Marcellus Shale taps into new legal pocket

HARLESTON, W.Va. (Legal Newsline) - Drilling deep under the ground for untapped reserves of natural gas has not only unearthed a rich natural resource, it's also tapped into a new area of the law.

Marcellus Shale has become a specialty for many attorneys in the oil-rich region stretching from New York to West Virginia, as big companies and mom-and-pop farmers work their way through billions of dollars in mineral deals and a complicated drilling process.

"There's an enormous amount of work for lawyers out of Marcellus Shale," said Joel Bolstein, a lawyer with Fox Rothschild in Philadelphia who chronicles the industry on his environmental law blog. "Up until a few years ago, you didn't have a lot of need for oil and gas lawyers. Marcellus Shale changed everything."

Indeed, shale drilling has taken off since 2008 when technology allowed energy companies to drill deep into the earth -- first vertically and then horizontally -- to reach reserves of natural gas trapped in the rock formations. The extraction process involves pumping millions of gallons of water thousands of feet underground to pull the gas from the shale.

Industry experts predict that the shale drilling could supply the nation with energy for decades, a particularly appealing proposition at a time when gasoline prices are soaring and the Middle East is in upheaval. It's also proving to be a bright spot in a bleak economy, creating thousands of jobs in the industry itself, as well as boosting local businesses and turning regular farmers into what one lawyer dubbed "shale-ionaires."

"It's such an exciting time right now in this industry," said Kathryn Klaber, president of the Marcellus Shale Coalition, a Pennsylvania-based trade association representing more than 40 drillers. "Natural gas prices are low, oil prices are high. We're seeing a cost-effective climate for gas development."

Of course with that development, and billions of dollars on the line, the legal profession is taking note. There are lawyers who represent the oil and gas industry, lawyers who specialize in helping landowners through the complex leasing process, government lawyers who oversee the regulatory process, environmental lawyers concerned about harm to the air and water and personal injury lawyers keeping watch over accidents on job sites.

Law firms are dedicating teams of attorneys to work on Marcellus Shale issues. Sixteen firms have officially become part of the Marcellus Shale Coalition, and state environmental departments are increasing their ranks to accommodate the rapid growth in the industry.

Bolstein divides the legal work into three areas.

* The first area - land leases - is complete, or nearly complete, at least in Pennsylvania.

"Everyone rushed up here to sign leases," he said. "The scope and magnitude of that was enormous. And it's pretty much been accomplished."

Gas companies will lease large swaths of land from landowners to gain access to the minerals under the ground. The prices range from a few hundred dollars an acre to a few thousand. Landowners are also paid royalties, some as much as $80,000 a month.

However lawsuits are being filed in Michigan - where a similar shale called Collingwood is being drilled - on behalf of land owners who claim the oil companies backed out of deals before paying their share.

Attorney Susan Topp says she has hundreds of clients who were promised thousands of dollars from Chesapeake Energy when the energy giant canceled the leases, claiming title defects. Topp says she expects to see this happen in other states.

"They tie up the mineral market, grabbing as many leases as they can," she said. "Then they don't like what they're finding and they don't pay."

Some of her clients spent the money before it was actually in their bank accounts. "It's caused a lot of harm to a lot of people," she said.

Chesapeake says the lawsuits are without merit, and the leases were rejected for legitimate reasons.

* Now that drilling work is getting under way and wells are being tapped, the second wave of legal issues involves permitting and transactions with the ancillary businesses involved in the process, Bolstein said.

Oil companies have a two-year time frame to drill a well once the lease has been signed. Getting to that oil requires a permit from state Departments of Environmental Protection and meeting certain guidelines related to water discharge and air pollution, just to name a few. There also are measures that need to be taken with local municipalities, including road repairs and cleanup once the drilling is complete.

"There's a notion out there that operators are drilling away without permits," said Joseph Reinhart, an attorney with BCCZ in Pittsburgh who represents the industry. "But that is not true. The (Pa.) DEP has the largest group of lawyers monitoring and doing inspections. The industry is constantly evaluating its best practices."

* The third wave of legal work, according to Bolstein, will come "when things go wrong."

That's where attorneys like Julia LeMense of Weitz & Luxenberg and Michael Rosenzweig of Edgar Snyder & Associates come in.

LeMense is part of a team at the New York plaintiff firm working on what is known as toxic torts pertaining to Marcellus Shale and potential damage to the environment, as well as claims that the pollution is making people sick.

"We're faced with the perfect storm from an environmental standpoint," she said. "There are water issues, land issues, damage to animal habitat, chemical concerns, human health concerns. There's a fair amount that we don't know."

LeMense and her firm are preparing to file lawsuits on behalf of hundreds of clients, many of whom are suffering health problems related to water pollution.

Rosenzweig, a partner at the Pittsburgh-based law firm, is representing clients who have been injured from accidents linked to Marcellus Shale drilling. He says the industry is going to be a very large generator of serious accidents.

"Let the imagination run wild," he said. "There are countless things that could happen."

In addition to the few higher-profile accidents such as explosions and gas leaks, Rosenzweig says many more people are harmed in slips and falls or car accidents caused by mud spewed onto the road from the big rigs driving through rural areas.

Industry lawyers are preparing for battle on this front as well. Reinhart said the industry is taking every precaution to ensure the safety of residents, workers and the environment.

"Like any industry, there will be some episodes where someone is making a mistake," he said. "We are trying to go above and beyond what the DEP does. We're constantly looking to improve."