UPDATE 1-U.S. regulators struggle to police shale energy boom -report

* Regulators not always sure about activity at well sites

* Hydraulic fracturing exempt from some regulations

* Lawmaker says regulators have "one hand tied behind theirback"

(Adds details from separate GAO report)

By Ayesha Rascoe

WASHINGTON, Oct 9 (Reuters) - U.S. regulators are having atough time keeping pace with rapidly expanding shale oil and gasdevelopment, according to a report from a government watchdogreleased on Tuesday.

Legal limitations and a lack of key data have hampered theEnvironmental 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 andenforcement activities for oil and gas development fromunconventional reservoirs is challenging due to limitedinformation, as well as the dispersed nature of the industry andthe rapid pace of development," the report said.

Breakthroughs in horizontal drilling techniques andhydraulic fracturing, or fracking, in recent years have unlockedmassive oil and gas reserves trapped in shale formations.

But the surge in domestic drilling has raised concerns aboutpossible water and air pollution.

Both President Barack Obama and his Republican challenger,Governor Mitt Romney, have touted the shale boom on the campaigntrail, with Romney pledging to keep states in charge of mostonshore drilling.

The Obama administration has said that states are theprimary regulators of shale energy output, but the federalgovernment can offer a template for effective oversight.

Critics of shale oil and gas drilling have charged thatfederal regulation of the practice is inadequate, especiallysince hydraulic fracturing is exempt from certain EPA rules.

The report was requested by Democrats in the House ofRepresentatives and the Senate who have raised questions aboutfracking.

The GAO found that the EPA has difficulty investigatingwater contamination cases because there is often no informationon the quality of water before drilling began to use foranalysis.

A separate report issued by the GAO on Tuesday reviewinghazards associated with shale energy development said the riskto aquifers may be linked to the depth of drilling, citingstudies that have found that the fracturing process itself wasunlikely to directly affect groundwater because drillingtypically takes place thousands of feet below water sources.

In the GAO's report on challenges regulating shaleproduction, the EPA said it does not always know where toconduct inspections or enforce certain regulations because itsometimes does not have information on what activities are goingon at well sites.

In some cases, the EPA must completely rely on companies toidentify themselves as subject to regulations, the GAO reported.

"Regulators have operated with one hand tied behind theirback for too long when it comes to the oil and gas industry,"said Congressman Edward Markey, one of the lawmakers whorequested the report.

Markey and other lawmakers have pushed for legislation thatwould expand federal oversight of hydraulic fracturing, a movethe industry has warned is unnecessary and could curbdevelopment.

(Editing by Andre Grenon and Joseph Radford)