Douglas Clark had been a criminal defense attorney in the Scranton area for a decade when the natural gas boom came calling in 2007.
A neighbor asked him to review a gas rights lease for his property in the northeastern corner of Pennsylvania, where energy companies began snapping up such leases in the mid-2000s in hopes of tapping into the Marcellus Shale — a sedimentary rock formation rich in natural gas that covers most of Pennsylvania and parts of New York, Ohio, West Virginia, Kentucky and Tennessee. Clark knew virtually nothing about oil and gas leases, but he wanted to help the neighbor. He spent every evening for the next 2 1/2 months poring over oil and gas leases as he negotiated with the gas company. The lease price offered rose from $100 to $750 per acre. Clark realized he was staring at a potentially profitable new direction for his law practice.
“I ran some ads and it just took off,” said Clark, who now handles oil and gas matters almost exclusively during his 14-hour days. “We’ve represented hundreds of landowners. It’s become all-consuming.”
Clark is among the hundreds of attorneys and law firms benefiting from a wave of activity centered on the Marcellus Shale. Attorneys report that the activity around the Marcellus Shale and several of its smaller counterparts is the most significant development in the domestic oil and gas industry in 30 years. Although still in its infancy, the natural gas rush is generating a hefty amount of legal business, which is expected to continue into in the next decade.
“It’s really been quite remarkable,” said James Rice III, the firmwide head of Akin Gump Strauss Hauer & Feld’s energy and global transaction practice. He now spends about 75 percent of his time on Marcellus Shale issues. “I’ve been practicing law for 27 years, and I can’t think of an analogue in my career.”
The activity is notable in part because it has created business opportunities for a wide array of attorneys — not just the traditional energy powerhouses. Small local firms and solo attorneys within the Marcellus Shale area, such as Clark, are heavily involved in representing landowners in lease negotiations with gas development and pipeline companies, while regional firms are handling regulatory matters and large firms are putting together corporate deals.
“The opportunities here in the Marcellus Shale, from a legal perspective, will be significant and long term,” said Walter Bunt Jr., a litigation partner in K&L Gates’ Pittsburgh office who has represented a number of natural gas and pipeline companies on Marcellus Shale issues. “The potential value of the Marcellus Shale gas is extremely high.”
The Marcellus Shale hasn’t always been viewed as a hot property. As recently as 10 years ago, the estimated extractable natural gas reserves were relatively small, and existing drilling techniques made mining operations too expensive to pursue. A combination of more efficient extraction techniques, better mapping, and growing estimates of the gas reserves has resulted in a surge of interest, with some of the largest international energy companies — including Exxon Mobil Corp. and Anadarko Petroleum Corp. — now elbowing in.
Environmentalists contend that the process of hydraulic fracturing, in which mining cavities are flushed at high pressure with water, sand and chemicals, contaminates drinking water. Still, many advocates hail shale-produced natural gas as an obvious “bridge fuel” between the existing coal-based energy system and more environmentally sustainable alternatives still in development.
“It was under the radar up until 2007, and it’s been exploding since then,” said Duane Morris Washington partner David DeSalle. “It’s a very large recoverable resource, and it’s becoming cheaper to extract. Not only that, but the Marcellus Shale is close to the markets in the Northeast, which makes it even more attractive.”
Because Pennsylvania has not had a vibrant oil and gas scene for decades, many local attorneys had to quickly get up to speed once energy companies came to the region seeking land leases.
“There has been a learning curve, and people have retooled their practice to focus on oil and gas work,” said John Carroll, a partner in Pepper Hamilton’s Harrisburg office and the chairman of the Pennsylvania Bar Association’s subcommittee on oil and gas.
The Pennsylvania Bar Institute, the continuing legal education arm of the state bar, Penn State Cooperative Exten­sion and other organizations have offered educational programs on Marcellus Shale development that have been popular with local attorneys, Carroll said.
Among the attorneys studying is Barry Lewis, a general practice attorney with Bloomsburg, Pa., firm Hummel & Lewis. Although Bloomsburg is on the fringe of current Marcellus development, he anticipates a burst of leasing activity in the next six months. “When they first started having these meetings, I attended as many as I could because I knew I would have clients asking about these things,” Lewis said. “You don’t want to get involved with gas leases if you don’t know what you’re doing.”
Gas and pipeline leases represent the first wave of business for local attorneys in the Marcellus Shale region, but it won’t be the last. With gas leases come disputes over royalties, estate issues, taxes and a host of other legal matters.
“There are a lot of issues that will keep attorneys busy,” Carroll said.
Being the home team has its advantages. Law firms based in Pennsylvania and other Marcellus Shale states are leveraging their familiarity with state and local laws and their relationships with regulators who oversee gas-mining operations into large amounts of legal business.
Firms such as K&L Gates (an international firm with roots in Pittsburgh), Saul Ewing of Philadelphia, Reed Smith (which also has roots in Pittsburgh) and others have developed a niche handling regulatory matters for major oil and gas companies and representing midstream gas companies. In Pennsylvania, drilling permits are reviewed and issued by the state Department of Environmental Protection and are subject to myriad state laws. Because hydraulic fracturing requires large amounts of water, several river basin commissions are involved. “Energy companies coming in find themselves confronted with a whole series of environmental and technical issues,” said Bunt, the K&L Gates litigator. “The legal issues in and around water alone are quite significant.”
Natural gas players are hiring regional firms to handle the red tape. “The local folks have the edge because they have relationships with the regulators,” said Duane Morris partner DeSalle. “It helps to have a local guy who knows the personalities.”
K&L Gates has emerged as the biggest Pennsylvania-based player in Marcellus Shale. The firm is counsel to a consortium of natural gas companies called the Marcellus Shale Coalition, which lobbies on issues ranging from taxes to municipal control over gas-drilling activities. It has won several major gas-extraction cases before the Pennsylvania Supreme Court.
“We’re the firm that has been litigating this,” Bunt said, noting that the K&L Gates has about 25 attorneys involved in Marcellus matters. “We’ve been involved from a regulatory, policy and litigation standpoint. Within the last five years it has really taken off.”
Traditional energy firms based outside the Marcellus region have also picked up a significant amount of corporate work. Exxon Mobil, Japanese conglomerate Mitsui & Co., and Indian oil and chemical company Reliance Industries Ltd. have entered the Marcellus Shale picture during the past six months, tapping firms such as Akin Gump; Vinson & Elkins; Baker Botts; Wachtell Lipton Rosen & Katz; Fulbright & Jaworski; and Bracewell & Giuliani.
“We have experience with these types of transactions, and we’ve brought that to bear in these deals,” said Baker Botts Houston partner Hugh Tucker, who represented Dominion Resources Inc. in the $1.48 billion sale last month of its Appalachian gas and oil production business to Consol Energy Inc. “The regional firms in Pennsylvania and West Virginia may not have the critical mass to do these large transactions.”
Tucker said that shale-related natural gas work accounted for about 10 percent of the Baker Botts’ domestic oil and gas practice three years ago but now makes up more than half its workload.
Exxon Mobil’s purchase of Texas-based natural gas company XTO Energy Inc. in December for $31 billion has bestowed a “Good Houskeeping seal of approval,” Rice said, signaling to the international energy industry that the Marcellus Shale is the place to be. There is money to be made by extracting the natural gas and also in exporting the drilling techniques developed there to shale formations in Europe, a number of attorneys said.
“They’re in class to learn how to drill,” Rice said. “They’ve come to school and they’re paying a fairly significant tuition.”
Environmental groups, meanwhile, have lined up against natural-gas drilling. New York state has imposed a moratorium on drilling while the state’s Department of Environmental Conservation updates its drilling regulations. New York City’s Department of Environmental Protection has blocked drilling in the catchment areas for the city’s water supply; on April 23, state environmental regulators adopted additional regulations to dissuade energy companies from drilling within that watershed.
“It’s being sold by the oil and gas industry as a great new clean-burning energy source, but those of us watching have learned that it’s anything but clean. We need to be really careful,” said Deborah Goldberg, Northeast managing attorney at Earthjustice.
A handful of pollution lawsuits have been filed, including a case brought in November by 14 families in Dimock Township, Pa., who allege that natural gas wells operated by Cabot Oil & Gas Corp. poisoned their drinking water. Their suit won’t be the last, said Philadelphia environmental attorney Paul Schmidt, who represents the families.
“The record, so far, has been that there are problems from these wells,” said Schmidt, who is preparing a similar suit on behalf of plaintiffs in another part of the state. “I certainly think we’ll see more litigation as the density of wells increases.”
Karen Sloan is a reporter for The National Law Journal , a Legal affiliate based in New York. •