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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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[email protected]

June 12, 2012

FEDERAL REGULATION AND

ENFORCEMENT

Shale Gas

5


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.”

6


“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.

7


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”)

8


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.”

9


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

10


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.

11


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

([email protected])

12


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.

13





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.

14





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.

15



• 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.”

16



• 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.”

17



• 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.”

18



• 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.”

19



• 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

20



• 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.”

21



• 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

22



• 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

23



• 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

24




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.”

25




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.”

26




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.”

27



Meanwhile – Part 1 – Lipsky case Order 2/16/12

28



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.

29



• 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.”

30


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

31


Other EPA Investigations

• Pavillion, WY

• Dimock, PA

32


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.

33


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).

34


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).

35


EPA CAA Regulations


Completions



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.

36


EPA CAA Regulations


Completions



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.

37


EPA CAA Regulations


Completions



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.

38


EPA CAA Regulations


Completions



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.

39


EPA CAA Regulations


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.

40


EPA CAA Regulations


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.

41


EPA CAA Regulations


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


EPA CAA Regulations


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.

43


EPA CAA Regulations


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.

44


EPA CAA Regulations


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.

45


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.

46


EPA CAA Regulations


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


EPA CAA Regulations


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.

48


EPA CAA Regulations


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.

49


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.

50


EPA CAA Regulations



– 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.

51


EPA CAA Regulations



– 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.

52


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


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.”

54


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.”

55


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

– [email protected]

56

57

© 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

http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2011&sind=0&body=H&type=B&BN=1950

http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2011&sind=0&body=H&type=B&BN=1950

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

http://www.legis.state.wv.us/legisdocs/2011/committee/interim/marcellus/marcellus_20111118150002.pdf

http://www.legis.state.wv.us/legisdocs/2011/committee/interim/marcellus/marcellus_20111118150002.pdf

http://mlis.state.md.us/2012rs/bills/hb/hb0907t.pdf

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.“

© 2012 Venable LLP

http://www.documentcloud.org/documents/334842-stateimpactpa-act-13-order.html









63


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

© 2012 Venable LLP

http://www.pacourts.us/OpPosting/Cwealth/out/1443CD10_5-9-12.pdf





http://catskillcitizens.org/learnmore/Middlefieldopinion.pdf

http://catskillcitizens.org/learnmore/Middlefieldopinion.pdf

http://www.scribd.com/doc/82382290/Dryden-Zoning-Law-Decision

64


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






65

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

© 2012 Venable LLP

http://www.legis.state.pa.us/cfdocs/billinfo/BillInfo.cfm?syear=2011&sind=0&body=H&type=B&bn=344

http://www.legis.state.pa.us/cfdocs/billinfo/BillInfo.cfm?syear=2011&sind=0&body=H&type=B&bn=344

66

(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.

© 2012 Venable LLP

http://files.dep.state.pa.us/OilGas/BOGM/BOGMPortalFiles/OilGasReports/2012/White Paper Use of AMD for Frac Water.pdf

http://files.dep.state.pa.us/OilGas/BOGM/BOGMPortalFiles/OilGasReports/2012/White Paper Use of AMD for Frac Water.pdf

67

(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).

© 2012 Venable LLP

68

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

69

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

70

(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

71

© 2012 Venable LLP

contact information

David DeSalle, Partner

[email protected]

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

http://www.mcguirewoods.com/

McGuireWoods LLP | 73

CONFIDENTIAL

OVERVIEW

• Local Ordinances and Preemption Lawsuits

• Shale Related Litigation

– Environmental

– Royalty

– Mineral Rights


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?


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).


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.


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.


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.”


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.


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.


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.


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.


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]


CONFIDENTIAL

Topics

• Forces Driving Hydraulic Fracturing Litigation

• The Future of Hydraulic Fracturing Litigation

• Strategies for Defending Hydraulic Fracturing Litigation


CONFIDENTIAL

Why is this happening?


CONFIDENTIAL

Increased Media/Public Relations Focus


CONFIDENTIAL

A Harbinger?

• http://www.youtube.com/watch?v=zCCqx0ZLmAo

http://www.youtube.com/watch?v=zCCqx0ZLmAo


CONFIDENTIAL

The Boogeyman Effect


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.”


CONFIDENTIAL

Increased Regulation


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."


CONFIDENTIAL

Plaintiffs’ Bar


CONFIDENTIAL

Possibility of Big Money


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


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.


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.


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.


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.'”


CONFIDENTIAL

The Future


CONFIDENTIAL

The Coming Wave of Hydraulic Fracturing Lawsuits?


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.


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).


CONFIDENTIAL

Factors That Will Impact Future of Hydraulic Fracturing Litigation


CONFIDENTIAL

#1 - The Battlefield? Causation!


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 . . . .”


CONFIDENTIAL

Lone Pine


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.”


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.’”


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.”


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.”


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


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


CONFIDENTIAL

#2 – Where?


CONFIDENTIAL

Where?

• Cases currently in:

– Pennsylvania

– Texas

– Arkansas

– Louisiana

– Colorado

– New York

– West Virginia


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.


CONFIDENTIAL

# 3 -- Recruiting Plaintiffs


CONFIDENTIAL

# 4 -- Causes of Action

• Public Nuisance

• Private Nuisance

• Trespass

• Others

http://imgsrv.gocomics.com/dim/?fh=a019f4345ada0f58d72a03ce990cc03f&w=900.0


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”


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


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.”

http://2.bp.blogspot.com/_HA8NR1piCJ0/SYvv7WEfgqI/AAAAAAAAAJA/S7RZ_wIC7RE/s1600-h/No_Trespassing1.jpg


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


CONFIDENTIAL

Others

• Infliction of Emotional Distress

• Failure to Warn

• Battery

• Fraud

• Conspiracy

• Strict Liability

• Medical Monitoring

• Unjust Enrichment

• State Environmental statutes

• Fed. Environmental statutes


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.”


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.”


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


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.


CONFIDENTIAL

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.


CONFIDENTIAL

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.”


CONFIDENTIAL

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).


CONFIDENTIAL

# 6 -- “Fear of” & Emotional Distress Damages


CONFIDENTIAL

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.


CONFIDENTIAL

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.”


CONFIDENTIAL

# 7 - Science


CONFIDENTIAL

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.”


CONFIDENTIAL

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


CONFIDENTIAL

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


CONFIDENTIAL

# 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.


CONFIDENTIAL

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


CONFIDENTIAL

End-Around


CONFIDENTIAL

# 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."


CONFIDENTIAL

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.


CONFIDENTIAL

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.


CONFIDENTIAL

# 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.


CONFIDENTIAL

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.) “


CONFIDENTIAL

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.”


CONFIDENTIAL

# 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”


CONFIDENTIAL

# 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.


CONFIDENTIAL

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.


CONFIDENTIAL

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.


CONFIDENTIAL

Increased Patchwork Quilt of Regulations


CONFIDENTIAL

# 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.


CONFIDENTIAL

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


CONFIDENTIAL

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


CONFIDENTIAL

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. ”


CONFIDENTIAL

# 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


CONFIDENTIAL

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


CONFIDENTIAL

# 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.


CONFIDENTIAL

Evolution of Hydraulic Fracturing Lawsuits


CONFIDENTIAL

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


CONFIDENTIAL

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.


CONFIDENTIAL

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


CONFIDENTIAL

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.


CONFIDENTIAL

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.


CONFIDENTIAL

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


CONFIDENTIAL


• 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.


CONFIDENTIAL


• 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)


CONFIDENTIAL

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


CONFIDENTIAL

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)


CONFIDENTIAL

Conclusions


CONFIDENTIAL

Casting a Wide Net


CONFIDENTIAL

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


CONFIDENTIAL

How Do You Defend Against Them?


CONFIDENTIAL

Prepare


CONFIDENTIAL

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?


CONFIDENTIAL

Disaggregation


CONFIDENTIAL

Force Concretization


CONFIDENTIAL

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.


CONFIDENTIAL

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.


CONFIDENTIAL

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


CONFIDENTIAL

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.


CONFIDENTIAL

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.


CONFIDENTIAL

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.


CONFIDENTIAL

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.”


CONFIDENTIAL

Community Relations


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.”

Hydraulic Fracturing: Litigation, Enforcement and ...media.straffordpub.com/products/hydraulic...Jun 12, 2012 · Hydraulic Fracturing of Coalbed Methane eservoirs” – “ did

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