* Regulators not always sure about activity at well sites
* Hydraulic fracturing exempt from some regulations
* Lawmaker says regulators have "one hand tied behind their back"
By Ayesha Rascoe
WASHINGTON, Oct 9 (Reuters) - U.S. regulators are having a tough time keeping pace with rapidly expanding shale oil and gas development, according to a report from a government watchdog released on Tuesday.
Legal limitations and a lack of key data have hampered the Environmental Protection Agency's oversight of shale production, said the report from the Government Accountability Office, Congress' non-partisan investigative arm.
"Officials at EPA reported that conducting inspection and enforcement activities for oil and gas development from unconventional reservoirs is challenging due to limited information, as well as the dispersed nature of the industry and the rapid pace of development," the report said.
Breakthroughs in horizontal drilling techniques and hydraulic fracturing, or fracking, in recent years have unlocked massive oil and gas reserves trapped in shale formations.
But the surge in domestic drilling has raised concerns about possible water and air pollution.
Both President Barack Obama and his Republican challenger, Governor Mitt Romney, have touted the shale boom on the campaign trail, with Romney pledging to keep states in charge of most onshore drilling.
The Obama administration has said that states are the primary regulators of shale energy output, but the federal government can offer a template for effective oversight.
Critics of shale oil and gas drilling have charged that federal regulation of the practice is inadequate, especially since hydraulic fracturing is exempt from certain EPA rules.
The report was requested by Democrats in the House of Representatives and the Senate who have raised questions about fracking.
The GAO found that the EPA has difficulty investigating water contamination cases because there is often no information on the quality of water before drilling began to use for analysis.
A separate report issued by the GAO on Tuesday reviewing hazards associated with shale energy development said the risk to aquifers may be linked to the depth of drilling, citing studies that have found that the fracturing process itself was unlikely to directly affect groundwater because drilling typically takes place thousands of feet below water sources.
In the GAO's report on challenges regulating shale production, the EPA said it does not always know where to conduct inspections or enforce certain regulations because it sometimes does not have information on what activities are going on at well sites.
In some cases, the EPA must completely rely on companies to identify themselves as subject to regulations, the GAO reported.
"Regulators have operated with one hand tied behind their back for too long when it comes to the oil and gas industry," said Congressman Edward Markey, one of the lawmakers who requested the report.
Markey and other lawmakers have pushed for legislation that would expand federal oversight of hydraulic fracturing, a move the industry has warned is unnecessary and could curb development.