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Hydraulic Fracturing: Litigation,
Enforcement and Regulatory Developments Negotiating Leases and Addressing Environmental Issues in Shale Gas Drilling
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TUESDAY, JUNE 12, 2012
Presenting a live 110-minute webinar with interactive Q&A
R. Trent Taylor, Partner, McGuireWoods, Richmond, Va.
Seth v.d.H. Cooley, Partner, Duane Morris, Philadelphia
Jonathan T. Blank, Partner, McGuireWoods, Charlottesville, Va.
David M. DeSalle, Partner, Venable, Washington, D.C.
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●©2011 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP.
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Seth v.d.H. Cooley
Duane Morris LLP
Philadelphia, PA
(215) 979-1838
June 12, 2012
FEDERAL REGULATION AND
ENFORCEMENT
Shale Gas
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HISTORY – STARTS WITH SDWA
• Initial EPA Study (2004) – “Evaluation of Impacts
to Underground Sources of Drinking Water by
Hydraulic Fracturing of Coalbed Methane
Reservoirs”
– “EPA did not find confirmed evidence that drinking water
wells have been contaminated by hydraulic fracturing fluid
injection into CBM wells. . . . EPA believes that
groundwater production, combined with mitigating effects of
dilution and dispersion, adsorption, and biodegradation,
minimize the possibility that chemicals included in fracturing
fluids would adversely affect USDWs.”
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“HALLIBURTON LOOPHOLE”
• Law Change (2005) – Energy Policy Act –
Establishment of the “Halliburton Loophole” in
SDWA Section 1431(a):
– (1) Underground injection. - The term “underground
injection” . . . means the subsurface emplacement of
fluids by well injection; and excludes . . . the
underground injection of fluids or propping agents
(other than diesel fuels) pursuant to hydraulic fracturing
operations related to oil, gas, or geothermal production
activities.
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Political Winds – First Shift
• January 2009 – New Administration and control of Congress
– 111th Congress – HR 2766: Fracturing Responsibility and Awareness of Chemicals Act of 2009, introduced (“To repeal the exemption for hydraulic fracturing in the Safe Drinking Water Act, and for other purposes”)
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Political Winds – First Shift
• January 2009 – New Administration and control of Congress (con’t.)
– New EPA “Hydraulic Fracturing Research Study” announced March, 2010
Attributed by EPA to Congressional concern: “In its Fiscal Year 2010 budget report, the U.S. House of Representatives Appropriation Conference Committee identified the need for a focused study of this topic.”
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Political Winds – Second Shift
• Nov. 2010 Midterm Elections
– Post-election, commentators immediately declare that the Loophole was sure to survive
– HR 2766 dies on vine
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Political Winds – Second Shift
• Nov. 2010 Midterm Elections (con’t.)
– Jan. 2011 “Executive Order – Improving Regulation and Regulatory Review.” Reflects change in tone. Reaffirms that each federal agency must “tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.”
– Economy/jobs becomes the stated priority of both Congress and the Administration. Unconventional gas production is identified as a domestic wealth and job creator.
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EPA Enforcement – Statements and Activities
• EPA National Enforcement Priorities, 2011-2013.
Stated priorities include: “Assuring Energy
Extraction Sector Compliance with Environmental
Laws”
• EPA Region 3 – Natural Gas Drilling Tip Line
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EPA/Range Resources/TRRC Warfare
• Region 6 Dec. 2010 Unilateral Order, issued
under Section 1431 of the SDWA, 42 U.S.C. §
300(i)
– EPA Findings (tracking § 300(i)):
Methane and related compounds are present in the aquifer
Range caused or contributed to the endangerment
Appropriate State and local authorities have not taken
sufficient action to address the endangerment and do not
intend to take such action.
EPA’s order is necessary to protect the health of persons.
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EPA/Range Resources/TRRC Warfare
• Region 6 Dec. 2010 Unilateral Order, issued
under Section 1431 of the SDWA, 42 U.S.C. §
300(i)
– Requirements of Order: Within 48 hrs., provide replacement potable water supplies at
affected properties
Within 48 hrs., install explosivity meters at affected properties
Within 5 days, submit a survey listing all private water wells within
3,000 feet of the wellbore tracks, and a plan to sample those wells
to determine if any have been impacted, with head space sampling
to begin within 5 days after submittal of the plan.
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EPA/Range Resources/TRRC Warfare
• Region 6 Dec. 2010 Unilateral Order, issued
under Section 1431 of the SDWA, 42 U.S.C. §
300(i)
– Requirements of Order (con’t.): Within 14 days, submit a plan to conduct soil gas surveys and
indoor air concentration analyses of the affected properties
Within 60 days, develop and submit a plan to: 1) identify gas flow
pathways to the area aquifer; 2) eliminate gas flow to the aquifer if
possible, and 3) remediate areas of the aquifer that have been
impacted.
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EPA/Range Resources/TRRC Warfare
• Range Resources Response to EPA Order
– “[W]e believe that acknowledging the validity of the
EPA order is factually impossible for Range, since
we know that we are not the source of the gas in
the water wells and we have significant concerns
about the way the order was issued without any
prior notice or opportunity for Range to present
important objective facts.”
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EPA/Range Resources/TRRC Warfare
• Texas Railroad Commission (immediate)
Response to EPA Order
– “RRC staff expects both parties, the EPA as well
as Range Resources representatives, to appear
before Hearings Examiners and testify as to the
allegations made yesterday.”
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EPA/Range Resources/TRRC Warfare
• Texas Railroad Commission Hearing, Jan., 2011
– EPA and Lipsky declined to participate
• Proposal for decision issued March 7, 2011
– “The examiners find that Range’s evidence clearly
demonstrates that its drilling and operations of the Teal
and Butler wells have not contributed to contamination
of any domestic water wells. The examiners further find
that the most likely source of gas in the Lipsky well and
other domestic water wells in the area is the shallow
Strawn formation.”
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EPA/Range Resources/TRRC Warfare
• TRRC Commissioners vote to uphold Proposal
for Decision, March 22, 2011
TRRC Commissioner David Porter issued a written
statement, saying, “I hope this case sets the
standard moving forward and that the EPA gets the
message that the Railroad Commission of Texas
can handle its regulatory jurisdiction and is plenty
competent when it comes to protecting our natural
resources.”
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EPA/Range Resources/TRRC Warfare
• District Court Proceeding
– After Range declined to comply with parts of the
EPA Order, in January, 2011 EPA commenced an
enforcement action in the Northern District of
Texas, seeking injunctive relief and penalties
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EPA/Range Resources/TRRC Warfare
• Fifth Circuit Proceeding
– In parallel to participating in the TRRC Hearing, in
January, 2011 Range petitioned the Fifth Circuit for
review of the EPA Order
– The Petition states: “It is Range’s position that the
Order does not constitute a final agency action and
that, in the enforcement action brought by EPA in
federal district court, EPA has the burden of proving
the essential elements of a claim under the SDWA and
Range has the right to assert any applicable defenses
and constitutional challenges.”
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EPA/Range Resources/TRRC Warfare
• District Court Action – Motion to Dismiss
– Range argued:
that EPA cannot recover penalties when EPA has
not been required to prove that Range actually
caused the contamination
that the United States has failed to state a claim
that is plausible on its face
– EPA responded that it does not need to plead that
Range actually caused the contamination, but
need only plead that Range violated the Order
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EPA/Range Resources/TRRC Warfare
• District Court Action – Motion to Dismiss
– Range’s constitutional argument: Allowing EPA to
enforce the Order or recover penalties without
pleading or proving a violation of the law would be
a violation of Range’s due process rights.
– EPA’s counter: The Order was issued under
emergency circumstances, in which the lack of a
pre-deprivation hearing would not violate due
process
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EPA/Range Resources/TRRC Warfare
• District Court Action – Issuance of Stay Order,
sua sponte
– The Court denied Range’s motion to dismiss, but
without prejudice, deciding to defer to the Fifth
Circuit’s consideration of the constitutional
arguments raised by the parties
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EPA/Range Resources/TRRC Warfare
• District Court Action – Issuance of Stay Order,
sua sponte (cont.)
– “[T]he Court is struggling with the concept that the EPA can
enforce the Emergency Order and obtain civil penalties from
Range without ever having to prove to this Court, or another
neutral arbiter, that Range actually caused the
contamination of the . . . wells, or without ever giving Range
the opportunity to contest the EPA’s conclusions. That being
said, the Court is also impressed by the EPA’s response
that the statutory scheme that provides for an appeal by
Defendants to the Fifth Circuit is sufficient for due process
purposes.”
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EPA/Range Resources/TRRC Warfare
• District Court Action – Issuance of Stay Order,
sua sponte (cont.)
– “[D]rawing upon the information before the Court, the
representations of the parties at the June 14, 2011 hearing,
and the fact that there has been no petition for a temporary
restraining order or a preliminary injunction, it appears clear
to the Court that there are no individuals or properties that
are in immediate danger and require the Court’s immediate
intervention. Instituting a stay would therefore not be
harmful to any party or nonparty affected by this litigation.”
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EPA/Range Resources/TRRC Warfare
• District Court Action – Issuance of Stay Order,
sua sponte (cont.)
– “The Court does not wish for its decision to stay this action
to prejudice either party in this case. Accordingly, the Court
shall not award daily civil penalties sought by the EPA for
continuing violation of the Emergency Order under Section
1431(b) for any day in which this litigation is subject to the
stay provided for in this Order.”
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EPA/Range Resources/TRRC Warfare
Meanwhile – Part 1 – Lipsky case Order 2/16/12
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EPA/Range Resources/TRRC Warfare
Meanwhile – Part 2 – Sackett
• On 3/21/12, the U.S. Supreme Court held, in Sackett v.
United States Environmental Protection Agency, 622 F.3d
1139 (9th Cir. 2010), that the APA provides for judicial
review of “final agency action for which there is no other
adequate remedy in a court,” and that the Clean Water Act
is not a statute that “preclude[s] judicial review” under the
APA.
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EPA/Range Resources/TRRC Warfare
• EPA Withdraws Range Order 3/30/12 – “I wanted to let you know EPA has withdrawn its administrative
order to Range Resources regarding the company's energy
extraction activities in Parker County, Texas. Resolving the
lawsuits with Range allows EPA to shift the agency's focus in this
particular case away from litigation and toward a joint effort on the
science and safety of energy extraction. EPA and Range will
share scientific data and conduct further well monitoring in the
area, and Range will also provide useful information and access to
EPA in support of EPA's scientific inquiry into the potential impacts
of energy extraction on drinking water.”
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EPA Studies
• National Study
– A first report expected by the end of 2012.
– A final report expected in 2014.
– Study progress to date: Initial literature review
Review of information from industry on chemicals and practices used
in hydraulic fracturing
Identification of case studies, prospective and retrospective
Performance of baseline sampling for retrospective case studies
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Other EPA Investigations
• Pavillion, WY
• Dimock, PA
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EPA CAA Regulations
• First federal air standards for natural gas wells
that are hydraulically fractured.
• Regulations stem from lawsuit filed in 2009,
which alleged that EPA had failed to oversee
toxic emissions stemming from the growing
natural gas industry.
• EPA claims new rules will reduce VOCs from
fracking sites by 95 percent.
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EPA CAA Regulations
• Majority of reductions expected to come from “green
completions,” which involve capturing gas that escapes
during well completion. The technology exists, and
some drillers are doing green completions today.
• Green completions (also called reduced emission
completions, or RECs), will be required as of January 1,
2015 (in an effort to ensure equipment availability).
• During the transition period, fractured and refractured
wells must reduce their emissions through combustion
devices (flares).
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New Hydraulically
Fractured Wells (drilled after Aug. 23, 2011)
Final NSPS for VOCs establishes two phases for
reducing VOCs during well completion. Phase 1: In the first phase (before Jan. 1, 2015), sources must
reduce VOC emissions either by flaring using a completion
combustion device or by capturing the gas using green
completions with a completion combustion device (unless
combustion is a safety hazard or is prohibited by state or local
regulations).
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New Hydraulically
Fractured Wells (drilled after Aug. 23, 2011)
Final NSPS for VOCs establishes two phases for
reducing VOCs during well completion.
Phase 2: Beginning Jan. 1, 2015, operators must capture
the gas and make it available for use or sale, which they
can do through the use of green completions.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New Hydraulically
Fractured Wells (drilled after Aug. 23, 2011)
Final NSPS for VOCs – Exceptions: Green
completions are not required for:
New exploratory (“wildcat”) wells or delineation wells
(used to define the borders of a natural gas reservoir),
because they are not near a pipeline to bring the gas to
market.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New Hydraulically
Fractured Wells (drilled after Aug. 23, 2011)
Final NSPS for VOCs – Exceptions: Green
completions are not required for:
Hydraulically fractured low-pressure wells, where natural
gas cannot be routed to the gathering line. Operators may
use a formula based on well depth and well pressure to
determine whether a well is a low-pressure well.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New Hydraulically
Fractured Wells (drilled after Aug. 23, 2011)
Final NSPS for VOCs – Where green completions
are not required:
Owners/operators must reduce emissions using
combustion during the well-completion process, unless
combustion is a safety hazard or is prohibited by state or
local regulations.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for Refractured Natural Gas
Wells Gas wells that are refractured and recompleted will not be
considered to be “modified” if well owners and operators use
green completions, rather than flaring, to reduce emissions,
and they meet notification and reporting requirements for new
wells.
In a number of states, this will allow owners/operators to
refracture wells without triggering state permitting
requirements.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for Refractured Natural Gas
Wells Owners/operators of refractured gas wells may choose to
reduce emissions through flaring until January 1, 2015, when
they must use green completions. These wells would be
considered to be modified under the final rule.
Each year, owners/operators must submit a report on their
well completions that is certified by a senior company official.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Notification and Reporting Requirements for
Well Completions
Owners/operators of hydraulically fractured and
refractured natural gas wells must notify EPA (or in
some cases, a state or local air agency) by e-mail
no later than two days before completion work
begins. The notification must include geographic
coordinates of the affected wells and the estimated
date that well completion will begin. 42
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Notification and Reporting Requirements for
Well Completions
Well owners/operators who are subject to state
advance notification requirements for well
completions will meet EPA’s requirements by
meeting the state notification requirements.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New & Modified
Pneumatic Controllers Pneumatic controllers are automated instruments used for
maintaining a condition such as liquid level, pressure, and
temperature at wells and gas processing plants. These
controllers often are powered by high-pressure natural gas
and may release gas with valve movement, or continuously in
many cases as part of their normal operations.
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EPA CAA Regulations
• VOC Reductions During Natural Gas Well
Completions
– NSPS Requirements for New & Modified
Pneumatic Controllers The final rule affects high-bleed, gas-driven controllers that
are located between the wellhead and the point where gas
enters the transmission pipeline.
For controllers used at the well site, the gas bleed limit is 6 cubic feet of
gas per hour at an individual controller.
The final rule phases in this requirement over one year, to give
manufacturers of pneumatic controllers time to test and document the
gas bleed rate of their pneumatic controllers.
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EPA CAA Regulations
• Requirements for Storage Vessels at the Well
Site
– Storage tanks at natural gas well sites are
commonly used to store condensate, crude oil and
produced water.
– These tanks may be subject to two standards: the
NSPS for VOCs, and the major source air toxics
standards (NESHAP) for Oil and Natural Gas
Production.
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EPA CAA Regulations
• Requirements for Storage Vessels at the Well
Site
– NSPS
New storage tanks with VOC emissions of 6 tpy or
more must reduce VOC emissions by at least 95
percent. EPA expects this will generally be
accomplished by routing emissions to a combustion
device.
In an effort to ensure enough combustion devices
are available, the rule provides a one-year phase-in
for this requirement. 47
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EPA CAA Regulations
• Requirements for Storage Vessels at the Well
Site
– NSPS
After one year, owners/operators of new storage
tanks at sites with wells in production must comply.
Owners/operators at sites with no wells in
production will have 30 days to determine the
emissions from a tank; and another 30 days to
install controls.
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EPA CAA Regulations
• Requirements for Storage Vessels at the Well
Site
– Air Toxics (NESHAPs) EPA did not finalize proposed air toxics standards for storage
vessels without the potential for flash emissions. Such
storage vessels currently are not regulated under the
NESHAP for Oil and Natural Gas Production. EPA determined
that it needs additional data. The previous standards for
storage tanks with the potential for flash emissions remain in
place.
Tank-flashing emissions occur when material is exposed to
temperature increases or pressure drops.
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EPA CAA Regulations
• Air Toxics Requirements for Glycol
Dehydrators at the Well Site
– Glycol dehydrators, used to remove water vapor
from gas, are subject to one of two air toxics
standards, depending on their location.
Dehydrators located at the well site are subject to
the NESHAP for Oil & Natural Gas Production.
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EPA CAA Regulations
• Air Toxics Requirements for Glycol
Dehydrators at the Well Site
– Large dehydrators: The final rule retains the
existing 1-ton-per year benzene compliance option
for large glycol dehydrators, meaning operators
may reduce benzene emissions from large
dehydrators to less than 1 ton per year as an
alternative to reducing total air toxics emissions by
95 percent.
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EPA CAA Regulations
• Air Toxics Requirements for Glycol
Dehydrators at the Well Site
– Small dehydrators: A dehydrator is considered small if
it has an annual average natural gas throughput of less
than 85,000 standard cubic meters per day, or actual
annual average benzene emissions of less than 1 tpy.
– Both existing and new small glycol dehydrators must
meet a unit-specific limit for emissions of BTEX that is
based on the unit’s natural gas throughput and gas
composition.
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EPA CAA Regulations
• April 20, 2012 WSJ Editorial:
– “The Environmental Protection Agency once
again invited itself to do tangible economic
harm—this time to the hydraulic fracturing that
is transforming American energy—and
somehow . . . it didn't. In the annals of the
unlikely, the EPA's new fracking rules fall
somewhere between a Nobel Peace Prize for
George W. Bush and a supply-side tax plan
from Warren Buffett.” 53
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EPA CAA Regulations
• WSJ Editorial (cont.): “After a shale well has been tapped,
trace amounts of natural gas, fracking fluids or a
combination of both can escape, and the EPA's standards
are targeted at such traditional air pollutants as methane
or volatile organic compounds.”
“The EPA is basically requiring operators to do what
they're doing anyway: Most wellheads and pipelines
already exceed the EPA benchmark. One reason is that
methane is the largest component of natural gas, so
emitting more methane means losing more of the product
that companies are trying to sell.”
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EPA CAA Regulations
• WSJ Editorial (cont.): “Operators are
professional and best practices are spreading.
The industry understands that the
environmentalists and political class don't need
much pretext to impose a moratorium, as New
York state liberals have.”
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Contact Information
– Seth v.d.H. Cooley
– Partner, Chair Environmental Law Practice
– Duane Morris LLP
– 30 S. 17th Street
– Philadelphia, PA 19103
– Phone: (215) 979-1838
– Fax: (215) 979-1020
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© 2012 Venable LLP
Hydraulic Fracturing: Litigation, Enforcement and Regulatory Developments--Navigating New EPA Rules, Lease Negotiations, Environmental Issues and Other
Legal Challenges
STRAFFORD PUBLICATIONS WEBINAR – JUNE 12, 2012
Presenter: David DeSalle
58
© 2012 Venable LLP
Practitioner's Tips on Recent Trends
Statutory Update: Pennsylvania’s Act 13; West
Virginia’s Marcellus Shale Bill
Case Law Update: Zoning Issues (PA, NY); Paying
Quantities (PA)
Emerging Trends:
– Regulatory evolution (safety regulation of non-
public utility pipelines (PA); reuse of acid mine
drainage for fracking (PA); air emissions (OH, PA))
– Solicitations to invest in oil and gas
development opportunities
Lease Negotiations Issues Update
59
Practitioner’s Tips On Recent Trends
Royalty Payments
Surface Use Protections and Reclamation
Indemnification
Prudent Operator and Applicable Laws and
Regulations
© 2012 Venable LLP
60
Recent Developments (Statutes)
Pennsylvania: Act 13 (HB 1950)
http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2011&sind=0&bo
dy=H&type=B&BN=1950
On February 13, 2012, Pennsylvania’s new oil and gas law was signed into
law. House Bill 1950 amends/replaces the Pennsylvania Oil and Gas Act.
The new law enables counties with unconventional gas wells to enact an
ordinance for the collection of an impact fee on unconventional gas wells for
fifteen years. The new law also contains increased environmental protections,
including larger setback requirements, fracking chemical disclosures, and
zoning standards. Additionally, the law creates the Natural Gas Energy
Development Program which is intended to fund projects to purchase new or
convert existing fleet vehicles to compressed natural gas, liquefied natural gas,
or bi-fuel vehicles.
© 2012 Venable LLP
61
(Recent Developments cont’d)
West Virginia – Marcellus Shale Bill
http://www.legis.state.wv.us/legisdocs/2011/committee/interim/marcellus/marcellus
_20111118150002.pdf
Both chambers of the West Virginia State Legislature passed Governor Earl Ray
Tomblin's Marcellus shale bill on December 14, 2011. Highlights of the bill include:
increasing the permit fee to $10,000 for a new well and $5,000 for additional wells
drilled on the same pad; requiring producers to reach agreements with the West
Virginia Department of Highways before drilling, citizens concerned with drilling in
their areas now have 30 days to comment on issued permits; producers must
submit water withdrawal plans before receiving permits; surface owners are
granted further protections including significant setback requirements; new public
notice obligations for developers to alert possible mineral rights owners of
anticipated development activities; and other changes. The law only applies to
wells that are drilled after its passage.
Watch: Maryland HB 907 7.5% Severance Tax
http://mlis.state.md.us/2012rs/bills/hb/hb0907t.pdf
© 2012 Venable LLP
62
Recent Developments (Case Law)
Zoning Issues-PA
In Re: Robinson Township, et al. (Commonwealth Court of Pennsylvania, N.O. 284 M.D.
2012) http://www.documentcloud.org/documents/334842-stateimpactpa-act-13-order.html
On April 11, 2012, the Pennsylvania Commonwealth Court granted petitioners’ motion for
preliminary injunction concerning the enactment of Pennsylvania's new oil and gas law, Act 13.
The order only enjoins the zoning provision in the act, Section 3309, from taking effect for 120
days; Petitioners’ motion for preliminary injunction was denied as it relates to the remainder of
the act. The court found that the original period of 120 days under the act to amend local zoning
ordinances to comply with Act 13 was not sufficient. The court also stated that "municipalities
must have an adequate opportunity to pass zoning laws that comply with Act 13 without fear or
risk that development of oil and gas operations under Act 13 will be inconsistent with later validly
passed local zoning ordinance. For that reason, per-existing ordinances must remain in effect
until or unless challenged pursuant to Act 13 and are found to be invalid. To the extent that
Chapter 33 or any other provision of Act 13 may be interpreted to immediately pre-empt pre-
existing local ordinances, a preliminary injunction is issued pending further order of Court.“
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(Recent Developments cont’d)
In Re: Notice of Appeal from Township of Bradford Township Zoning Hearing Board (No.
1443 C.D. 2010) http://www.pacourts.us/OpPosting/Cwealth/out/1443CD10_5-9-12.pdf
On May 9, 2012, the Commonwealth Court of Pennsylvania reversed the Court of Common
Pleas (McKean County). The lower court had affirmed the Bradford Township Zoning Board’s
decision that a compressor station, located at the wellhead, was not permitted because zoning
ordinances only allowed gas production, which the zoning board had interpreted as drilling and
pumping operations. The Commonwealth Court held that a “compressor station is gas
production…and, as such, a permitted use” under the zoning ordinance. The Court reasoned that
a compressor station was part of gas production because without a compressor station, the gas
collected at the wellhead could not be placed into a pipeline and moved from the site.
Zoning Issues-New York
Recent lower court precedent finds that zoning ordinances banning natural gas activities are not
superseded by the New York Oil, Gas and Solution Mining Law (statute). The NY courts have
found that there is nothing in the language or history of the statute to suggest that it was meant
to abrogate the authority of localities to enact land use regulations.
Cooperstown Holstein Corp. v. Town of Middlefield
Anschutz Exploration Corp. v. Town of Dryden
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(Recent Developments cont’d)
Paying Quantities
T.W. Phillips Gas and Oil,, et al. v. Jedlicka (Pennsylvania Supreme Court, No. 19 WAP 2009)
http://www.pacourts.us/OpPosting/Supreme/out/J-21-2010mo.pdf
On March 26, 2012, the Pennsylvania Supreme Court issued an opinion affirming the Superior
Court decision in the case of T.W. Phillips Gas and Oil Co. v. Jedlicka. The gas company had
filed suit seeking a declaratory judgment concerning the rights of the parties under an oil and gas
lease from 1928. The Supreme Court examined the issue of the proper test for determining
whether an oil and gas lease produced “in paying quantities.” The landowner argued that the
lease terminated because the wells under the lease did not produce a profit in 1959. The
Supreme Court held that “where, as here, production on a well has been marginal or sporadic,
such that for some period profits did not exceed operating costs, the phrase ‘in paying quantities’
must be construed with reference to an operator’s good faith judgment.” The Supreme Court
affirmed the finding of the trial court that the operator exercised good faith under the lease at
issue. Therefore, the court affirmed the finding that the lease remained valid and produced in
paying quantities. The concurring opinion indicated that it did not believe a review of the
operator’s good faith is necessary at this time or that the court should discuss a subjective
productivity analysis referenced in Texas precedent. The dissenting opinion asserted that the
test to determine whether an oil and gas lease produced “in paying quantities” is a two step
process: First, it must be determined that profits exceed operating expenses. If so, the operator’s
good faith is presumed and unless the lessor rebuts the good faith presumption the lease is
producing “in paying quantities.”
© 2012 Venable LLP
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Emerging Trends
State regulatory commission authority over safety of gathering systems
Due to passage of recent legislation at the end of 2011, the Pennsylvania Public Utility
Commission has explicit power to regulate gas pipelines that are not deemed public utilities.
The bill gives PUC the authority to conduct safety inspections in coordination with federal
agencies. The PUC has the power to register, assess and inspect natural gas and
hazardous liquids pipelines and facilities, but not those that are under the exclusive
jurisdiction of the Federal Energy Regulatory Commission. The Commission may enact
regulations, but those regulations “shall not be inconsistent with or greater or more stringent
than the minimum standards and regulations adopted under the Federal Pipeline Safety
Law.”
The bill does not address the siting of pipelines or pipeline facilities and specifically states
that “[n]othing in this Act grants the Commission additional authority to determine or
regulate a pipeline operator as a public utility as defined in 66 Pa.C.S. §102 (relating to
definitions) or as a natural gas supplier or natural gas supply services as defined in 66 Pa.
C.S. §2202 (relating to definitions).”
http://www.legis.state.pa.us/cfdocs/billinfo/BillInfo.cfm?syear=2011&sind=0&body=H&type=
B&bn=344
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(Emerging Trends cont’d)
Reuse of Acid Mine Drainage
PA DEP White Paper
http://files.dep.state.pa.us/OilGas/BOGM/BOGMPortalFiles/OilGasReports/2012/White%20
Paper%20Use%20of%20AMD%20for%20Frac%20Water.pdf
Air Emissions Regulation/Reporting Regarding Oil and Gas Operations
Ohio
On February 1, 2012, the Ohio EPA issued its final general permit for oil and gas production
sites. The general permit covers equipment used for production activities at Marcellus or
Utica/Point Pleasant shale wells in Ohio. The general permit does not impact drilling and
completion activities because they are temporary in nature. Nor does the general permit impact
existing traditional wells that were vertically completed in the various production zones.
The general permit covers several aspects of the production process including: glycol
dehydration units, natural gas- fired spark ignition internal combustion engines, diesel-fired
compression ignition internal combustion engines, water and/or petroleum liquid flash/storage
tanks, combustor/flare, and ancillary equipment leaks. For each emissions unit, the general
permit provides specific operations limitations and emission limits for various pollutants. Along
with these limits, the general permit prescribes monitoring, testing and reporting requirements for
each emission unit.
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(Emerging Trends cont’d)
Pennsylvania
On December 6, 2011 the Department of Environmental Protection alerted 99 companies
involved in unconventional natural gas development around Pennsylvania that they must submit
to the agency data on their facilities' air emissions for 2011. The reports were due March 1,
2012. The notice applied to any owner and operator involved in unconventional natural gas
development in this Commonwealth. Sources and activities at unconventional natural gas
operations that the Department has identified as subject to the emissions reporting requirements
include compressor stations; dehydration units; drill rigs; fugitives, such as connectors, flanges,
pump lines, pump seals and valves; heaters; pneumatic controllers and pumps; stationary
engines; tanks, pressurized vessels and impoundments; venting and blow down systems; well
heads and well completions. The source reports were due for activities at all unconventional
natural gas wells and facilities that support the unconventional natural gas wells. PA DEP has
authority to require such reporting by owners and operators of facilities engaged in
unconventional natural gas development, production, transmission, processing and related
activities under Section 4(3) of the Pennsylvania Air Pollution Control Act (35 P.S. Section
4004(3)) and 25 Pa. Code Section 135.3 (relating to reporting sources).
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Recommended Screen for Evaluating Solicitations to Invest in Oil and Gas Development Opportunities
Evaluation of Operator or Investment Company
Experience; track record; general information
Specific experience in prospect area
Corporate and Financial information
-- SEC filings especially Form D filing (notice of exempt
offering of securities-Rules 504, 505, 506);
-- state corporation commission and securities commission
filings and franchise tax information;
-- prospectus
Adequate insurance
Verify whether they are also taking a financial stake in the endeavor
© 2012 Venable LLP
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Evaluation of the Deal
Is $ going to working capital versus management fee or other fees?
Any carried interest—are any fractional interests NOT paying in?
Compare your participation interest in the net revenue versus
participation in the working interest?
Evaluate the Operating Agreement itself
What is the drilling and completion program?
What surface facilities are in place versus still need to be built?
Plans for gathering, processing, transportation?
© 2012 Venable LLP
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(Evaluation of the deal cont’d)
Consider retailing a consultant to evaluate the reserve estimates of
the well/project?
– Compliance with SEC guidelines? (proved, provable, possible)
– Production of the reserves on an economic basis must be
“reasonably certain” defined as follows:
If deterministic methods are used, reasonable certainty means a
high degree of confidence that the quantities will be recovered. If
probabilistic methods are used, there should be at least a 90%
probability that the quantities actually recovered will equal or exceed
the estimate.
Companies are permitted the option to disclose "probable reserves"
and "possible reserves" in SEC filings.
"Probable reserves" are reserves that are as likely as not to be
recovered, while "possible reserves" are reserves that might be
recovered, but only under more favorable circumstances than are
likely.
© 2012 Venable LLP
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© 2012 Venable LLP
contact information
David DeSalle, Partner
t 202.344.4504
f 202.344.8300
www.Venable.com
www.mcguirewoods.com
Hydraulic Fracturing: Litigation, Enforcement and Regulatory Developments Navigating New EPA Rules, Lease Negotiations, Environmental Issues and Other Legal Challenges
Litigation Developments
Jonathan T. Blank McGuireWoods LLP Court Square Building 310 Fourth Street, N.E. Suite 300 Charlottesville, VA 22902-1288 434.977.2509 (Direct Line) 434.980.2258 (Direct FAX) [email protected]
http://www.mcguirewoods.com
McGuireWoods LLP | 73
CONFIDENTIAL
OVERVIEW
• Local Ordinances and Preemption Lawsuits
• Shale Related Litigation
– Environmental
– Royalty
– Mineral Rights
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CONFIDENTIAL
LOCAL ATTEMPTS TO CONTROL FRACING
• Approximately 80 towns and counties have banned or attempted to ban hydraulic fracturing
– Pittsburgh
– Buffalo
– Morgantown, West Virginia
– Dryden and Middlefield in New York
– Statewide Ohio proposal currently in House and Senate committees
• Do municipalities have such far-reaching power?
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CONFIDENTIAL
STATE PREEMPTION POSITIONS – Pennsylvania
• Explicitly pre-empted local ordinances and placed limits on zoning ordinances with Act 13
– All local ordinances are pre-empted except those issued pursuant to the Municipalities Planning Code and the Flood Plain Management Act.
– Local ordinances cannot address the same issues addressed by Act 13.
– Local ordinances must provide for the “reasonable development of oil and
gas.”
• A group of municipalities recently filed a complaint challenging the constitutionality of Act 13 on the basis that it improperly removes local zoning and land-use planning rights.
– The state’s motion to dismiss is pending.
• “The Prodigal Son Returns: Oil and Gas Drillers Return to Pennsylvania with a Vengeance Are Municipalities Prepared?” Volume 49, Number 1, Winter 2011 (J. Smith).
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CONFIDENTIAL
STATE PREEMPTION POSITIONS – West Virginia
• Morgantown Ordinance 721.01 prohibited horizontal drilling and fracing within the limits of the City of Morgantown
• In Northeast Natural Energy, LLC v. City of Morgantown (August 2011), the court ruled that the ordinance was pre-empted by the regulations promulgated by the West Virginia DEP.
– “The purpose of the WVDEP is to ‘consolidate environmental regulatory programs in a single state agency, while also providing a comprehensive program for the conservation, protection, exploration, development, enjoyment and use of the natural resources of the state of West Virginia.’”
• Morgantown recently responded on June 4, 2012 by passing a zoning ordinance that prohibits fracing within 98% of the city’s limits.
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CONFIDENTIAL
STATE PREEMPTION POSITIONS – Ohio
• Ohio Statute Enacted in 2004 Preempts Home Rule
“The [division of oil and gas resources management] has sole and exclusive authority to regulate the permitting, location, and spacing of oil and gas wells and production operations within the state. . . . The regulation of oil and gas activities is a matter of general statewide interest that requires uniform statewide regulation, and this chapter and rules adopted under it constitute a comprehensive plan with respect to all aspects of the locating, drilling, well stimulation, completing, and operating of oil and gas wells within this state, including site construction and restoration, permitting related to those activities, and the disposal of wastes from those wells.” Ohio Code § 1509.02.
• Note: There are legislative attempts to expand zoning powers and impose a moratorium on fracing pending at the state level.
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CONFIDENTIAL
STATE PREEMPTION POSITIONS – New York
• New York is the outlier in terms of the level of control given to municipalities.
• Statute appears to lead to the same result as in other states: “The provisions of this article shall supersede all local laws or
ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax laws.” (ECL § 23-0303(2) (emphasis added)).
• However, two recent cases ruled that the statute does not express a clear intent to limit municipalities’ zoning power. – Anschutz Exploration Corp. v. Town of Dryden – Cooperstown Holstein Corp. v. Town of Middlefield
• From the Middlefield court – “The state’s interests may be harmonized with the home rule of local municipalities in their determination of where oil, gas and solution drilling or mining may occur. The state maintains control over the ‘how’ of such procedures while the municipalities maintain control over the ‘where’ of such exploration.”
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CONFIDENTIAL
LITIGATION UPDATE
• Litigation has not been limited to a common legal theory or style of case.
• Litigation has varied greatly in terms of both theory and scope.
– Leading plaintiffs’ class action firms are seeking the right time and place.
– Case theories have ranged from environmental/tort to royalties disputes to disputes regarding the ownership of the gas and mineral estate itself.
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CONFIDENTIAL
ENVIRONMENTAL LITIGATION
• Tucker v. Southwestern Energy Co. (E.D. Ark.) (May 2011)
– Original complaint sought class of all Arkansas residents within 3 miles of bore holes, wellheads or other gas extraction operations and alleged contamination of soil, groundwater, well water and air.
– Court ordered that the plaintiffs file an amended complaint in February 2012, but otherwise denied defendants motions to dismiss plaintiffs’ claims that fracing was ultra hazardous.
• Haney v. Range Resources Appalachia, LLC ( (filed May 25, 2012)(Washington County, Pennsylvania) (May 2012)
– Plaintiffs initiated suit against producers and water testing companies alleging that the companies conspired to prepare false testing reports regarding the quality of the plaintiffs’ water supply.
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CONFIDENTIAL
ROYALTIES LITIGATION
• Tawney v. Columbia Natural Resources (W. Va. 2008) – Verdict in favor of plaintiffs alleging underpayment of royalties based
on improper deduction of costs.
• Poplar Creek v. Chesapeake Appalachia (6th Cir. 2011) – Producer permitted to deduct post-production costs.
• Kilmer v. Elexco Land Services (Pa. 2010) – Producers entitled to deduct post-production costs.
• Legard v. EQT Production Company (W.D.Va. 2010) – “First marketable product rule.”
• Unit Petroleum Company. See Panola Independent School District No. 4, et al v. Unit Petroleum Company, Oklahoma Court of Civil Appeals case No. 107935 (Opinion Dated May 11, 2012) – Class certification reversed.
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CONFIDENTIAL
MINERAL OWNERSHIP LITIGATION
• Butler v. Powers (Pa. Super. Ct. 2011)
– Which mineral estate owns the gas present in the Marcellus Shale formation?
– Appeal to the Pennsylvania Supreme Court is pending.
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CONFIDENTIAL
Questions or Comments? www.mcguirewoods.com 2012 McGuireWoods LLP
www.mcguirewoods.com
Hydraulic Fracturing: Litigation, Enforcement and Regulatory Developments Navigating New EPA Rules, Lease Negotiations, Environmental Issues and Other Legal Challenges
Presented on June 12, 2012 Presented by: Trent Taylor McGuireWoods LLP (804) 775-1182 [email protected]
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CONFIDENTIAL
Topics
• Forces Driving Hydraulic Fracturing Litigation
• The Future of Hydraulic Fracturing Litigation
• Strategies for Defending Hydraulic Fracturing Litigation
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CONFIDENTIAL
Why is this happening?
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CONFIDENTIAL
Increased Media/Public Relations Focus
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CONFIDENTIAL
A Harbinger?
• http://www.youtube.com/watch?v=zCCqx0ZLmAo
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CONFIDENTIAL
The Boogeyman Effect
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CONFIDENTIAL
A Solution?
• “Andrew Revkin, of the New York Times, has written a short, but very reasonable and worthwhile piece on the ongoing public debate/controversy/vitriol/rhetoric surrounding the shale-gas boom, and the use of hydraulic fracturing (fracking) (which as many do, and should, point out, is a process used to drill for natural gas and oil in certain geologic formations, is not new, and does not, without more [e.g., a spill, broken well casing etc.], cause environmental or public health harms). Revkin argues that inherent human predispositions toward certain outcomes make objective and calm scientific debate difficult, citing global warming as exhibit A. His thesis and plea for reason should be welcomed in the ongoing and nascent fracking debate—which has already seen its share of outlandish claims from all sides. Perhaps Revkin sums up best how to achieve a rational debate in the following statement -
• In the absence of data comes spin and overstatement - and a reliance on advocates of one stripe or another, including scientists staking advocacy positions. None of this is a good thing.
• The ball is in the industry’s court to acknowledge that there are bad actors and to move toward far deeper transparency and accountability on methods, or it will justifiably lose public faith and the prospect of stronger regulation. The shale gas rush (and a similar oil rush under way in other regions) is clearly in it[s] frontier days.”
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CONFIDENTIAL
Increased Regulation
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CONFIDENTIAL
Increased Regulation (cont.)
• The ranking member of the Senate Committee on Environment and Public Works released a 2010 video in which EPA Region 6 Administrator Al Armendariz said the EPA's strategy was to "make examples" out of oil and gas companies that do not comply with environmental laws and compared the agency's enforcement philosophy to the Roman practice of crucifixion. "They'd go into a little Turkish town somewhere, they'd find the first five guys they saw and they would crucify them. And then, you know, that town was really easy to manage for the next few years," Armendariz said in the video. "Find people who are not complying with the law, you hit them as hard as you can, and you make examples out of them."
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CONFIDENTIAL
Plaintiffs’ Bar
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CONFIDENTIAL
Possibility of Big Money
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CONFIDENTIAL
Recent Environmental Contamination Verdicts & Settlements
• $926 million – jury verdict award to class of 13,000 property owners against Dow Chemical and Rockwell Int’l Corp. for plutonium contamination
• $752 million – settlement amount in MDL MTBE against various corporate defendants alleging exposure to MTBE
• $700 million – settlement amount in a suit by a class of Alabama residents against Monsanto Co. alleging exposure to PCBs
• $120 million – jury verdict award to class of residents against oil refinery due to contamination by heavy metal emissions
• $108 million – jury verdict award in AL case against defendants including Halliburton Energy Services for contaminating property with mercury
• $75 million – settlement amount in FL case against City of Jacksonville alleging exposure to lead, mercury, and ash
• $45 million – settlement amount in MD suit alleging groundwater contamination due to disposal of coal ash
• $35 million – settlement amount in TX case against Zeneca, Occidental Chemical, and GB Biosciences for contaminating property with pesticides
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CONFIDENTIAL
Recent Litigation
• City of New York v. Exxon Mobil Corp. (S.D. N.Y.) • Jury awarded city $105 million in compensatory damages in Oct. 2009. Court did
not permit punitive damages. • The jury found that gasoline containing MTBE was a defective product and a
public nuisance because Exxon Mobil gave no warnings about the product’s dangerous propensity to contaminate groundwater.
• Jury decided against Exxon despite the fact that it found there was pre-existing contamination of the wells at issue (for which they subtracted $70 million).
• The damages awarded were to compensate the city for building (in the future) a water treatment facility to treat the water for 40 years.
• Damages were awarded even though the MTBE contamination will not peak until 2033 at levels 25% of what the EPA says is the maximum safe level.
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CONFIDENTIAL
Recent Litigation
• (June 30, 2011) -- A Maryland jury on Friday reportedly ordered Exxon Mobil Corp. to pay
$1.5 billion to more than 150 families and
businesses in Jacksonville, Md., that allegedly suffered personal and financial harm following an underground gasoline leak in 2006.
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CONFIDENTIAL
Fly/Coal Ash
• Gayle K. Queen v. Constellation Power Source Generation Inc., Case No. 24C07009389 (Circuit Court for Baltimore City).
• A Baltimore City judge approved a $54 million settlement after homeowners in a nearby Maryland county accused Constellation Energy Inc. of contaminating their wells by dumping tons of toxic coal ash into a quarry near their homes.
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CONFIDENTIAL
Other Reasons Why Attractive to Plaintiffs’ Bar
• Relates to relatively new technology
• Raises “interesting and untested” state law issues and complex scientific issues that reasonable experts could disagree on, according to some defense lawyers
• This uncharted area of law can create a “playground for smart lawyers on both sides” and attract plaintiffs' lawyers because the defendants tend to be large, solvent oil and gas companies, according to one defense attorney.
• One prominent defense attorney: “When you have that perfect storm of variables, you get litigation — and you get big litigation. People on the plaintiffs' side will invest big money and say, 'Let's say if we can establish liability here.'”
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CONFIDENTIAL
The Future
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CONFIDENTIAL
The Coming Wave of Hydraulic Fracturing Lawsuits?
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CONFIDENTIAL
The Coming Wave?
• ‘‘We anticipate the lawsuit will be the first of many, because since its filing we have been getting numerous phone calls from people reporting similar injuries resulting from gas drilling and exploration activities,’’ Prominent Plaintiffs’ attorney after recently filing a hydraulic fracturing suit.
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CONFIDENTIAL
The Coming Wave?
• According to the Towers Watson report on the economic impact of tort cases, the U.S tort system cost $264 billion in 2010 (or $857 per person) and since 1950 growth in tort costs has exceeded growth in GDP by an average of two percentage points.
• With respect to future litigation trends, Towers Watson reports that hydraulic fracturing litigation is on the rise and “defense costs related to such suits are beginning to mount.”(Tower Watson, U.S. Tort Cost Trends, 2011 Update).
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CONFIDENTIAL
Factors That Will Impact Future of Hydraulic Fracturing Litigation
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CONFIDENTIAL
#1 - The Battlefield? Causation!
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CONFIDENTIAL
Causation
• Strudley v. Antero Resources Corp., Colo Dist. Ct., No. 11-CV-2218 (5/9/12)
– “Cognizant of the significant discovery and cost burdens presented by a case of this nature, the Court endeavored to invoke a more efficient procedure than that set out in the standard case management order. Accordingly, the Court required Plaintiffs, before full discovery and other procedures were allowed, to make a prima facie showing of exposure and causation . . . .”
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CONFIDENTIAL
Lone Pine
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CONFIDENTIAL
Strudley
• Plaintiffs’ expert “suggests, at best, a very weak circumstantial causal connection between the wells and Plaintiffs’ injuries.”
• “[U]pon review of the Plaintiffs’ collective medical records, [pltfs’ expert] only temporally associates Plaintiff’s symptoms with the wells being brought into production . . . [a] temporal relationship, by itself, provides no evidence of causation.”
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CONFIDENTIAL
Strudley
• “Air sample, taken the day after the Plaintiffs moved out of their Silt home, shows detectable levels of certain gasses and compounds. However, this raw data is not accompanied by any explanation of what levels are necessary to cause any of the symptoms complained of by Plaintiffs.”
• “The Court, in reaching its decision, further relied on the fact that the Colorado Oil and Gas Conservation Commission (“COGCC”) had conducted an investigation of the Plaintiffs’ well water and had concluded that the water supply was not affected by oil and gas operations in the vicinity.”
• “The COGCC concluded that ‘there is no data that would indicate the water quality in your domestic well has been impacted by nearby oil and natural gas drilling and operations.’”
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CONFIDENTIAL
Strudley
• Court also noted that companies gave sworn testimony that they conducted their activities in compliance with applicable laws and regulations to protect human health and the environment.
• “Defendants have provided evidence to support their contention that the air emissions-control equipment at the wells and prevailing wind patterns make it unlikely that plaintiffs or their property were exposed to harmful levels of chemicals from defendants’ activities.”
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CONFIDENTIAL
Strudley
• “[Pltfs’ expert] further stated that levels of sodium and chloride were ‘higher than EPA recommends for drinking water, and are not typical of well water used as drinking water . . . [s]uch levels are in the range expected from a number of deep well sources, such as may be produced from gas wells.’”
• “Again, there was no statement regarding what constitutes dangerous levels of any substance in drinking water or whether any causal link exists between the study’s results and Plaintiffs’ alleged injuries.”
• “Though the evidence shows existence of certain gases and compounds in both the air and water of Plaintiffs’ Silt home, there is neither sufficient data nor expert analysis stating with any level of probability that a causal connection does in fact exist between Plaintiffs’ injuries and Plaintiffs’ exposure to Defendants’ drilling activities.”
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CONFIDENTIAL
But Cf.
• Hagy v. Equitable Prod., Case No. 2:10-cv-01372 (S.D. W. V. 2010)
• In suit by family seeking injunction to prevent drilling, medical monitoring fund, and compensatory and punitive damages against companies involving in nearby shale gas drilling, court denied proposed Lone Pine order
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CONFIDENTIAL
Tucker v. Southwestern Energy Co.
• Forced pltfs to replead claims with more factual definiteness
• “Missing are particular facts about particular fracking operations by particular fracking companies using particular substances that allegedly caused the Berrys’ air problems and the Tuckers’ water problems. General statements about the many dangerous substantces used in fracking, and conclusory statements about the migration of those substances, will not suffice.”
• Relies on Iqbal
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CONFIDENTIAL
#2 – Where?
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CONFIDENTIAL
Where?
• Cases currently in:
– Pennsylvania
– Texas
– Arkansas
– Louisiana
– Colorado
– New York
– West Virginia
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CONFIDENTIAL
International
• Contamination lawsuits resulting from fracking recently crossed the United States borders into Canada. In April, a woman from Southern Alberta, Jessica Ernst, filed a lawsuit seeking $33 million in damages from EnCana, Alberta's Environment Department, and the Energy Resources Conservation Board. Despite an Alberta Research Council's finding that the methane levels in her water were naturally occurring, Ernst also brought her complaints to the United Nations Commission on Sustainable Development in New York, where she gave a presentation on her experience with the drilling process and its effects on her property.
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CONFIDENTIAL
# 3 -- Recruiting Plaintiffs
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CONFIDENTIAL
# 4 -- Causes of Action
• Public Nuisance
• Private Nuisance
• Trespass
• Others
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CONFIDENTIAL
Public Nuisance
• “the interference must be both substantial and unreasonable”
• “it is ‘substantial’ if it causes significant harm and ‘unreasonable’ if its social utility is outweighed by the gravity of the harm inflicted”
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CONFIDENTIAL
Private Nuisance
Private Nuisance:
“a nontrespassory invasion of another’s interest in the private use and enjoyment of land.”
Restatement (Second) of Torts § 821D
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CONFIDENTIAL
Trespass
• Trespass is generally defined as “an invasion of the interest in the exclusive possession of land, as by entry upon it.”
• The key distinction between trespass and nuisance is that “[a] claim of trespass contemplates actual physical entry or invasion, whereas nuisance liability arises merely by virtue of an activity which falls short of tangible, concrete invasion by interferes with the use and enjoyment of land.”
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CONFIDENTIAL
Miller v. Elexco Lands Servs, Inc., Case No. 5:09-cv-00038-GTS-DEP (N.D. N.Y. 9/27/11)
• Granted Plaintiffs’ motion for partial summary judgment on trespass claims
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CONFIDENTIAL
Others
• Infliction of Emotional Distress
• Failure to Warn
• Battery
• Fraud
• Conspiracy
• Strict Liability
• Medical Monitoring
• Unjust Enrichment
• State Environmental statutes
• Fed. Environmental statutes
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CONFIDENTIAL
Tucker v. Southwestern Energy Co.
• “Whether fracking is ultra-hazardous is a question of law, but one the Court cannot answer yet. The record lacks sufficient information to make this fact-intensive judgment.”
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CONFIDENTIAL
Berish
• “While meeting the "common usage," "inappropriateness of the activity," and "value to the community" prongs of § 520 will likely create difficulty for Plaintiffs at the Summary Judgment stage, there is no requirement under the Federal Rules of Civil Procedure that Plaintiffs bring forth exhaustive factual pleadings at this stage, and they have more than met their burden of putting the Defendant on notice as to the basis of the strict liability claim.”
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CONFIDENTIAL
# 5 -- The harm alleged in environmental contamination suits is becoming more subjective and less tangible
• Gates v. Rohm and Haas Co. (E.D. Pa.) – ruled that the presence of vinyl chloride in the air, even if below background levels, constitutes a physical injury to property under nuisance law.
• Meyer v. Fluor Corp. (Mo.) – in nuisance class suit against lead smelter to recover prospective medical monitoring due to harmful emissions, MO S. Ct. certified the class and held that recovery for medical monitoring is not contingent upon the existence of a present physical injury
• State of NC v. TVA – (1) numerous social and economic harms to North Carolinians, including lost school and work days, increased pressure on the health industry due to extra doctor visits, and the general loss of well-being that results from chronic health problems; (2) harm to the environment including killing local vegetation, removing nutrients necessary for healthy forest growth, and degrading water quality; and (3) significant effects on visibility due to creating haze in many pristine areas of wilderness in NC
• Cook et al. v. Rockwell and Dow – jury verdict of almost $1 billion based solely on decline in property values for 13,000 plaintiffs
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CONFIDENTIAL
Medical Monitoring
• Recognized in Pennsylvania and West Virginia even when there is no manifest physical injury
• Courts in Arkansas, Colorado, Louisiana, New York, and Texas have not decided the question of medical monitoring but have not rejected it.
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Cook et al. v. Rockwell and Dow
• Issue: (1) Whether state substantive law controls the standard of compensable harm in suits under the Price-Anderson Act, or whether the Act instead imposes a federal standard; and (2) whether, if a federal standard applies, a property owner whose land has been contaminated by radioactive plutonium, resulting in lost property value, must show some physical injury to the property beyond the contamination itself in order to recover for damage to property.
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In re: Tennessee Valley Authority Ash Spill Litigation, Case No. 3:09-cv-00009 (E.D. Tenn.)
• “Although plaintiffs argue that exposure to the toxic constituents in the ash exists by virtue of the presence of ash in the environment, the mere existence of a toxin in the environment is insufficient to establish causation without proof that the individual was actually exposed to the toxin and at a level sufficient to cause injury or stress.”
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Other law
• Plaintiffs are generally required to allege that they have suffered an “appreciable, substantial tangible injury.”
• Courts have explained that this substantial harm must be one of “importance, involving more than slight inconvenience or petty annoyance.” Darney v. Dragon Prods. Co., LLC, 640 F. Supp. 2d 117 (D. Me. 2009) (quoting Restatement (Second) of Torts § 821F, cmt. c)).
• Furthermore, numerous courts have held that the harm must be more than “de minimis” and that if the alleged invasion relates to contamination, it must “rise to the level of toxicological concern.” Lamb v. Martin Marietta Energy Sys., 835 F. Supp. 959 (W.D. Ky. 1993); Benesh v. Amphenol Corp. (In re Wildewood Litig.), 52 F.3d 499 (4th Cir. 1995); Brooks v. E. I. du Pont de Nemours & Co., 944 F. Supp. 448 (E.D. N.C. 1996); In re TVA Ash Spill Litig., 805 F. Supp. 2d 468, 491 (E.D. Tenn 2011) (plaintiff must show constituents reached property in sufficient concentrations to cause actual damage). An invasion of small amounts of contaminants on plaintiffs’ land is not enough to state a claim for private nuisance. Bradley v. American Smelting & Refining Co., 635 F. Supp. 1154, 1157-58 (W.D. Wash. 1986).
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# 6 -- “Fear of” & Emotional Distress Damages
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Exxon Mobil Corp. v. Ford, Md. Ct. Spec. App., 1804, 2/09/12
• In reviewing a $147 million verdict, the Maryland Court of Special Appeals Feb. 9
affirmed that parties can recover for fear of cancer after being exposed to carcinogens released in a gasoline leak
• The court found that parties who were possibly exposed to the carcinogens methyl tertiary-butyl ether and benzene could recover damages for fear of cancer, in this first direct address of the issue by the Maryland appellate courts.
• Most of the plaintiffs also received emotional distress damages totaling approximately $1,000,000 per household. Altogether, the jury awarded more than $150 million in damages.
• The court of special appeals held that damages could be recovered, provided the fear of cancer was in fact reasonable. The court concluded that a more-likely-than-not standard was inapplicable to “fear of cancer” because, “fear of cancer is a particularized type of emotional distress, not an attempt to circumvent the limitations on recovering for disease that may or may not develop in the future.”
• The court noted, “while the fear must be reasonable, I do not think reasonableness requires the plaintiff to show that it is more likely than not that he or she will develop cancer.” The court did find that objective evidence of emotional distress would be required.
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Berish v. Southwestern
• “Plaintiffs' claims for Damages for Emotional Distress except as to Plaintiff C.S. will be dismissed. Plaintiffs' will be allowed to amend their Complaint to seek damages for inconvenience and discomfort.”
• “Under Pennsylvania law, claims for emotional distress require that the plaintiff suffer an attendant physical injury. Houston v. Texaco, Inc., 538 A.2d 502, 505 (Pa. Super. Ct. 1988). Plaintiffs have only pled physical ailments as to Plaintiff C.S. Therefore, the emotional distress claims will be dismissed except as to Plaintiff C.S.”
• “Plaintiffs have asked the Court for leave to amend their Complaint to add a claim for damages for inconvenience and discomfort. Pennsylvania law recognizes "a cause of action for inconvenience and discomfort caused by interference with another's peaceful possession of his or her real estate." Houston, 538 A.2d at 506. Plaintiffs have complied with Fed. R. Civ. P. 15(a) and Local Rule 15.1, and the Court will grant them leave to amend in order to add claims for damages for inconvenience and discomfort. This determination essentially comports with the agreement reached at oral argument.”
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# 7 - Science
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Science generally
• Trace elements such as manganese and arsenic are found in concentrations potentially dangerous to human health in about one of five untreated groundwater samples taken from wells nationwide, the U.S. Geological Survey recently reported.
• A new USGS study noted that trace elements are much more likely than other contaminants such as pesticides and volatile organic compounds to be found at what the U.S. EPA considers to be potentially hazardous levels in public, private and monitoring wells.
• Trace elements, as defined in the report, are metals and semimetallic elements that are usually found at levels less than 1 milligram per liter in natural waters. Most trace elements enter groundwater through the weathering of rocks or human acts such as mining, construction and waste disposal, the study said.
• “In public wells these contaminants are regulated by the [EPA], and contaminants are removed from the water before people drink it,” USGS hydrologist and study author Joe Ayotte said in a statement. “However, trace elements could be present in water from private wells at levels that are considered to pose a risk to human health, because they aren't subject to regulations. In many cases people might not even know that they have an issue.”
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U.S. Geological Survey study in 2012
• Found that the average number of earthquakes of magnitude 3 or greater in the U.S. midcontinent – an area that includes Arkansas, Colorado, Oklahoma, New Mexico, and Texas – increased to 6 times the 20th century average last year
• Scientists determined the increase in seismic activity was “almost certainly manmade”
• Stated that “[a] naturally occurring rate change of this magnitude is unprecedented outside volcanic settings or in the absence of a main shock, of which there are neither in this region”
• Noted that another study found “strong evidence” linking seismic activity in central Arkansas to deep wastewater injection wells
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Ohio Dep’t of Natural Resources Report in 2012
• Concluded that brine injections at a disposal well called Northstar 1 had likely triggered 12 low-magnitude earthquakes in the Youngstown, OH, area over the previous year
• These earthquakes prompted Ohio Gov. Kasich to impose a moratorium on injection wells within a five-mile radius
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# 8 – Use of common-law suits by governments
• More and more states and municipalities are filing common-law claims in environmental contamination suits.
• See State of OK v. Tyson Foods, State of CA v. Sierra Pacific Industries, State of NY v. Mirant, City of Modesto v. Dow and Vulcan, etc.
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Recent Litigation
• City of Modesto vs. Dow Chemical Company, et al. (Case Nos. 999345 and 999643), 2006 Nat. Jury Verdict Review LEXIS 1583
• Products Liability - Strict Liability - Negligence - Continuing Trespass - Private And Public Nuisance - Failure To Warn Consumers Of Dangers Of Chemicals Introduced Into City Drinking Water - Punitive Damages Claim For Disregard For Public Safety
• Result: $178,545,000 Verdict Including $ 175,075,000 in Punitive Damages Against Three Defendants
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End-Around
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# 9 – Expert testimony
• U.S. Steel v. Milward (recently denied cert. by U.S. Supreme Court) • Plaintiffs Brian and Linda Milward sued U.S. Steel Corp. and other chemical
companies for negligence, claiming Brian Milward's routine workplace exposure to benzene caused his acute promyelocytic leukemia.
• A district judge dismissed the case, after rejecting toxicologist Martyn Smith's expert opinion that the research about APL supports "the inference" that benzene exposure can cause the extremely rare form of leukemia.
• The First Circuit reversed in March, affirming Smith's method, in which he considered evidence from peer-reviewed scientific literature to eliminate unlikely conclusions and come to the most likely one.
• “Dr. Smith estimated that ... to obtain statistically significant results, one would need hundreds of thousands of highly exposed workers, the same number of controls and millions of dollars of funding,” the opinion said. “The court erred in treating the lack of statistical significance as a crucial flaw.”
• The First Circuit's decision could undermine the Supreme Court's 1993 Daubert v. Merrell Dow Pharmaceuticals ruling, which held that courts should bar “scientifically unreliable evidence,” and could also spur other courts to allow testimony based on "unsound science."
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Nonnon v. City of New York
• In September 2011, the New York appellate division partially affirmed a denial of defendant’s summary judgment motion in a case involving toxic landfill seepage and alleged cancer clusters.
• The Nonnon court stated that it is “not always necessary for a plaintiff to quantify exposure levels precisely” and said that “so long as plaintiff’s experts have provided a scientific expression of plaintiff’s exposure levels, they will have laid an adequate foundation for opinions on specific causation.”
• While there was no indication that plaintiffs’ experts actually knew, let alone “scientifically expressed” the individual exposure levels, the court found that plaintiff’s proximity analysis study permitted an inference that plaintiffs’ diseases were more likely than not caused by substances from the landfill.
• The Nonnon court ultimately held that “criticisms of [an expert’s] analysis go to the weight of the evidence and should therefore be the subject of cross-examination at trial” rather than serve as grounds for pretrial exclusion of the expert.
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Betz v. Pneumo Abex LLC
• A pathology expert's controversial “any-exposure” theory, which states that a health risk attaches even to a single asbestos fiber, is based on unproven science and is inadmissible in a test case on behalf of automobile brake workers with mesothelioma, the Pennsylvania Supreme Court ruled May 23 (Betz v. Pneumo Abex LLC, Pa., No. 38 WAP 2010, 5/23/12).
• The expert's theory “is in irreconcilable conflict with itself. Simply put, one cannot simultaneously maintain that a single fiber among millions is substantially causative, while also conceding that a disease is dose responsive,” the Supreme Court said.
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# 10 – Transition to Economic Harm Claims
• Koonce et al. v. Chesapeake Exploration LLC et al., case number 5:12-cv-00736, U.S. District Court for the Northern District of Ohio. – A group of landowners sued Chesapeake Exploration LLC in Ohio
federal court recently over oil and gas drilling leases, alleging the energy company misrepresented the environmental disruptions that would be caused by hydraulic fracturing and concealed the land rights' true profit potential.
– More than two dozen Columbiana County, Ohio, residents are claiming land agents failed to present “truthful and accurate information” about the leases, resulting in many of the landowners receiving less than 1 percent of the fair market value for signing bonus payments, according to the complaint.
– The landowners were also tricked into signing leases without “appropriate lease provisions” protecting them from the risks and disruptions associated with horizontal drilling and hydraulic fracturing, or fracking, the suit asserts.
– The plaintiffs are asking for a declaratory judgment against Chesapeake voiding the leases.
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June 4, 2012, NY Times Article, “New Value for Land in Rural Ohio”
• “Here in Noble County, where vehicle repair and convenience stores are economic mainstays, Eclipse Resources, a Pennsylvania company, mailed $16 million in oil- and gas-leasing checks last month to 70 households whose property has been found to sit atop oil and gas reserves. Working with a lawyer in nearby Marietta, the residents were able to band together to negotiate an unusually lucrative deal with the company that paid $4,000 an acre and 19 percent royalties on oil and gas production, and included safeguards to protect water and land. (The standard has been $20 to $30 an acre, one-sixth royalty rates, and no protections for water and land.) “
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NY Times Article (cont.)
• “The leases signed by the Noble County landowners were largely written and negotiated by Jennifer Garrison, a lawyer from Marietta and former three-term Democratic state representative. Until very recently most oil and gas leases in Ohio were a few pages long most often hammered out by energy companies working one-on-one with mineral owners, many of them unskilled in the back and forth of negotiation.”
• “Ms. Garrison’s clients negotiate as an association of landowners controlling thousands of acres in a leasing block. In nearby Sardis, she helped a group of 200 households that own almost 10,000 acres negotiate a lease with Eclipse that pays $4,250 an acre for the first three years of the agreement, plus 20 percent royalties. If Eclipse — which declined to comment — or its successors do not start a well in that time, the Sardis landowners gain $1,000 more per leased acre or the lease expires and the mineral rights revert to the landowner.”
• “Ms. Garrison’s leases also contain provisions for testing before and after drilling occurs to make sure that none of the chemicals used in the production process have contaminated drinking water. The leases bar energy companies from drawing water for hydrofracking from any water source on the leaseholder’s land — provisions that go beyond existing Ohio regulations.”
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# 11 - Legislation
• H.B. 1123 in Maryland
• Signed into law on 5/22/12
• Establishes presumption that contamination of a water supply in the area around a gas well is caused by the gas exploration or production activity, unless the driller rebuts the presumption by a “preponderance of the evidence”
• This “presumptive impact area” covers “a radius of 2500 feet from the vertical wellbore” and “applies for 365 days after the last event of well drilling, completion, or hydraulic fracturing”
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# 12 – Regulatory Lawsuits
• New York Attorney General Eric Schneiderman recently announced that he will file a lawsuit against the federal government for its failure to study the allegedly harmful "fracking" technique.
• Schneiderman alleges that the federal government failed to commit to an environmental review of proposed regulations that would allow natural gas drilling in the Delaware River Basin. Schneiderman had notified the federal government that if it did not commit to the environmental review before the gas drilling regulations were finalized, he would take legal action to compel the study.
• "Before any decisions on drilling are made, it is our responsibility to follow the facts and understand the public health and safety effects posed by potential natural gas development," Schneiderman said.
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Regulatory Lawsuits
• Attempted Injunctions against every step of new hydraulic fracturing activities
• The Second Circuit cleared the way Tuesday for an Inergy LP unit's planned $257 million natural gas pipeline that would transport gas from Pennsylvania's Marcellus Shale, denying environmentalists' bid to block construction while they challenge regulatory approval of the pipeline.
• The Sierra Club and two other groups had sued to overturn the Federal Energy Regulatory Commission's approval of Inergy subsidiary Central New York Oil and Gas Co. LLC's proposal to build the 39-mile MARC I pipeline in northeastern Pennsylvania.
• The environmental groups said a FERC environmental assessment didn't properly take into account environmental damage from additional Marcellus Shale gas drilling that the pipeline will facilitate and other ecological impact the pipeline will have on the area.
• FERC said the Marcellus Shale drilling isn't sufficiently related to take it into account in its study. It approved the project Nov. 14, and on Feb. 13, it denied the groups' request for rehearing.
• The next day, the groups petitioned the Second Circuit to review the order and asked it to stay FERC's approval while hearing the case, saying the oil and gas company planned to build quickly and have the pipeline up and running by July.
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Regulatory Lawsuits
• In a case filed on May 19, 2011, several conservation, environmental, and recreational nonprofit organizations have filed suit against the federal government, seeking to enjoin the U.S. Forest Service and other government agencies from allowing hydraulic fracturing operations in the Ozark National Forest in Washington County, Arkansas, and drilling under Greers Ferry Lake in Cleburne County.
• Plaintiffs allege the government has failed to comply with federal mineral leasing laws, the National Forest Management Act, the National Environmental Policy Act, and the regulations issued under them.
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Increased Patchwork Quilt of Regulations
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# 13 – Air Emissions
• Increased Focus on Air Emissions Produced by Hydraulic Fracturing
• Air emissions produced by hydraulic fracturing at natural gas drilling sites may
contribute to acute and chronic health problems for nearby residents, according to a study released recently.
• Researchers at the Colorado School of Public Health found that the wells released several petroleum hydrocarbons including benzene, ethylbenzene, toluene and xylene when hydraulic fracturing processes were used.
• “Our data show that it is important to include air pollution in the national dialogue on natural gas development that has focused largely on water exposures to hydraulic fracturing,” Lisa McKenzie, lead author of the study, said in a statement.
• According to the study, the emissions can cause eye irritation, headaches, sore throat and difficulty breathing, but they're also associated with more serious health threats, like an increased cancer risk for residents near the wells.
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CSPH Study (cont.)
• Concluded that residents within one-half mile of a fracturing well has an increased risk of cancer and noncancer illnesses because of petroleum hydrocarbons released into the air by drilling operations
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But Cf. Wyoming Dep’t of Environmental Quality Study
• Monitored air quality near fracturing sites in the state for 11 months in 2011
• Found that none of the air samples exceeded federal or state action levels
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New EPA rules on Air Emissions
• “The Environmental Protection Agency issued its first-ever regulations to curtail air pollution from natural gas wells that use a controversial production technique known as hydraulic fracturing, but gave the industry a three-year transition period to install technology to capture some of the worst pollutants.”
• “The new regulations would limit emissions of volatile organic compounds, or VOCs, which react with sunlight to create smog. They would also limit emissions of carcinogens and methane, the main component to natural gas and a potent contributor to climate change. ”
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# 14 – Class Actions
• Evenson v. Antero, 2011 CV 5118 (Denver Dist. Ct.)
– Seeking injunction to prevent oil and gas development in area
• Tucker v. Southwestern (E.D. Ark. 2011)
– Seeking monitoring fund, damages for personal injuries and property damages, punitives
• Ginardi v. Frontier (E.D. Ark. 2011)
– Seeking med. mon. program, property damages, emotional distress damages, punitives
– Denied on 4/19/12
• Andre v. EXCO Resources & Beckman v. EXCO Resources (W.D. La. 2011)
– Seeking med. mon. program, property damages, emotional distress damages, punitives
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Ginardi v. Frontier Gas Services, LLC
• Sought to certify class of approximately 1000 residents who lived within 1 mile of gas compressor and/or transmission station in AR
• Court denied based on the individualized damages caused by the emissions
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# 15 - Criminal
• Supervisor for Texas Natural Gas and Oil Drilling Company Pleads Guilty in Oklahoma to Negligent Violation of Clean Water Act
• WASHINGTON—Gabriel Henson, a supervisor for Integrated Production Services, Inc., a Houston-based natural gas and oil drilling contractor, pleaded guilty to a negligent violation of the Clean Water Act in federal court in Muskogee, Okla., the Department of Justice announced.
• • On May 24, 2007, a tank had leaked an estimated 400-700 gallons of hydrochloric acid onto the earthen pad
surface of the well site. The earthen pad was also flooded with water from recent heavy rainfall. In order to remove the rainwater from the well site, Henson drove a pickup truck owned by IPS through an earthen berm, causing the rainwater contaminated with hydrochloric acid to flow off the well pad and down into Dry Creek, a tributary of Boggy Creek, a water of the United States under the Clean Water Act. Environmental damage to the creek was minimized by spill response crews that responded to the site.
• • “There is no question that the lawful exploration and development of sources of domestic energy is vital to the
national interest,” said Assistant Attorney General Ignacia S. Moreno of the Justice Department’s Environment and Natural Resources Division. “With the increased use of hydraulic fracturing across the country, it is essential that we vigorously enforce all laws intended to protect the environment, as shown by this prosecution involving the discharge of acid into a stream.”
• • “The defendant's discharge of hydrochloric acid waste into a tributary of Boggy Creek threatened public
health and the environment, and required a costly emergency response to minimize harm,” said Ivan Vikin, Special Agent in Charge of EPA’s criminal enforcement program in Oklahoma. “Today’s guilty plea demonstrates that those who negligently violate environmental laws will be held accountable for their actions.”
• • According to a plea agreement, Henson entered a plea of guilty to a negligent violation of the Clean Water
Act. If his plea is accepted by the court, Henson faces a term of imprisonment up to one year and a criminal fine of $100,000.
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Evolution of Hydraulic Fracturing Lawsuits
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Fiorentino v. Cabot Oil & Gas Corp.
• Filed on 11/19/09 in PA federal court on behalf of 63 individuals
• Alleges that Defendants improperly conducted hydrofracturing and other natural gas production activities that allowed the release of toxins onto Plaintiffs’ land and into their groundwater.
• Pltfs claim property damage and physical illness, that they live in constant fear of future illness, and that they suffer severe emotional distress. Pltfs request an injunction prohibiting future natural gas operations, and seek compensatory and punitive damages, and the cost of future health monitoring.
• Causes of action are: (1) Hazardous Sites Cleanup Act; (2) Negligence; (3) Private Nuisance; (4) Strict Liability; (5) Breach of Contract; (6) Fraudulent Misrepresentation; and (7) Medical Monitoring Trust Funds.
• Past MTD stage
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Scoma v. Chesapeake Energy Corporation
• Filed on 6/1/10 in TX state court and then removed.
• Plaintiffs have alleged that the fracking of gas wells contaminated the groundwater in their water wells.
• Causes of action are: (1) Nuisance; (2) Trespass; and (3) Negligence.
• Seeks compensatory and punitive damages including loss of market value of land, emotional harm and mental anguish.
• Also seeks a permanent injunction, precluding future drilling and “fracking” activities near Plaintiffs’ land.
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Berish v. Southwestern Energy Production Co.
• Filed in PA state court on 9/14/10 on behalf of 13 families. Was removed to federal court.
• The Plaintiffs allege that their water wells have been contaminated due to gas drilling operations being conducted by Defendant. Also alleges that the composition of fracking fluid includes hazardous chemicals that are carcinogenic and toxic. Diesel fuel and lubricating materials, also consisting of toxins, are also utilized during drilling and well operations.
• The lawsuit seeks a preliminary and permanent injunction barring Defendant from engaging in the acts cited by the complaint, as well as abatement of the nuisances, unlawful conduct, violations and damages created by those acts. It also seeks, among other things, compensatory damages, punitive damages, and the cost of future health monitoring.
• Causes of action are: (1) Hazardous Sites Cleanup Act; (2) Negligence; (3) Private Nuisance; (4) Strict Liability; (5) Trespass; (6) Medical Monitoring
• Past MTD stage
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Harris v. Devon Energy Production Co., L.P.
• Filed on 12/15/10 in TX federal court.
• Plaintiffs have alleged that the fracking of gas wells contaminated the groundwater in their water wells.
• Causes of action are: (1) Nuisance; (2) Trespass; (3) Negligence; and (4) Ultra-hazardous activities / Strict Liability.
• Seeks compensatory and punitive damages including loss of market value of land, emotional harm and mental anguish, and medical monitoring damages.
• Also seeks remediation or the cost of restoring the land and its groundwater to their pre-drilling conditions.
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Baker v. Anschutz Exploration Corp.
• Filed 2/11/11 in NY state court but was removed to federal court
• On behalf of nine families in Horseheads, New York near Elmira.
• Allege that their residential drinking water wells have become contaminated as a result of drilling activities by defendant Anschutz and its drilling subcontractors and that their properties and families have become exposed to combustible gases, toxic sediments, and hazardous chemicals.
• Seeks $150 million in compensatory damages, punitive damages, and future medical monitoring due to fear of contracting cancer.
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Baker v. Anschutz Exploration Corp.
• No trial date
• In second phase of discovery now which includes scientific testing of allegedly contaminated wells and expert discovery
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Ginardi v. Frontier Gas Services, LLC
• Filed on May 17, 2011, in federal court in Arkansas
• Sued the operators of compressor stations located along natural gas transmission lines
• Alleges that the stations emit large quantities of noxious gases, in addition to producing noise damaging the plaintiff’s hearing.
• Seeking establishment of a fund for monitoring environmental contamination, a medical monitoring fund, $1 million in compensatory damages, and $5 million in punitive damages.
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Ginardi v. Frontier Gas Services, LLC
• FINAL SCHEDULING ORDER: Jury Trial set for 10/9/2012 at 9:30 AM in Little Rock Courtroom #4C before Judge Billy Roy Wilson; Discovery due by 7/11/2012; Motions due by 7/26/2012; Pretrial Disclosure Sheet due by 9/10/2012. (Signed at the Direction of the Court on 9/12/2011) (maj) (Entered: 09/12/2011)
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Tucker v. Southwestern Energy Co. et al.
• Filed on May 26, 2011, in federal court in Arkansas
• Seeking $6 million for named plaintiffs
• Alleges soil, groundwater, and air contamination
• Causes of action are: (1) Strict Liability; (2) Nuisance; (3) Trespass; and (4) Negligence.
• Seeks class certification of all persons in AR who live or own property within 3 miles of a gas well
• Seeks compensatory and punitive damages, medical monitoring, and air, soil, and groundwater monitoring
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Tucker v. Southwestern Energy Co. et al.
• AMENDED FINAL SCHEDULING ORDER: Jury Trial set for 2/10/2014 at 9:30 AM in Batesville Courtroom # 252 before Judge D. P. Marshall Jr.: Discovery due by 8/29/2013; Motions due by 10/2/2013; Pretrial Disclosure Sheet due by 11/4/2013; Final Joint Status Report due by 11/15/2013; Class Certification Hearing set for 3/18/2013 in Little Rock Courtroom # B-155 before Judge D. P. Marshall Jr.. Entered at the Direction of the Court on 5/7/2012. (mkf) (Entered: 05/07/2012)
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Conclusions
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Casting a Wide Net
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Conclusions
• No verdict against any defendants in shale gas drilling groundwater contamination claim as of yet
• Trends
– Some pltfs dropping groundwater contamination claims
– Talked to pltfs’ lawyers who specialize in water claims; they do not see this litigation having legs as to water
– Less focus on injunctions, more on med. mon.
– More focus on air claims
– More focus on economic harms
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How Do You Defend Against Them?
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Prepare
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Initial Case Assessment - Defense
• Removal?
• Property damage or personal injury?
• Present or future injury?
• Actual contamination or mere fear of it?
• What is the evidence of contamination?
• Alternative causes?
• Co-defendants – Friend or Foe?
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Disaggregation
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Force Concretization
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Concretization
• Tucker v. Southwestern Energy Co. (E.D. Ark.)
• Arkansas homeowners who say their drinking water and air have been contaminated with chemicals used by natural gas drillers in the "fracking" process must file amended complaints containing more specific facts, a federal judge ruled on Feb. 17, 2012.
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Experts: Fend Off Junk Science
• Seek Disqualification of Plaintiffs’ Experts and Exclusion of Junk Science “Evidence”
– Courts are aware of the practice of hiring “results-oriented” experts with suspect methodology.
– Try to make good law on these issues, both with respect to general methodologies and specific hired-gun experts, when the opportunity arises.
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Attack
• Consider aggressively attacking claims that do not seem to be based in fact or that seem to rely on faulty data
• Motion for Sanctions
• Counterclaims
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Attack (cont.)
• Range Resources, sued in June by a Parker County couple whose residential water well was contaminated with methane, has filed a counterclaim seeking millions of dollars in damages and naming Flower Mound environmental scientist Alisa Rich as a third-party defendant.
• Rich, owner of Wolf Eagle Environmental, did water and air testing of the water well and home of Steven and Shyla Lipsky in August 2010 and urged them to contact the Environmental Protection Agency. After conducting its own investigation, the EPA filed a Dec. 7 emergency order against Range, saying two of its Barnett Shale natural gas wells "caused or contributed" to the methane contamination of two water wells in far south Parker County, including the Lipsky well.
• In its counterclaim filed Thursday in state district court in Parker County, Fort Worth-based Range contends that it has spent more than $3 million to defend itself and suffered "significant harm to its well-deserved reputation as a high-quality driller and operator" in the Barnett Shale. It seeks more than $3 million in actual damages, plus unspecified exemplary damages.
• The Lipskys' lawsuit seeks $6.5 million for actual damages and mental anguish. • Range contends that Steven Lipsky and Rich conspired to produce misleading test results to get
the EPA involved in the case, even though the Texas Railroad Commission was already investigating. The commission concluded in March that the Range gas wells -- drilled into the Barnett Shale more than a mile below ground level -- did not cause the contamination.
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Dispositive Motions
• In aggregated cases, individual plaintiffs will ignore or be unable to prove elements of their claims.
• Frequent dispositive motion issues include:
– Plaintiffs’ failure to demonstrate lack of actual injury or physical invasion; and
– Plaintiffs’ inability to demonstrate causation.
• Defendants should also raise legal arguments designed to defeat novel claims or damages theories to guard against expansion of liability.
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Extra-Litigation Options
• General Tort Reform Statutes
– Typical statutes limit the availability of noneconomic and punitive damages.
• Industry-Specific Statutory Protections
– Specific statutes addressing medical malpractice lawsuits have been passed in many states.
– Agriculture-specific statutes have become popular.
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Legislative Reform: Nuisance Reform Laws
• Agriculture industry has had some success in obtaining stronger statutory protections:
– Missouri Senate Bill 187 (2011) • Modified the remedies available in temporary nuisance suits.
• Prevents successive temporary nuisance suits against the same agricultural operation.
– Indiana House Bill 1091 (2012) • Fee-shifting provision in nuisance cases that requires plaintiffs to
pay defendants’ legal fees if the nuisance action was “frivolous.”
McGuireWoods LLP | 185
CONFIDENTIAL
Community Relations
McGuireWoods LLP | 186
CONFIDENTIAL
4/18/12 WSJ Article
• “Mary and Dale Watson moved to this little community on the outskirts of Fort Worth for its peace and quiet. Then drilling rigs came in search of something else: billions of cubic feet of natural gas that lie underneath.
• That would once have meant a lot of noise and aggravation. Not now. • "I don't even notice it," Mr. Watson said of the 15-story drilling derrick in
the horse pasture behind his house. "I can go outside and hear a little bit, but as far as I can tell, it is no bother."
• That is because Devon Energy Corp. built a 24-foot-tall wall of insulated tarps around the drilling site—its derrick, several large pumps and three diesel generators. The beige wrap, which looks as if it were designed by a ham-fisted student of Christo and Jean-Claude, damps the noise emitted by the round-the-clock operation.
• Devon wasn't required to install the sound barrier under local ordinances, but it did so anyway to appease neighbors, such as the Watsons, who don't own mineral rights and so don't benefit financially from the drilling.”