to ProPublica.

Hock said that the EPA’s monitoring wells were drilled into a zone known to contain methane gas, and suggested the pollutants would have been expected to be there. He said that the 2-BE was only detected in one sample and could have leached from the plastics used to drill many drinking water and monitoring wells. In previous statements to ProPublica, he has said that the 2-BE might have come from household cleaning agents, which can contain the chemical. Hock did not reply to questions about whether EnCana had used 2-BE in fracking or any other processes in Pavillion.

The EPA’s latest findings are consistent with previous samples taken from water wells at 42 homes in the area since 2008.

The agency has so far been careful not to draw conclusions about the cause of the pollution. EPA officials had said they planned to release a detailed report analyzing possible causes of the pollution by the end of November, but now say it will be at least a few more weeks.

The paper quoted Democratic county commissioner Trési Houpt saying “we still have a lot of unanswered questions out there” and calling for using the county’s oil and gas mitigation fund to bump up the county’s environmental health department budget.

Paul Reaser, the senior environmental health specialist for the county’s health department, said there is not currently a public health crisis in the county, but “there are some health trends that need to continue to be monitored.”

But Republican county commissioner John Martin, according to the paper, said that while he agrees with the need for stronger air-quality monitoring, he doesn’t want the environmental health department’s budget to exceed a two-percent growth limit set for all departments in 2010. Houpt replied that it’s a different pot of money and shouldn’t be subject to the same limitations.

Teran Hughes, a resident of the Divide Creek area south of Silt, told the commissioners six gas wells surround his home: “We’ve had to move out twice, because the smells are so bad … I’d appreciate you guys addressing that, and standing up for us.”

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A natural gas drilling operation in northwest Colorado. (Creative Commons photo by Energy Tomorrow via Flickr)

The U.S. Environmental Protection Agency last spring, in its first real testing of water wells near gas wells that are being “fracked” — a process of injecting water, sand and undisclosed chemicals into gas wells at high pressure to force open tight geological formations and free up more gas — found the presence of the toxic chemical 2-Butoxyethanol (or 2-BE) in Meeks’ water wells.

Such potential for contamination is one of the main reasons U.S. Rep. Diana DeGette, (D-Denver) in June introduced the Fracturing Responsibility and Awareness of Chemicals Act to force oil and gas companies to more readily disclose the types of chemicals being injected into wells. The industry has spent millions to oppose the removal of a 2005 exemption from the Safe Drinking Water Act because officials maintain secrecy is necessary for competitive reasons.

Asked to respond to EPA statements that the 2-BE, which is also contained in products such as degreasers, might be surface contamination from the ranch itself, Meeks said EnCana did a poor job of encasing the gas wells in cement to keep fracking fluids out of the water aquifer, something the company was heavily fined for in Garfield County in Colorado.

“If you do not get that cement job right and you go in there and perforate and frack, you are certainly asking for it, because that frack is going to go wherever it wants to go because the cement is not holding it right there where the perforations are,” Meeks said. “Also, I have some chemical records and drilling records right here in my house, and these guys are putting chemicals in from the top to the bottom [of wells].”

EnCana, says it’s concerned and working with the EPA in the Pavillion case, but the company was fined a record $370,000 by the Colorado Oil and Gas Conservation Commission (COGCC) for a faulty concrete job on a well in the Divide Creek area near Silt in Garfield County.

The company denied fracking was the cause of methane and benzene seeping into the creek on Lisa Bracken’s property, and the COGCC agreed, disputing the findings of a county consultant, geologist Geoffrey Thyne, who concluded the contamination could be connected and required more study.

While COGCC director David Neslin said his agency might be open to more study of fracking in Garfield County, similar to a smaller-scale program it’s conducting in La Plata County, he does not feel the FRAC Act is necessary. In fact, he said it may spread his agency too thin and take away from its ability to police other environmental concerns.

He also contends the new, more environmentally stringent state drilling regulations that went into effect April 1 cover any concerns about fracking and the disclosure of chemicals because they force oil and gas companies to keep chemical inventories on hand and make them available to state regulators and emergency responders.

That, said Bruce Baizel, senior staff attorney with Durango-based Earthworks’ Oil & Gas Accountability Project, is not adequate. He said the new rule merely requires a company to keep a quarterly record of more than 500 pounds of any particular chemical on a well site and make it available within 72 hours if there’s an accident or contamination question.

“What that doesn’t provide for is it doesn’t allow the public or a surface owner to gain access to what is being stored or used onsite,” Baizel said, “and with that 72-hour window, it doesn’t require that emergency responders get access to that or have a publicly available database that they can go to.”

Baizel said recent state hearings revealed more than 300 instances of contaminated water in Colorado since 2003 and more than 700 instances in New Mexico, requiring immediate federal oversight and additional study of the increasingly popular fracking process perfected by the oil-field service company Halliburton.

Industry officials counter there have never been any cases of contamination directly linked to fracking, and that nondisclosure of chemicals is as critical for competitive reasons as it is to food and beverage companies protecting proprietary formulas.

“[Fracking’s] got an exemplary safety record and it’s vital to ensuring an American energy source,” Kathleen Sgamma, director of government affairs for the Independent Petroleum Association of Mountain States (IPAMS), said in a previous interview. “Keep in mind that it has been regulated by the states for the last 60 years.”

But conservationists argue states are not getting the job done and that secrecy in the arena of injecting potentially hazardous chemicals puts the public at far too much risk.

“Coke and Pepsi is a perfect example,” said Amy Mall of the Natural Resources Defense Council in Boulder. “If you buy a can of Coke, you get to see what the ingredients are. You don’t know what the secret formula is that Coke actually keeps locked up and no one person actually knows, but you get to know the ingredients. The FRAC Act would disclose the ingredients but not the formulas, which are what remain proprietary.”

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