Drilling for natural gas in shale formations was supposed to be an environmentally safer alternative to traditional drilling. But residents who live in the shadows of these mining operations find they’ve imbibed a toxic brew of contaminants in their water, air, and soil.
Gulf Coast oil spill litigation moves into discovery phase
The Deepwater Horizon disaster on the Gulf Coast sparked a nationwide outcry about the dangers of deepwater drilling. In its aftermath, questions continue to mount about safety issues, government regulation, and the environmental consequences of drilling. Farther north, a boom in another type of drilling poses its own risks to the health, safety, and well-being of our communities and our clients.
If you practice in the Appalachian region of the country, you may already have clients who have been touched by the toxic fallout of the Marcellus Shale gas “play” (to borrow an industry term). Since 2003—when energy companies began a serious effort to extract natural gas from the area—residents have reported a gamut of environmental nightmares and other harms: well explosions; tap water that ignites; carcinogens in drinking water, air, and soil; an invasion of earthmovers; harassment by leasing agents; and conflicts among neighbors over leasing terms and land use. As concerns mount, litigation to stop this toxic invasion has begun, with mixed levels of success.
The Marcellus Shale is a sedimentary rock formation that stretches across the Appalachian Basin, from the Southern Tier and Finger Lakes regions of New York, through northern and western Pennsylvania, to eastern Ohio, western Maryland, and most of West Virginia. Like other deep shale formations around the country—the Barnett in Texas, the Fayetteville in Arkansas, and the Haynesville in Louisiana—the Marcellus Shale is a source of valuable natural gas reserves. With an estimated size of 95,000 square miles, it is the largest of the active gas shale formations in the United States with the highest projected potential for recoverable reserves.1
In the past, extracting gas from the Marcellus Shale was unwieldy and expensive, but that changed dramatically with the advent of horizontal drilling and hydraulic fracturing (often called “fracking”); the high-demand markets of neighboring New England states; the construction of the Millennium Pipeline through the Southern Tier of New York; and the increased demand for natural gas, considered a cleaner alternative to traditional fossil fuels.2 In the past few years, the push to lease land (and the accompanying drilling rights) around the Marcellus Shale has been aggressive.
Untangling the many threads of the Marcellus Shale play is not easy. If you plan to represent clients who are affected by it, you will need to gain an understanding of gas drilling technology, gas industry jargon and practices, and the parameters and intersections of federal and state environmental law. You should also become familiar with the intricacies of state-specific mineral leasing laws; the nuances of contract, property, and consumer protection law; issues of medical and legal causation; and the rights of individual landowners and municipalities.
Much of the controversy over the Marcellus Shale centers on fracking. The process involves drilling the wellbore vertically down to a specific depth and angling it through a wide arc so that the well extends horizontally through the shale.
A fluid, usually water, and a propping material (or “proppant”) such as sand are then pumped into the well under high pressure to create fractures in the shale where pockets of gas are trapped. The proppant in the fracking fluid holds the fractures open, letting more gas flow into the well than would naturally.3
These forms of drilling use enormous amounts of water. Vertical wells opened by hydraulic fracturing may require more than a million gallons of water-based fluid, while horizontal drilling requires from 2 million to 9 million gallons. The fluid is typically trucked to the well pad and held in an on-site reservoir. Once the well is opened, much of the used fracking fluid returns to the surface, where it is stored for reuse, treatment, or disposal.4
The fracking fluid—also called slickwater—typically contains compounds such as diesel fuel, formaldehyde, acids, and other potentially toxic chemicals. Once the fluid is returned to the surface, it may also carry salts, chlorides, heavy minerals, and radioactive materials released from the rock during the fracturing process.5
As vividly portrayed in the 2010 documentary Gasland, a primary environmental concern over fracking is the seepage of slickwater and underground gases or minerals into groundwater and surface water resources.6 Landowners near drilling sites report tap water that gushes brown, heavy metals in their drinking water, and pipes that spout into flame, fueled by methane or other combustible gases in the groundwater.7
Drilling companies argue that the Marcellus gas lies thousands of feet below known aquifers, that state regulations require wells to be cased and grouted to protect against seepage, and that fracking fluids contain only a small proportion of chemicals, many of which are found in ordinary household products.8 But even these companies acknowledge that the technology to prevent leakage remains under development. And drillers in Pennsylvania have regularly violated state environmental regulations.9
The risk of seepage from centralized fluid storage and treatment facilities also poses environmental challenges. Large-scale trucking of fracking fluids poses additional threats—through spills, leaks, and runoff. A three-day crackdown by the Pennsylvania state police yielded hundreds of state trucking violations in gas-industry trucks; 140 trucks were pulled from service.10
The drilling process may facilitate the release of underground, naturally occurring radioactive material (NORM), including uranium. Disposing of NORM creates its own problems of potential leaks.11
In Pennsylvania and New York, a large part of the Marcellus formation underlies the environmentally sensitive Susquehanna and Delaware River watersheds. A preliminary study of small watersheds in northeast Pennsylvania released by the Academy of Natural Sciences in October 2010 indicates that the sheer density of drilling operations impairs the health of a watershed, shown by the loss of ecologically sensitive insect and amphibian life.12
Reports from the Barnett play in Texas suggest that air quality is another concern for people nearby. Natural gas production there has been linked to emissions of benzene, formaldehyde, carbon disulfide, ethane, toluene, and xylene. Short-term exposure to these compounds may produce nausea, dizziness, and respiratory problems, while long-term exposure is linked to brain tumors, leukemia, breast cancer, and other serious illnesses.13Rural landowners also complain about noise pollution, dust, truck traffic (some 1,300 tanker trips per well), road deterioration, and increased costs of living and crime rates—all concerns related to the rapid industrialization of a small-town landscape and culture.14
Fracking is exempt from the federal Safe Drinking Water Act under the so-called Halliburton Amendment, a 2005 amendment that exempted natural gas drillers from having to disclose the chemicals they use.15 Oil and gas drilling operations also remain largely exempt from provisions of the federal Clean Air Act; the Resource Conservation and Recovery Act; and the Comprehensive Environmental Response, Compensation, and Liability Act, although some aspects of oil or gas processing may be covered by these statutes.16
In the absence of comprehensive federal oversight, state laws and interstate watershed regulations must fill the void. New York’s department of environmental conservation has imposed a moratorium on fracking operations while its environmental impact assessment is being completed. The interstate Delaware Water Basin Commission has discontinued the issuance of drilling permits in the Delaware watershed, pending further rulemaking.17
Drilling licensing requirements cooperatively applied by the interstate Susquehanna and Delaware watershed commissions and the Pennsylvania Department of Environmental Preservation attempt to address various watershed challenges. They require drilling companies to disclose the names of chemicals used in fracking fluid, although the quantities of the chemical cocktail in a driller’s fracking fluid are deemed proprietary and not subject to disclosure.18
Regulations also govern the withdrawal of water from watershed sources and the storage and disposition of fracking fluids. For example, Pennsylvania law requires drilling operators to develop erosion and sediment control plans to minimize point-source discharges, preserve stream channels, and protect water quality.19
But the sheer proliferation of wells and drilling operations challenges the potency of these measures. In May 2008, the Pennsylvania Department of Environmental Protection suspended operations at several wells in Susquehanna County because drillers lacked the necessary permits to divert surface water and could not demonstrate the adequacy of precautions to protect streams from contaminated runoff.
This leaves litigation as one of the few avenues of redress. At press time, cases involving landowner claims of water-quality degradation, property degradation, and personal injury based on statutory and regulatory violations and Pennsylvania common law are wending their way through state and federal courts.20
A number of pending cases center on the leases that the gas companies pushed on unsuspecting landowners. Plaintiffs have mounted various challenges to the leasing process and lease terms, with mixed success.
The practices of the “landmen”—land brokers who acquire leases for drilling and extraction rights—are comparable to those of the snake oil peddlers of yore. Common techniques include cold calls on farmers in their homes at night, urging immediate action before leasing prices fall; false insistence that the price is non-negotiable, or on a par with neighboring lease prices; false insistence that a form lease is non-negotiable; false claims that a landowner is the only holdout among neighbors; false claims that failure to sign will cut a landowner out of a spacing unit or out of royalties; and failure to disclose which company the landman is working for.
The form leases proffered by the landmen routinely contain provisions that favor the driller/lessee over the landowner/lessor. Controversial terms involving lease extensions, royalty payments, well and equipment siting, and mandatory arbitration are routine. The pressure to sign results in hasty agreements—made without legal counsel—that bind landowners to terms and conditions they do not understand, do not desire, and do not profit from.21Landmen are typically not regulated by the states, but in some jurisdictions, like New York, landman-initiated transactions are subject to some consumer protections, including a right to revocation within three days. In Pennsylvania, no such protections are available.22
Landowners who signed gas leases without fully understanding them have filed lawsuits to modify or terminate these leases. A colorable case for voiding thousands of leases negotiated in the early days of the Marcellus play rested on claims under Pennsylvania’s Minimum Royalty Act. It specifies that a gas lease must guarantee the lessor a minimum royalty of all “oil, natural gas, or gas of other designations removed or recovered” from the leasehold.23 Initial landowner claims under the act challenged the gas company practice of deducting post-production expenses for transport and treatment before calculating the lessor’s royalty, but a 2010 Pennsylvania Supreme Court decision newly interprets the act to permit post-production deductions.24
A second line of royalty cases, challenging lease provisions that permit the deduction of all post-production expenses from the lessor’s royalty share, is working its way through the federal courts.25 And a third line of cases, challenging the lack of transparency in the gas companies’ calculations of royalties, may hold promise.26
The fraudulent conduct of landmen has also been put forward as a basis for voiding affected leases.27 But broad arbitration provisions in standard gas leases have made these claims difficult to pursue. Fraud carries a heavy burden of proof; it is difficult to establish even in judicial proceedings.
More promising may be cases that rest on a gas company’s failure to sufficiently develop its holdings under the terms of the lease. While gas companies in New York may be able to argue force majeure—because of New York’s hiatus in permitting drilling operations—the effect of this defense will likely be lease-specific.28
But a landowner’s best—and perhaps only—protection, when the landmen come around, is to have a lawyer scrutinize the lease’s language before signing anything. Part of your role should be to help individuals, neighborhood associations, and landowner groups negotiate lease terms that don’t favor the gas companies only.
In my practice in northeast Pennsylvania, many clients are rural landowners, often engaged in farming on tracts their families have owned for generations. They have experienced well water contamination and a variety of other pollution problems. Many complain of physical illness and suffer from the emotional distress of distrusting the water, air, garden produce, and grounds around their homes. Their soil, crops, and animals have been damaged by exposure to toxic chemicals.29
At the state level, you should be able to address many water-related claims as traditional contamination claims. For instance, in Pennsylvania my firm has filed causes of action for violation of the state’s Clean Streams Law and Hazardous Sites Cleanup Act, as well as traditional common law claims of negligence, nuisance, medical monitoring, and strict liability for abnormally dangerous activity. We have also filed suits against state regulators for failure to adequately police the gas operators. Such claims have recently been sustained on motions to dismiss in at least one federal district court.30
Environmental and quality-of-life concerns are giving landowners and municipalities in the Marcellus region pause for thought. Fracking once promised to bring safe energy, clean drilling, jobs, and financial windfalls to people living in the drilling area. Now those promises ring hollow.
And well productivity patterns have raised questions about the economic sustainability of deep shale gas wells. Decreasing production, high processing costs, and lower market prices may all limit lease royalties and leave landowners and communities with nothing to show for their efforts but some abandoned wells and a ruined environment. Some leases and well holdings could end up being sold—not only to far-flung U.S. gas developers, but also to international firms that are even less responsive to local concerns or regulations.31
Despite the rosy assurances of the drilling industry, gas leasing in the Marcellus play is risky business. It is as toxic to a community’s well-being as any oil spill. The energy companies have lined up their own lawyers; local residents deserve equally strong representation. Litigation is emerging as the best way to safeguard the rights, health, and quality of life of those who live in the poisoned wake of this drilling disaster.
William S. Friedlander practices law in Ithaca, New York. He can be reached at email@example.com.