Energy lawyers in Pennsylvania said the price of natural gas will be one of the main drivers determining which areas of oil and gas law are busy in 2013.
Kevin L. Colosimo, managing partner of Burleson LLP’s Pittsburgh office, told the Law Weekly that the price of dry gas — gas that is almost pure methane — which plummeted to under $3 per 1,000 cubic feet in early 2012, was steady by the end of the year.
Colosimo characterized the current gas market as “low, but sustainable,” but noted that the forecast for dry gas prices in 2013 is “stable to positive.”
If the year finishes out with gas prices hovering somewhere between $3.75 and $4 per 1,000 cubic feet, Colosimo said, the market will remain steady, with the majority of the industry activity continuing to take place in the Utica Shale regions of Northwestern Pennsylvania and Ohio.
Attorneys told the Law Weekly last summer that drillers have moved a large portion of their operations from dry gas regions to areas containing more wet gas — a combination of methane and other components such as propane, benzenes and ethane — which is fetching roughly twice as much as dry gas, according to attorneys across the state.
Right now, according to Colosimo, Marcellus Shale wells are continuing to produce gas, but there is much less exploration activity.
However, if dry gas were to somehow rise to and remain at $4 per 1,000 cubic feet or above, Colosimo said, the Marcellus Shale’s dry gas reserves could become profitable again.
“If you bring the rigs back, the amount of legal work goes up,” Colosimo said, noting that one upside of a down gas market was that last winter saw a larger-than-expected switchover from coal power to natural gas power.
Colosimo said the dry gas regions of the Marcellus Shale could become more active if the weather were to turn significantly colder over the next few months, requiring more heat and driving up the demand for gas.
Likewise, Michael P. Joy, a partner in Reed Smith’s energy and natural resources group, said that because of the switchover, a hot summer in 2013 could see natural gas power generation outpace coal power generation for perhaps the first time.
Joy said the most likely scenario is that gas prices will continue to rise slowly as more utility needs enter the market.
Similarly, Kenneth S. Komoroski, partner-in-charge of Fulbright & Jaworski’s Pittsburgh-Southpointe office, said that while the worst appears to be over in terms of the market for dry gas, a huge price jump is unlikely to ever happen.
“As far as price goes, I think we saw the bottom and I don’t think we’ll see that again,” Komoroski said. “But I also don’t think there’s going to be a dramatic price increase ever, given the supply found in Pennsylvania and worldwide.”
But while the Marcellus Shale play has slowed in some aspects, there continues to be no shortage of gas-related legal work both inside and outside Pennsylvania, attorneys said.
For one thing, Colosimo said that although the Utica Shale play is often associated with Ohio, its impact on Northwestern Pennsylvania is often overlooked.
“There are very few developed wells but a lot of land activity” in the Utica Shale play, Colosimo said, predicting that a significant number of wells are likely to begin cropping up in Mercer, Crawford and Lawrence counties.
Sean W. Moran, co-chair of Buchanan Ingersoll & Rooney’s energy section, agreed, saying that while drillers have largely staked out their positions in the Marcellus Shale, there continues to be a lot of “land-grabbing” in the Utica Shale.
Other factors could shake up the industry in 2013 as well, lawyers said.
Joy said a potential “watershed moment” for natural gas development worldwide could come if New York state finalizes its oil and gas regulations this year, which he believes will be “without a doubt the most rigorous in the country and probably in the world.”
Depending on how restrictive those regulations turn out to be, Joy said, development in New York may begin in earnest soon after.
As New York sits atop significant swaths of both the Marcellus and Utica shales, a lift on the state’s drilling moratorium would add a major competitor to the natural gas market, Joy said.
In addition, Joy said he anticipates an influx of foreign investment dollars into the U.S. oil and gas market, with an increased focus on the northeastern region of the country, creating a host of challenges for oil and gas transactional lawyers.
Oil and gas litigators will also be busy in 2013, attorneys told the Law Weekly.
According to Colosimo, the drop in price over the past few years may result in litigation over commitments that were made when the market was more robust.
Joy said the five-year terms on many of the leases that were signed at the beginning of the gas boom in late 2007 and early 2008 will expire this year, likely causing an uptick in litigation between landowners and gas companies.
Komoroski added that 2013 is likely to see a significant number of claims related to water and air contamination, which the plaintiffs bar has actively been pursuing.
Komoroski said litigation is also bound to stem from the fact that Pennsylvania has never before seen the level of gas development it’s currently experiencing.
“There’s not the body of case law that exists in Texas and Louisiana,” Komoroski said. “There’s likely to be a fair amount of litigation over the next several years on legal issues that attach and attend to the development of the resource.”
But the one piece of litigation that is on the radar of every oil and gas lawyer and operator in Pennsylvania is Robinson Township v. Commonwealth, attorneys said.
On March 28, 2012, the Washington County townships of Robinson, Peters, Cecil and Mount Pleasant, along with South Fayette Township in Allegheny County and Yardley Borough and Nockamixon Township in Bucks County, as well as the Delaware Riverkeeper Network and Monroeville, Pa.-based Dr. Mehernosh Khan, filed suit against the state, the Pennsylvania Public Utility Commission, the Attorney General’s Office and the Department of Environmental Protection.
The plaintiffs alleged in their complaint that Act 13 of 2012, which amends the state Oil and Gas Act, unconstitutionally robs municipalities of the power to regulate drilling and gives that power to the drilling industry itself.
In July of last year, the Commonwealth Court ruled 4-3 to overturn Section 3304 of Act 13, reasoning that requiring municipalities to bring their zoning ordinances into compliance with Act 13 would mean forcing local governments to violate substantive due process by allowing incompatible uses in their districts.
The case is now before the state Supreme Court, which is expected to rule on it this year.
Colosimo said the case is important because navigating the various local municipal ordinances governing drilling is currently “the biggest legal obstacle the industry faces.”
Colosimo added that the ultimate outcome of the case remains particularly uncertain given that the Supreme Court is currently split 3-3 along political party lines.
Moran said that while he believes the Act 13 amendments present an efficient and effective way for oil and gas companies to develop Pennsylvania’s resources, a ruling in favor of the municipalities “would not be the end of the world” for the industry because it’s highly unlikely drillers would abandon the substantial investments they’ve already made in the state.
But Moran did add that any roadblock to development in Pennsylvania has the potential to have some effect on the oil and gas industry’s decision regarding whether to invest further.
“They’re going to be making choices as to whether they spend capital dollars in our market or in Poland or Africa,” Moran said. “These are all global companies and any time you have something that inhibits their ability to operate in an economical and efficient way, it kind of marginally detracts from whether they’re going to make an investment here.”
Regardless of the outcome in Robinson, Komoroski said a resolution would provide much-needed guidance to the industry on how to proceed.
“Everyone’s been in a holding pattern for longer than anyone would like,” he said.