NEW YORK (TheStreet -- Don't believe water companies about fracking.Traditional water treatment companies are looking at the oil industry as a new source of revenue outside the usual wastewater treatment, but investors should know that breaking into the shale gas produced water market isn't so easy. These aspiring water companies face a market almost entirely locked up by three companies, a murky profit picture and a changing regulatory environment "I think a lot of traditional water treatment companies have done very poorly in oilfield water because traditional water companies are not used to water that changes its composition every day," Brent Halldorson, chief operating officer of Fountain Quail Water Management recently told Global Water Intelligence, which provides industry analysis.
Two more companies seen as up and coming are Nalco ( NLC) and Heckmann ( HEK). Nalco has been around since the 1920s and has made a name for itself in the water and oil chemicals business. It has been on an acquisition tear, picking up three companies in 2010. Heckmann sold its bottled water business in China in November in order to focus on water treatment for the oil industry. The company has also been growing by acquisition as it has purchased two companies in 2011 and is reportedly performing due diligence on more deals. Xylem ( XYL), which recently split from its parent company ITT ( ITT), is another player in the space. It's focused on testing. "Clearly the growth we see is in analytics, testing the water making sure of the water quality," says Gretchen McClain, the company's CEO. She said Xylem tests the fracking water and then just reports back to the oil company what contaminants it has found. It is left to the oil company to act. Traditional water companies that have primarily treated sewage will face difficulties entering into this market. Cleaning sludge out of water tends to be a similar process day in and day out, but cleaning shale gas water can vary and the lack of consistency can cause headaches for the water companies. There are also future regulatory concerns to consider. The Safe Drinking Water Act protects drinking water, but the Energy Policy Act in 2005 excluded regulatory oversight for fracking - including the effects on drinking water. But the negative reaction to hydraulic drilling in Pennsylvania led to the introduction of the Fracturing Responsibility and Awareness Act in 2009. The legislation hasn't passed and is subject to a study whose final report won't be issued until 2014. There's already been incidents of hypocrisy when it comes to the government's approach to hydraulic fracturing. For instance, Pennsylvania representatives told Congress in November that they needed no federal oversight. "It is total fiction that sewage treatment plants are discharging these 'terrible' waste products into the waterways," said Mike Krancer, the state's Department of Environmental Protection Secretary. But that pronouncement stands in contrast to a $1 million fine that Pennsylvania levied in May against Chesapeake Energy ( CHK) for violations related to natural gas drilling where it determined that 16 families had their water contaminated by Chesapeake. -- Written by Debra Borchardt in New York. >To contact the writer of this article, click here: Debra Borchardt. >To follow the writer on Twitter, go to http://twitter.com/wallandbroad. >To submit a news tip, send an email to: firstname.lastname@example.org.