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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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The Slippery Slope of Domestic Drones

Posted by Amanda Bowers
originally posted at the Washington State TAC

There are plenty of obvious concerns about the use of domestic drones. Their use by law enforcement is expanding rapidly, and it’s only normal to be concerned about privacy laws. Even if you don’t have a reasonable expectation of privacy in a public place, with drones the size of hummingbirds, will you have a reasonable expectation of privacy on your own property, or even through your own windows? In the long run, what will constitute the need for surveillance? In Washington state it could be a nice new way to fine litterers.

Let’s not forget the original intent of this technology. Drones are used by our military to spy on, and to kill our enemies. Or at least, those we perceive to be our enemies, whether guilt has been proven or not, and with a callous disregard for collateral damage.

While it could be argued that some use of surveillance drones is reasonable; for example, border patrol or missing persons cases, how soon does it become difficult to draw the line? Are we there already?

Just this week members of Congress accused the EPA of using drones to conduct surveillance flights over Iowa and Nebraska farms. Though they were assured by the EPA that they are using only manned aircraft to check for violations of federal clean water laws, it does make one wonder about the right of the EPA to conduct this type of surveillance in the first place. Not to mention the fact that even Congress doesn’t know what the EPA is doing.

We have many large government agencies like this. The EPA might not actually be using drones to monitor your compliance with federal laws now, but how long until they are? With domestic drones getting smaller and easier to come by, it seems that it is only a matter of time. And if the EPA now, then who next? The FDA? It would be a lot easier for them to keep tabs on who you are selling your raw milk to, if they could only monitor everyone who comes and goes from your property.

Then there is the fact that law enforcement is already talking about arming drones with rubber bullets. Of course this is mainly for things like crowd control. But At some point do you look up at the drone flying over head and feel a sudden solidarity with citizens in Islamabad, wondering; am I next? Perhaps the idea seems a little far fetched now, but not so very long ago, the idea of drones surveying your neighborhood was also far fetched.

Welcome to our new reality.

James Madison once warned us that “the means of defense against foreign danger have always been the instruments of tyranny at home.”

Is doesn’t seem like wisdom to treat our government, who can so easily brush off the deaths of hundreds of innocent civilians, as if they are somehow different people when it comes to surveillance here at home. We need to be vigilant about how this technology is used.

H.R. 5925, The Preserving Freedom from Unwarranted Surveillance Act, was recently introduced by Rep. Austin Scott, R-GA, “To protect individual privacy against unwarranted governmental intrusion through the use of the unmanned aerial vehicles commonly called drones, and for other purposes.” The text of the bill is not available yet, but it would require the government to obtain warrants for surveillance purposes.The bill is currently bound up in judicial committee where many bills go – never to be heard from again. It’s a good start though, and a reminder that we can enact our own surveillance regulation in our own states. In the meantime, we should be asking our Congress men and women to support this kind of legislation that would protect our 4th amendment rights.

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API: Hispanic Employment Rate, Jobs Creation Hurt by Keystone Delay

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President Barack Obama’s decision to delay approval of the Keystone Pipeline project is hurting job creation opportunities in the United States, particularly among Hispanics, said officials with the American Petroleum Institute (API) on Tuesday.

The Keystone Pipeline will not only help lower oil prices for U.S. consumers, but have a ripple effect spreading outward from Nebraska and neighboring states to create jobs and help small businesses.

This job creation will be helpful in particular for the U.S. Hispanic population, the unemployment rate for which is one to two points higher than other demographic groups in the United States.

The Los Angeles Times reported in 2010 that the unemployment rate among U.S. Hispanics rose because of their disproportionate unemployment in industries and regions significantly impacted by the economic downturn.

According to a U.S. Department of Labor report, the unemployment rate among Latinos in the United States averaged 11.5 percent in 2011; the most recent unemployment report in February 2012 shows improvement for all Americans, including Latinos, who have seen their unemployment rate decline to 10.7 percent in February from a high of 13.1 percent in November 2010.

In 2011, 5.8 percent of Latinos were self-employed compared to 7.2 percent among whites, partly due to lower educational attainment and less access to financial wealth.

The entry rate of Latinos into self-employment compares favorably to that of non-Latino Whites and their entry rate is even higher compared with whites in low-barrier sectors, according to the Department of Labor report. However, Latinos tend to have lower success rates with their new businesses and exit self-employment at a higher rate than whites.

People of Hispanic or Latino ethnicity represented 15 percent of the U.S. labor force in 2011, or nearly 23 million workers. By 2020, Latinos are expected to comprise 19 percent of the U.S. labor force, according to the U.S. Department of Labor.

API ‘Disappointed’ in Keystone Delay, Impact on Jobs

“We’re disappointed that the current administration doesn’t see how this project doesn’t add up,” said Hispanic Leadership Fund President Mario Lopez during a conference call with reporters, noting that the project appears to be delayed for political reasons.

“Four years ago, Obama promised to push unemployment lower and lead us out of the depression,” Lopez said. “Approval of the Keystone pipeline would demonstrate to all Americans and to Latinos across the country that he cares about jobs and domestic energy.”

API has committed significant resources to support all aspects of the Keystone project.

“The earth hasn’t moved and the geology hasn’t changed,” said API Executive Vice President Marty Durbin, adding that the Keystone pipeline project is “as ready as it can get.”

Durbin said that imports of Canadian oil sands supply to the U.S. Gulf Coast would not create a supply glut, but would displace oil imported from other countries.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

Rigzone

Obama’s Crude Chutzpah

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By Aaron Goldstein

Our president’s ideological and intellectual laziness is a job killer.

Over the weekend at the Asia-Pacific Economic Coperation (APEC) Summit in Honolulu, President Obama raised a few eyebrows when he criticized a lack of ingenuity on the part of Americans in attracting foreign investment:

But we’ve been a little bit lazy, I think, over the last couple of decades. We’ve kind of taken for granted — well, people will want to come here and we aren’t out there hungry, selling America and trying to attract new business into America.

President Obama’s choice of words was at best peculiar and at worst pedantic. Forty-eight hours earlier, the Obama Administration delayed approval of the Keystone XL Pipeline until after the 2012 election. The Keystone XL Pipeline, which would transport crude oil from the oil sands in northern Alberta into the United States as well as U.S. domestic oil, is being built by TransCanada, which is based in Calgary. The last time I checked Canada is a foreign country. Ergo this would constitute foreign investment. Apparently, President Obama’s appetite for foreign investment isn’t as insatiable as he would have us believe. Talk about chutzpah in its crudest form.

The Keystone XL is actually an extension of the existing Keystone Pipeline that went into operation in 2008. The extension would have been twofold. First, the pipeline that currently ends in Oklahoma would be extended into the Gulf Coast of Texas. Second, the pipeline would be extended from its starting point in Hardisty, Alberta, and run through Montana and South Dakota before joining up with the existing pipeline in Nebraska.

The pipeline extension faced opposition from environmentalists, many of whom took their protest to the White House. Most of the opposition to the extension of the pipeline is centered in Nebraska where there are concerns that the pipeline could contaminate the groundwater in the Ogallala Aquifer that encompasses the Nebraska Sandhills. However, a report produced by the State Department back in August concluded the extension of the pipeline would have little environmental impact. But in facing a difficult bid for re-election next year, Obama dismissed reason and chose to placate the passions of the environmentalists. For its part, TransCanada has pledged to work with the State Department in looking at alternate routes for extending the pipeline but emphasizes that time is of the essence:

Keystone XL is shovel-ready. TransCanada is poised to put 20,000 Americans to work to construct the pipeline — pipe fitters, welders, mechanics, electricians, heavy equipment operators, the list goes on. Local businesses along the pipeline route will benefit from the 118,000 spin-off jobs Keystone XL will create through increased business for local restaurants, hotels and suppliers.

However, some believe this “delay” represents the death knell of the pipeline extension. Christopher Helman of Forbes writes:

So the Obama administration rejected Keystone XL. Oh sure, they want us to think it’s just a delay, a kicking of the Keystone can down the road. Officially, the state department just sent TransCanada back to the drawing board to look at a variety of other pipeline routes that do their best to avoid the Sandhills in Nebraska and areas overlaying the Ogawalla Aquifer. But don’t be fooled. This is a rejection plain and simple.

In the process of selecting the proposed route, TransCanada plotted and studied 14 different pipeline paths and submitted 10,000 pages of environmental studies. They’ve already studied this thing to death. So when the state department says this new review could be done by early 2013, can we really expect any different outcome than more delays?

All of which brings me back to President Obama. Consider what he had to say at a Democratic Party fundraiser in San Francisco last month:

Anybody been to Beijing Airport lately? Or driven on high-speed rail in Asia or Europe? What’s changed? Well, we’ve lost our ambition, our imagination, and our willingness to do the things that built the Golden Gate Bridge and Hoover Dam and unleashed all the potential in this country.

Who does President Obama think he’s kidding? As Thomas Purcell points out, it took more than fifteen years for the Golden Gate Bridge to be built largely because of stonewalling on the part of the federal government:

Construction did not go as smoothly as planned. It takes another FIVE years for the government and the architects to come to agreement on the design. Furthermore, Federal contractor unions wanted the contracts to build the bridge and stalled the government on the issue, demanding they take action to halt construction unless they got the contract. Fortunately, local authorities insisted that as part of the contract only local labor would be used instead of Federal union contracts, insuring the area had work during Depression era unemployment.

And at the risk of conjuring up the image of Rachel Maddow wearing a hard hat, there is no way on God’s green earth the Hoover Dam would have be built in Barack Obama’s America. If there was a proposal on the table to divert the Colorado River, you could be sure that Robert Redford, Robert Kennedy, Jr. and Darryl Hannah would be there to oppose it faster than you could say, “Splash!” As the Economist recently put it:

It was hard enough back then to overcome the rivalries of the seven states involved, but at least nobody gave a fig for the down-river rights of the south-western Indians, let alone the Mexicans, or the creatures whose habitats were eradicated when the river was damned. Today a rampart of federal legislation, such as the National Environmental Policy Act and the Endangered Species Act, would block the way.

At the risk of being crude, if President Obama was just a little less lazy about his economic policies and his knowledge of American history, then perhaps we wouldn’t find ourselves in this sorry state of affairs.

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TransCanada Will Reroute Keystone XL Pipeline Away From Nebraska’s Sandhills And Ogallala Aquifier

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LINCOLN, Neb. (AP) — Canadian pipeline developer TransCanada will shift the route of its planned oil pipeline out of the environmentally sensitive Sandhills area of Nebraska, two company officials announced Monday night.

Speaking at a news conference at the Nebraska Capitol, the officials said TransCanada would agree to the new route, a move the company previously claimed wasn’t possible, as part of an effort to push through the proposed $7 billion project. They expressed confidence the project would ultimately be approved.

Alex Pourbaix, TransCanada’s president for energy and oil pipelines, said rerouting the Keystone XL line would likely require 30 to 40 additional miles of pipe and an additional pumping station. The exact route has not yet been determined, but Pourbaix said Nebraska will play a key role in deciding it.

The announcement follows the federal government’s decision last week to delay a decision on a federal permit for the project until it studies new potential routes that avoid the Sandhills area and the Ogallala aquifer as the proposed pipeline carries crude oil from Canada to Texas Gulf Coast refineries.

Debate over the pipeline has drawn international attention focused largely on Nebraska, because the pipeline would cross the Sandhills — an expanse of grass-strewn, loose-soil hills — and part of the Ogallala aquifer, which supplies water to Nebraska and parts of seven other states.

Company officials had claimed that moving the route was impossible because of a U.S. State Department study which found the Sandhills route would leave the smallest environmental footprint.

Pourbaix said he was confident a new route would also avoid the parts of the aquifer that sit closes to the surface, which was a major concern cited by environmentalists and the region’s landowners. He said moving it out of the Sandhills region would likely ease many of the concerns posed by landowners.

“We do remain confident that we could have built a safe pipeline through the original route that was approved by the State Department” in an environmental impact statement released earlier this year, Pourbaix said. “At the same time, it has always been a priority of TransCanada to listen to our stakeholders.”

He added: “We’re confident that collaborating with the state of Nebraska will make this process much easier.”

State Department spokesman Mark Toner said any new route would require a supplemental environmental impact statement that likely would take more than a year to complete.

“Based on the total mileage of potential alternative routes that would need to be reviewed, we anticipate the evaluation could conclude as early as first quarter of 2013,” Toner said in a written statement.

Delaying the decision on the pipeline went over badly in Canada, where it was seen as a signal that the country must diversify its oil exports away from the United States and toward Asia.

Canadian Prime Minister Stephen Harper said he made it clear in a weekend meeting with President Barack Obama that the nation will step up its efforts to sell oil to Asia since the decision was delayed, and would keep pushing the U.S. to approve the project.

“This highlights why Canada must increase its efforts to ensure it can supply its energy outside the U.S. and into Asia in particular,” Harper said.

Harper said he emphasized the pipeline would mean economic growth on both sides of the border.

Business and labor groups who support the project say the environmental criticism is overblown, and based more on opposition to oil than the project itself. They say the project will create construction jobs, although the exact number is disputed.

Environmentalists and some Nebraska landowners fear the pipeline would disrupt the region’s loose soil for decades, harm wildlife, and contaminate the aquifer.

The speaker of Nebraska’s legislature, Mike Flood, said the state will conduct an environmental assessment of its own at state expense to determine a route that avoids the Sandhills area and other ecologically sensitive areas. The Nebraska Department of Environmental Quality will oversee the process, with collaboration from the U.S. State Department.

Noah Greenwald, a spokesman for the Center of Biological Diversity, said his group remains opposed to the pipeline and still believes it poses an environmental threat. The center is one of three environmental groups that have sued the U.S. State Department, seeking a judge’s order to block the project.

“Even with the reroute, we still feel like we can push forward,” he said. “We’re going to keep up the public pressure on the administration as this moves forward.”

Nebraska Gov. Dave Heineman had called a special legislative session to seek a legal and constitutional solution to the pipeline debate. But the session’s stated goal — to enact oil pipeline legislation — has lacked a clear consensus about what, if anything, state officials ought to do.

Nebraska State Sen. Ken Haar of Malcolm, an outspoken pipeline critic, was pleased with Monday’s announcement.

“It’s good for the people of Nebraska. It’s good for TransCanada,” he said.

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