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Legal
Landscape: Protecting Your Investment in
Marcellus Shale
as
published in West Virginia Executive,
Spring 2011
The past few years have
been an exciting time for oil and gas operators.
The Marcellus Shale, previously uneconomical to
produce, has been unlocked through the
deployment of advanced drilling techniques,
namely horizontal drilling and large-volume
hydraulic fracturing. Using this advanced
technology makes every well significantly more
expensive to drill and makes it imperative that
operators minimize risk to protect their
investments.
Operators new to West
Virginia, as well as those expanding their
operations to develop the Marcellus Shale, need
to consider the legal pitfalls that may arise
due to unique aspects of West Virginia law, as
well as the plaintiff-friendly nature of some of
our courts. Here we will discuss the types of
legal issues that may arise during all stages of
a well's lifespan-issues that may not be at the
forefront of an operator's mind when the
immediate focus often tends to lean toward
ensuring that their sizable investment produces
an acceptable volume of
gas.
Acquiring and Retaining
Development Rights
Whether an
operator is acquiring land to drill via lease,
transaction or acquisition, there are several
important considerations to contemplate. First,
if an operator is acquiring the right to drill
the Marcellus Shale through a transaction with
another party, it is imperative to confirm that
the other party actually holds the right to
drill the Marcellus. Increasingly, leases are
being used solely to include certain named
formations or otherwise limit drilling and
production to certain depths. To avoid further
complications, the operator should assure that
the leased premises do not lie within or near
the boundaries of a gas storage field. Access to
transportation pipelines with available capacity
at market rates must also be addressed. Without
such provisions for transportation, valuable gas
reserves may become stranded.
If the
operator is leasing the gas rights directly from
the property owner, which could be the fee
simple owner or the mineral owner (in the case
of severed estates), different concerns emerge.
First, does the lease form comply with West
Virginia law? With the competition between
operators being so fierce at present, any defect
could be used to invalidate the lease and give
the gas owner the right to lease the property on
more favorable terms. Secondly, does the lease
have operator-oriented language commonly used in
other states that may not be commonly used in
West Virginia, and if so, what complications
could that cause? For example, does the royalty
clause allow the deduction of certain
post-production expenses from the royalty
calculation in a manner that complies with the
Tawney v. Columbia Natural Resources decision by
the West Virginia Supreme Court? In some
instances a land agent or other representative
of the operator may have had the property owner
sign a lease that required corporate approval
only to see that approval denied at a
supervisory level.
Although this type of
lease is common elsewhere in the country, it is
new to West Virginia and has spurred litigation
on behalf of landowners seeking to enforce the
terms of those leases. In horizontal drilling, a
unitization or pooling rights clause that
complies with West Virginia requirements for
well spacing and unit size is a very valuable
term in a Marcellus lease.
Read the full article on our website. | |
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Corbett
Signs Pa. Linked Bill
Into
Law
by
Michael G. Connelly
Pittsburgh
On
May 13, 2011, Governor Corbett signed into law the
linked bill (Senate Bill 265), which is intended
to create adequate and safe spacing between gas
well clusters and workable coal seams. No permit
for a gas well that overlies a workable coal seam
will be issued unless the well cluster is located
at least 2,000 feet from the nearest well cluster,
unless the permit applicant and the owner of the
workable coal seam consent in writing.
Under the new law, absent an agreement,
either the coal operator or well applicant may
activate a dispute resolution process to resolve
the spacing issue. The law also requires the
department to commission an independent study to
conduct a comprehensive evaluation and update of
the Joint Coal and Gas Committee Gas Well Pillar
Study. The study will assess appropriate pillar
size around a well or well cluster to protect the
workable coal seam and ensure the safety of coal
miners, as well as any additional standards that
should be considered by the department for the
approval of pillars around wells penetrating a
workable coal seam.
Click
here to view the bill in its
entirety.
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NAT
GAS Act May Cause Spike in
Prices
by
Michael J.
Basile Charleston
As reported previously, we
have seen a push for natural gas vehicle
incentives in shale-producing states. For example,
the W.Va. Senate recently passed the Marcellus
Development Act, a summary of which can be found
here. Now, the NAT GAS Act, recently introduced in
the U.S. Congress, proposes to provide tax
subsidies for natural gas vehicles on a national
scale. What does this mean to the industry? This
recent article discusses the
potential impact for the energy and chemical
industries. |
WVU
Studying Marcellus Shale
West Virginia University is
studying the physical properties of the Marcellus
Shale formation. This research offers the
potential for exploration and production companies
to make more informed decisions about drilling for
natural gas. Click here to read the full
article. |
Shell
to Build Ethane Cracker in Marcellus Region
Royal Dutch Shell has announced plans
to build a "world-scale" ethane cracker in
Appalachia to take advantage of the region's
natural gas reserves. Click here to read the full
article. |
Useful
Resource:
Oil and Gas Mapping Resources from
WVGES
West Virginia Geological &
Economic Survey has released several interactive
oil and gas maps of West Virginia and the
Appalachian region. Click here to view the interactive
mapping. | | | |
Marcellus
Shale Team Member
Michael
G. Connelly
Mike
represents exploration and production and midstream companies
in litigation in state and federal courts in Pennsylvania,
including defending against claims for bonus and anniversary
payments under oil and gas leases, defending declaratory
judgment actions, defending against claims attempting to
repudiate leases, and pursuing quiet title actions to cure
lease defects. Click here
to view Mike's full professional
biography. |
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Please be aware that this email publication is
distributed with the understanding that the author, publisher
and distributor are not rendering legal or other professional
advice on specific facts or matters and, accordingly, assume
no liability whatsoever in connection with its use.
Responsible Attorney: Michael J.
Basile | | | |
