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Shale Gas Boom: Hydraulic Fracturing and Potential Legal Claims

Joshua W. Mermis
Friday, June 22, 2012

A “gas rush” is revitalizing the domestic petroleum exploration industry, and the legal ramifications could be felt for decades. Through hydraulic fracturing (fracking), petroleum companies access once cost prohibitive shale gas formations by creating fractures in underground rock formations, thereby facilitating oil or gas production by providing pathways for oil or gas to flow to the well. These pathways are commonly referred to as the “fractures.” The legal consequences of fracking could impact more than half of the Lower 48 states.

Background of Hydraulic Fracturing

The basic technique of fracking is not new. In fact, fracking has been used in wells since the late 1940s. The first commercial fracking job took place in 1949 in Velma, Oklahoma, however, sequestered layers of shale gas were inaccessible until 1985, when pioneers such as Mitchell Energy and Development Corporation combined fracking with a newer technology called directional, or horizontal drilling in the Austin Chalk. Directional drilling gave producers access to the shale gas because it allowed them to turn a downward- plodding drill bit as much as 90 degrees and continue drilling within the layer for thousands of additional feet. The positive results were soon transferred to the Barnett Shale in North Texas. To date, more than one million wells have been fractured.
The “hottest” shale plays are as follows:

  • Bakken (Montana, South Dakota and North Dakota)
  • Barnett Shale (Texas)
  • Eagle Ford (Texas)
  • Haynesville (Arkansas, Louisiana, and Texas)
  • Marcellus Shale (New York, Ohio, Pennsylvania, and West Virginia)
  • Utica (Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, West Virginia and Virginia)

Confirmed and/or prospective shale plays are also found in Alabama, California, Colorado, Illinois, Indiana, Kansas, Michigan, Mississippi, Missouri, Nebraska, Utah and Wyoming. Shale plays have been confirmed in countries around the world, but the US is the leader in shale gas exploration.

More Money, More Problems

The new application of an old technology made it possible to profitably produce oil and gas from shale formations. Domestic and international companies quickly rushed to capitalize on the large reservoirs of shale gas. But unlike the preceding decades, where new oil and gas exploration had occurred offshore and in deepwater, oil and gas drilling started to occur in areas that were not accustomed to oil and gas activity. Overnight ranchers became millionaires as landmen leased large swaths of property to drill. The media started reporting about enormous domestic supplies of oil and gas that could be profitably produced from shale formations and politicians touted energy independence that could alleviate the country’s demand for foreign reserves. But with the increased attention came increased scrutiny.

Environmental groups have criticized the industry for fracking. The chief concern is that fracking will contamination of drinking water. Movies such as “Gasland” and “Gasland 2″ fueled the public’s concerns that the drilling caused polluted water wells and flammable kitchen faucets. Additionally, the industry received criticism for the engineering process that involved high-rate, high-pressure injections of large volumes of water and some chemicals into a well to facilitate the fracking. The EPA and state regulatory bodies have become involved in the discussion and new regulations are likely to follow. In the meantime, some lawsuits have already been filed.

Pending Hydraulic Fracturing Litigation

Plaintiffs have filed approximately forty shale-related lawsuits across the country. These lawsuits include: (1) tort lawsuits; (2) environmental lawsuits; or (3) industry lawsuits. As the shale boom accelerates more suits are anticipated.

1. Tort Lawsuits

Tort lawsuits have been brought by individuals and as class actions. Typically the claimants assert claims for trespass, nuisance, negligence and strict liability. Their complaints involve excessive noise, increased seismic activity, environmental contamination (air, soil and groundwater), diminution in property value, death of livestock/animals, mental anguish and emotional distress. The plaintiffs seek actual damages and, in some instances, injunctive relief. A few parties have even sought the establishment of a medical monitoring fund. The majority of these lawsuits have been filed in Texas, Pennsylvania and Louisiana. The first wave of lawsuits has established new law in the respective jurisdictions as the appellate courts weigh in with published opinions on issues that range from oil and gas lease forfeiture, consequences of forged contracts and contract formation.

2. Environmental Lawsuits

Environmental organizations and some citizen groups are seeking to enforce environmental laws and regulations in an effort to protect the environment and the public from what the litigants perceive to be negative consequences of fracking. In some instances they are even seeking to restrict the use of hydraulic fracking until it is proven to be environmentally safe. A popular target among these litigants is federal and state regulatory bodies, such as the EPA, and federal statutes, such as the Clean Air Act.

3. Industry Lawsuits

The final category of lawsuits includes those brought by the industry against the government. Claimants have sought to challenge federal, state and local government actions that have impeded the industry’s ability to drill.

Fracking Lawsuits 2.0 – Transportation, Construction, Personal Injury and Beyond

The survey of current fracking lawsuits does not take into account the claims that will spin out of the new shale plays. In fact, the engineering and logistical side of the fracking process – not fracking itself – will lead to many more attendant claims.

  • Transportation: The survey of current fracking lawsuits does not take into account the claims that will spin out of the new shale plays. In fact, the engineering and logistical side of the fracking process – not fracking itself – will lead to many more attendant claims.
  • Commercial: Lessor involved in mineral disputes will lead to commercial claims. Many lessors will feel they were shorted, or want a better deal as those now positioned to lease their rights sign a more lucrative mineral-rights lease. Company-to-company disputes will also rise as the price of natural gas fluctuates.
  • Construction: The contractors and design professionals building the midstream facilities, among others, will lead to construction-defect and delay claims. Many states have recently adopted anti-indemnity statutes that will impact claims that arise during construction of midstream facilities, pipelines and other infrastructure-related construction projects.
  • Insurance: Coverage issues will arise as parties file first- and third-party claims for myriad reasons. Issues including comparative indemnity agreements, flow-through indemnity and additional insured endorsements, among others, will need to be analyzed.
  • Personal Injury: Additional workers drilling and working the wells will lead to an increase in personal injury and work-place accident claims. Many of the shale plays are located in what have traditionally been considered “plaintiff friendly” venues. A claim in Pennsylvania will have a different value than one located in Webb County, Texas.
  • Product Liability: The products and chemicals used to drill and extract the oil and gas will lead to product liability claims involving both personal and property damage. The BP Deep Water Horizon well-blowout in the Gulf of Mexico will not be lost on those involved in domestic oil and gas exploration.

How To Reduce Future Fracking Litigation Risk?

Parties can act now to discourage litigation or better position themselves in the event they are named in a suit.

1. Institute electronic records protocol

The proliferation of email and increased retention and archival capabilities means that emails never die. A potential defendant would be well served with a protocol in place that outlines to its employees what are acceptable electronic communications.

2. Strictly comply with fracking fluid disclosures

For those parties who could be exposed to claims regarding the fluids used during drilling, it is important that they minimize the public’s suspicion that they are withholding information about the fluids. The best way to neutralize that misconception is to strictly comply with the state-mandated disclosure rules where applicable. It may even behoove them to voluntarily disclose the fluids’ contents through the
companies’ websites.

3. Be prepared for a fire-drill

A party must be ready to quickly assert its position when a claim is brought. The best way to do so is to track current litigation. Following the cases will provide the company a preview as to what claims it may be subject to, and it also allows them to evaluate defenses. It may also enable the company to insulate itself from suit by avoiding certain actions. Along those same lines, knowing the facts, documents, emails, fact witnesses and expert witnesses will work to a party’s advantage. Some industry leaders have proactively retained experts even though they have not been sued.

4. Know your neighbors

Parties should view their neighbors as allies and potential jurors. To that end, it makes sense to open a dialogue about fracking with the regulators on a local, state and federal level. It would also benefit the parties to engage the community and publicize information about the benefits associated with fracking, e.g., jobs, lower energy prices, cleaner energy, energy independence, etc. Certain midstream players have rolled out a public education campaigns aimed at that very goal.

Conclusion

Articles on shale gas and fracking adorn the front pages of the Wall Street Journal and New York Times. 60 Minutes runs stories on shale-gas drilling and the faux pundit Stephen Colbert discusses fracking’s impact on his tongue-and-cheek news show. The promise of profits, domestic jobs and energy independence has the country talking about the gas shale plays that dot the landscape. Fracking and all that it encompasses will serve as the backdrop for a variety of legal issues during the foreseeable future.

Joshua W. Mermis is a partner at Johnson, Trent, West & Taylor in Houston, Texas, where he primarily practices in construction and energy litigation. He received his B.A. from the University of Kansas and J.D. from the University of Texas School of Law. This article previously appeared in the Spring/Summer 2012 issue of USLAW magazine.

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Nullify ObamaCare in Missouri!

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Posted by Ron Calzone

We have clearly learned that the liberty movement can accomplish a lot when we work together. Just recently liberty activists:

  • Killed the Obamacare Insurance Exchange Bill
  • Stopped Missouri from accepting a $50 million grant that would have been used to build the computer system needed for an Obamacare Exchange
  • Advanced the Health Care Freedom Amendment
  • Advanced a Sound Money bill
  • Helped stop the bill that sets up a prescription drug monitoring database
  • and more…

Now we have a chance to lead the nation with the first bill that truely and completely nullifies Obamacare!

This bill is not just about the so-called Affordable Care Act — it is about the states finally telling the federal government that we’re not going to sit by and allow them to trash the Constitution and the principles of federalism any longer.

To make HB 1534, the Obamacare nullification bill, a Senate priority we are going to have to muster a great show of force.  The best way to do that right now is with a huge quantity of witness forms for Tuesday’s hearing. 

Senator Cunningham is already sold on this bill and she doesn’t want a long or complex hearing, so we can save a mass rally for later, but right now about 1000 witness forms is just what is needed.

Please ask the members of your organization and other friends to go HERE for more information or go directly to this Witness Form.

Here’s a map of the witnesses at the time this email was drafted.

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Missouri House Votes to Nullify Obamacare in its Entirety

imagePosted by Matthew Silber

On April 19, 2012, HB:1534 passed the Missouri House with a vote of 108 to 44! The bill “Declares the federal Patient Protection and Affordable Care Act as unauthorized by the United States Constitution and creates criminal penalties for persons enforcing or attempting to enforce the act”

But the good news doesn’t stop there. Inside reports tell us that when the absent Representatives who have committed to vote “yes” are able to do so, HB1534 should have a veto-proof majority.

This is a major step beyond what a number of states around the country – including Missouri – have been doing previously, rejecting just the mandate portion of the federal act.

(To see how your Missouri Representative voted, please see the following link: Ayes and Noes of 1534. If they voted “No”, you may wish to let them know your concern by sending them a polite message. Use the following link to look up your Missouri Representative.)

Additionally, it’s important to notice that when HB1534 was “perfected” in the Missouri House several days ago (with a vote of 109 to 49) – there weren’t any amendments offered. This also is encouraging, as it means that the preferred language, consisting of a Jeffersonian style nullification of Obamacare (along with the arrest of federal officials who attempt to enforce Obamacare), was retained in the bill.

Now that the bill has been passed by the House, it will begin a journey through the Senate – starting with a hearing that hopefully leads to it being taken up for Senate debate. Liberty activists should be ready to encourage the Senate to make this a high priority, as it may be hard finding a sponsor with the passion to get the job done.

Meanwhile, HB1534 has started to receive a bit of attention from the press. For instance, The Kansas City Star writes in the article, “Missouri bill would ban implementing health care law” that “A Missouri House panel has endorsed legislation making it a crime for federal officials to attempt to enforce the 2009 federal health care overhaul in the state.”

And over at the Dailypaul.com, the headline, “Missouri to arrest any federal officials who attempt to enforce Obamacare” encourages readers to stand up and speak out in favor of this bill.

ACTION ITEMS

First step? If you live in Missouri, contact your state senator and politely, but strongly, urge them to pass HB1534. We’d like to see a veto-proof majority in the Senate too.

CLICK HERE – to get contact information for your Missouri Senator

Also, please take a few minutes to thank those who have made this possible so far, and send them an email with “Thank you” in the subject line. Encouraging our leaders is just as important as jumping on them when they don’t do what they want, so let’s give credit where credit is due!

Don’t forget, that while HB1534’s passage in the House is a meaningful victory – we’ll need to be ready to convince Senate leadership to also make healthcare liberty a priority for our people.

Please utilize the following link to review the status of HB1534.

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CLICK HERE To track healthcare nullification legislation nationwide:

CLICK HERE for TAC model legislation, Federal Health Care Nullification Act

 

 

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