(Bloomberg News) Calfrac Well Services Ltd.'s bonds are outperforming peers as investors bet that U.S. regulators will continue to allow the practice of hydraulic fracturing, which accounts for almost 90 percent of its sales.

Calfrac's $450 million of 7.5 percent bonds due in 2020 yielded 7.9 percent on Dec. 28, or 625 basis points more than U.S. Treasuries. That compares with a yield of 8.63 percent and a 759 basis-point spread for an index of similar B2-rated U.S. speculative-grade bonds, according to Bank of America Merrill Lynch data.

A boom in gas and oil production using hydraulic fracturing, or fracking, which involves driving fluid into wells to crack rock and boost output, has raised demand for equipment like Calfrac's 2,500-horsepower pumps. A U.S. Environmental Protection Agency report this month linked the process with groundwater contamination, raising concern it may be banned.

"For the purposes of U.S. energy security, it's difficult to see how they could ban fracking," said Kevin Lo, an energy analyst with FirstEnergy Capital Corp. in Calgary, where Calfrac also is based. "It would drive prices up so high it would be excruciatingly painful for the U.S. consumer."

In the fracking process, water and chemicals under pressure cause rock that holds oil or natural gas to crack, allowing it to flow. The EPA said it found traces of fluids used for fracking in drinking water near a Wyoming gas field. The agency is studying the technique and may "where appropriate" add regulations, according to its website.

Calgary-based Encana Corp., owner of the field near Pavillion, Wyoming, denies fracking was responsible for the contamination.