(Reuters) – Louis Meeks, a burly 59-year-old alfalfa farmer, fills a metal trough with water from his well and watches an oily sheen form on the surface which gives off a faint odor of paint.

He points to small bubbles that appear in the water, and a thin ring of foam around the edge.

Meeks is convinced that energy companies drilling for natural gas in this central Wyoming farming community have poisoned his water and ruined his health.

A recent report by the Environmental Protection Agency suggests he just might have a case — and that the multi-billion dollar industry may have a problem on its hands. EPA tests found his well contained what it termed 14 “contaminants of concern.”

It tested 39 wells in the Pavillion area this year, and said in August that 11 were contaminated. The agency did not identify the cause but said gas drilling was a possibility.

What’s happened to the water supply in Pavillion could have repercussions for the nation’s energy policies. As a clean-burning fuel with giant reserves in the United States, natural gas is central to plans for reducing U.S. dependence on foreign oil.

But aggressive development is drawing new scrutiny from residents who live near gas fields, even in energy-intensive states such as Wyoming, where one in five jobs are linked to the oil and gas industry which contributed more than $15 billion the state economy in 2007.

People living near gas drilling facilities in states including Pennsylvania, Colorado, New Mexico and Wyoming have complained that their water has turned cloudy, foul-smelling, or even black as a result of chemicals used in a drilling technique called hydraulic fracturing, or “fracking.”

The industry contends drilling chemicals are heavily diluted and injected safely into gas reservoirs thousands of feet beneath aquifers, so they will never seep into drinking water supplies.

“There has never been a documented case of fracking that’s contaminated wells or groundwater,” said Randy Teeuwen, a spokesman for EnCana Corp, Canada’s second-largest energy company, which operates 248 wells in the Pavillion and nearby Muddy Ridge fields.

“We know they don’t have the science to prove what they say,” Teeuwen said of those who criticize fracking.

Critics say their kids have got sick, their animals have died, and their water has in some cases become flammable because of  methane escaped into aquifers from gas wells.

But they have been unable to prove their case because drilling companies are not required to disclose exactly what chemicals they use, thanks to an exemption to a federal clean water law granted to the oil and gas industry in 2005.

The EPA, in its first tests in response to concerns over gas drilling and water quality, has not positively identified the source of the Pavillion contamination but it did name gas drilling as a possible cause. The agency is continuing its tests and expects to issue a report in spring 2010.

Luke Chavez, an EPA scientist leading the investigation, said he will now seek to determine the quantities of a range of contaminants and their health effects.

“We’re taking a shotgun approach,” he said.

In Pavillion, residents are on edge. Meeks’ neighbor Donnet Baughman said she does not mind companies drilling for gas in her backyard, as long as it doesn’t poison her water.

“We are not against the oil and gas industry at all,” she said during an interview in her living room. “We just want them to do it right.”

Baughman’s water was clean, according to the EPA tests, but she is uneasy with the findings since she has a gas separation tank about 50 yards (meters) from her house, and some of her neighbors, including Meeks, were found to have bad water.

Three wells in the EPA’s sample contained 2-BE, a potentially carcinogenic substance that’s used as a lubricant in drilling, and in some household cleaning products. Stung by grassroots complaints, and by a bill in Congress that would require disclosure of fracking chemicals, the industry says it is using the latest technology to keep fracking safe.

At the Frenchie Draw drilling rig 60 miles east of Pavillion, EnCana workers used automated machinery to join 30-foot (9-meter) lengths of pipe and insert them into a new well, which extends 11,135 feet below ground.

The steel pipe can withstand pressure up to 9,800 pounds per square inch. It is encased in concrete to 2,500 feet, well below aquifers, said John Schmidt, an EnCana field leader.

The pipes allow EnCana to inject a fracking fluid of water, sand and chemicals at high pressure into the gas-bearing rock.

At specific depths identified by geologists, the pipe is perforated with small holes by controlled explosions. The fracking mixture then breaks up the rock, allowing natural gas to rush to the surface.

About 70 percent of the water mixture remains underground, while the rest is pumped back up and later re-injected into 10,000-foot (3,000-meter) disposal wells, Schmidt said. In 2010, EnCana plans to start treating and reusing the water.

Despite the industry’s precautions, spills of fracking fluids occur.

On September 25, Pennsylvania regulators ordered Cabot Oil & Gas Corp to halt fracking operations in one county after it admitted three recent spills of fracking fluid.

In Pavillion, Meeks said he suffers pulmonary hypertension and neuropathy in his legs. “They have ruined my life,” he said.

“I would like to get out of here.”

He said EnCana stopped supplying him free drinking water this month, after he publicly opposed fracking practices.

“They are trying to punish me,” Meeks said. “I’m a thorn in their side.”

Half a mile from Meeks’ house, across a valley dotted with gas wells, separation tanks and compressor stations, Rhonda Locker, 48, said she stopped drinking her water after it “went bad” in the early 1990s.

She started drinking it again about five years ago after installing a reverse-osmosis filter, but within six months started having seizures, bone pain, and cognitive problems.

Frustrated by not knowing what was causing her illness, she tried again in early September to drink the water, and experienced the same symptoms.

“It’s like you have the flu every day,” Locker said.

Locker, who has two gas wells within 500 feet of her house, said she has been diagnosed with a neurological disorder, which her doctors have failed to pin on any particular cause, but which she blames on a history of drinking the water.

Locker also suspects water contamination is to blame for her 26-year-old daughter’s termination of three pregnancies, and for liver disease in her 24-year-old son.

In a shed outside, Locker’s husband Jeff, a 56-year-old farmer, removed the filter from the reverse-osmosis mechanism that cleans their water sufficiently for bathing, revealing a cylinder turned jet black by the incoming well water. Like many of their neighbors, they drink only bottled water.

The Lockers considered selling up but decided they couldn’t bear to leave their home of 25 years. They fear the value of their home has been undermined by water contamination, a concern echoed by Meeks, who said he had been informed by a realtor that his home is now worthless.

A sense of helplessness is leading some Pavillion residents to consider legal action against EnCana, said John Fenton, 37.

“We are not the kind of people who sue people,” said Fenton, whose water is also contaminated. “For the first time in my life, I’m giving some serious thought to it.”

But many are restrained by the knowledge that energy is the lifeblood of Wyoming, said Deb Thomas of the Powder River Basin Resource Council, an environmental group that has been an outspoken critic of gas drilling.

“It’s the only economy our state has,” she said. “Nobody wants to kill the golden calf.”