WASHINGTON - Several Democratic lawmakers on Wednesday expressed concern that the merger of Exxon Mobil and XTO Energy would reduce competition in the oil and gas industries and increase the use of a controversial drilling technique that could pollute water supplies.

Exxon Mobil (XOM.N) said last month it planned to buy XTO Energy in an all-stock transaction worth about $30 billion, creating the largest U.S. natural gas producer and holder of gas reserves.

The Exxon Mobil-XTO deal may prompt its peers to move forward similarly, consolidate an already tight oil and gas market, and create additional concerns for the regulatory bodies that oversee the oil and gas supply, Representative Doris Matsui said at a House Energy and Environment Subcommittee hearing on the effects of the merger.

Representative Edward Markey, who chairs the subcommittee, raised questions about whether hydraulic fracturing, which the combined Exxon-XTO plans to use when drilling for natural gas locked in shale rock, could pollute drinking water supplies.

This merger heralds a fundamental long-term shift in U.S. energy markets and one that deserves our close attention, he said.

Hydraulic fracturing, or fracking, injects a mixture of water, sand and chemicals into rock formations to stimulate production. Some environmental groups oppose the technique as unsafe and seek more regulation over it and some lawmakers want to curb the practice.

However, Markey said more supplies of natural gas, which the merged company would produce, would be critical in serving as a bridge fuel as the United States moves from burning coal to generate electricity to a clean energy future.

He said Exxon Mobil was putting a smart bet on what America's energy future will be by merging with XTO, but he would rely on guidance from the Federal Trade Commission, which is reviewing the deal, on whether the combined company would stifle competition.

ExxonMobil Chairman Rex Tillerson told lawmakers the merger is unlikely to change the competitive balance in the oil and gas industries.

There are thousands of players, he said. The fact that this merger occurs still leaves enormous amounts of opportunity for others to come in and participate.

Tillerson defending fracking, saying the combined company would use the drilling technique to develop vast U.S. natural gas resources without harming the environment.

With recent advances in extended reach horizontal drilling, combined with the time-tested technology of hydraulic fracturing ... we can now find and produce unconventional natural supplies miles below the surface in a safe, efficient and environmentally responsible manner, he said.

XTO Energy Chairman Bob Simpson also stressed the importance of fracking in terms of increasing the nation's energy independence.

Additional production of domestic unconventional gas will result in increased supplies of energy, which will lead to expanding markets, all of which significantly enhance our energy security, Simpson said.

Fracking is so important to the combined company's success that Exxon and XTO can call off the merger if Congress passes legislation banning the practice.

Without hydraulic fracturing, the gas that is locked in the shale rock stays locked, Tillerson said. So, obviously our deal would make no sense.

Representative Fred Upton, the top Republican on the subcommittee, said fracking was safe and cited comments made by U.S. Energy Secretary Steven Chu last week backing the drilling technique.

If it can be extracted in an environmentally safe way, then why would you want to ban it? Chu asked reporters about fracking. I think it can be done responsibly.

(Editing by Marguerita Choy)

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