The U.S. Environmental Protection Agency may have linked fracking — a controversial method of improving the productivity of oil and gas wells — to groundwater pollution for the first time.

An Encana warning sign on a farm field gate in Pouce Coupe, B.C. Betsy Trumpener and Robert Doane/CBC

The EPA announced Thursday that it found compounds likely associated with fracking chemicals in the groundwater beneath Pavillion, a Wyoming community where residents say their well water reeks of chemicals.

Calgary-based Encana owns the Pavillion gas field. An announced $45-million US sale to Midland, Texas-based Legacy Reserves fell through last month amid what Encana said were Legacy's concerns about the EPA investigation.

Encana spokesman Doug Hock said there was much to question about the draft study. The compounds EPA said could be associated with fracking, he said, could have had other origins not related to gas development.

"Those could just have likely been brought about by contamination in their sampling process or construction of their well," Hock said.

The low levels of hydrocarbons found in local water wells likewise haven't been linked to gas development and substances such as methane are naturally occurring in the area.

"There are still a lot of questions that need to be answered. This is a probability and it is one we believe is incorrect," Hock said.

In a statement on its website, Encana says it remains committed to seeing that the investigations into determining the source of the compounds found in the Pavillion groundwater are backed by sound science that is reviewed by independent peers.

The EPA said its announcement is the first step in a process of opening up its findings for review by the public and other scientists.

"EPA's highest priority remains ensuring that Pavillion residents have access to safe drinking water," said Jim Martin, EPA regional administrator in Denver. "We look forward to having these findings in the draft report informed by a transparent and public review process."

The EPA also emphasized that the findings are specific to the Pavillion area. The agency said the fracking that occurred in Pavillion differed from fracking methods used elsewhere in regions with different geological characteristics.

The fracking occurred below the level of the drinking water aquifer and close to water wells, the EPA said. Elsewhere, drilling is more remote and fracking occurs much deeper than the level of groundwater that would normally be used.

Environmentalists celebrate findings

But environmentalists welcomed the news of the EPA report, calling it an important turning point in the fracking debate.

'Those of us who suffer the impacts from the unchecked development in our community are extremely happy the contamination source is being identified.'— Pavillion resident John Fenton

"This is an important first indication there are potential problems with fracking that can impact domestic water wells. It's, I think, a clarion call to industry to make sure they take a great deal of care in their drilling practices," said Steve Jones of the Wyoming Outdoor Council.

Pavillion resident John Fenton, chairman of the group Pavillion Area Concerned Citizens, applauded the EPA for listening to the homeowners with contaminated water.

"Those of us who suffer the impacts from the unchecked development in our community are extremely happy the contamination source is being identified," Fenton said.

The finding could have a chilling effect in both Canada and the U.S. where various levels of government are trying to determine how to regulate the controversial process. Hydraulic fracturing involves pumping pressurized water, sand and chemicals underground to open fissures and release natural gas and oil trapped in the rock formations.

The industry has long contended that fracking is safe, but environmentalists and some residents who live near drilling sites say it can poison groundwater and release toxic gas into the air.

As part of the investigation, the EPA drilled two deep monitoring wells in the local aquifer and found synthetic chemicals, like glycols and alcohols consistent with gas production and hydraulic fracturing fluids. It also found benzene concentrations well above Safe Drinking Water Act standards and high methane levels in the deep wells.

The EPA also sampled drinking water from area wells and found chemicals consistent with migrations from areas of gas production in the drinking water, but still below established health and safety levels. Nevertheless, health officials advised residents not to drink their water or use it for cooking.

"Given the area’s complex geology and the proximity of drinking water wells to ground water contamination, EPA is concerned about the movement of contaminants within the aquifer and the safety of drinking water wells over time," said the draft report on the investigation released on Thursday.

The EPA announcement has major implications for a vast increase in gas drilling across North America in recent years.

Fracking has played a large role in opening up many Canadian natural gas reserves, but questions have been raised about the practice from northern British Columbia to New Brunswick.

"The public is more involved than ever in trying to understand what's going on with resource development, and we have to do a better job of explaining what's going on underneath the ground, what the resource looks like and how we operate," said Travis Davies, who is with the Canadian Association of Petroleum Producers. With files from The Associated Press