A report issued by energy law firm Steptoe & Johnson titled, “Below The Surface: The Legal Challenges of Shale Gas Production.” The report is based on interviews with 96 energy services buyers at 56 companies (mostly drillers). The survey found that the biggest legal issue faced by drillers is real estate.
2. Why this groundbreaking study?
Today, just a handful of resource plays, mainly
shales with an abundance of crude oil and liquids
targets, account for a substantial share of all
spending for land drilling and development in
the U.S. It’s a substantial opportunity that comes
with opportunity costs, including legal costs. As
a player in the field, Steptoe & Johnson set out to
map the legal issues, trends and, yes, expenses
below the surface of shale production. Let’s dig in.
$54 billion was
invested in
seven resource
plays in 2012.
Why this groundbreaking study?
OTHER Shales where participants are active
Haynesville Shale
Mississippi Lime/Mississippian
Niobrara Shale
Barnett Shale
Woodford Shale
Fayetteville Shale
New Albany Shale, IL Basin
Cline Shale, Permian Basin
Permian Basin
Wolfcamp, Permian Basin
Monterey Shale
Tuscaloosa Marine Shale
Utica Point Pleasant
Arkoma Basin
Brown Dense Formation
Codell Formation
Huron Shale
Kreyenhagen Formation
Lower Smackover Brown Dense Formation
Oriskany Formation
Pearsall Shale
Piceance Basin
Pinedale
Four shales account for most
activity among respondents
depth of
involvement
Marcellus Shale
Utica Shale
Eagle Ford Shale
Bakken Shale
Other Shales
33%
76%
81%
27%
53%
Acquiring Land/Leases
Drilling
Land Reclamation
Processing
Seeking Permits
Drilling Rig
Producing Gas
Other
Pipeline
Answers do not total 100%
as respondents named all the
shales where they are involved.
Listed from most to fewest
Most activity is land acquisition and leasing,
followed by a full pipeline of activities
BREADTH of
involvement
50250
45%
33%
33%
32%
26%
20%
18%
18%
11%
Answers do not total 100% as
respondents named all the activities
in which they are involved.
3. Participant profiles and demographics
How we did
the study.
The Brand Research Company conducted a total of 101
interviews from January through March 2013 with 96
legal service buyers at 56 companies doing business in
U.S. shales, and 5 industry experts. The list of potential
respondents included Steptoe & Johnson clients and others
who are not clients of the firm.
Participant profiles and demographics
In addition to the requirement that companies be involved
in some aspect of gas and oil extraction from U.S. shales,
the respondents were required to be significantly involved
in the selection of outside counsel for matters connected
with their companies’ involvement in shales. Respondents
are mostly landmen, in-house counsel and executives with
an average of 15.3 years selecting outside counsel for
their companies. Their companies have annual revenues
ranging from less than $50 million to more than $1 billion.
Who
participated?
Producers
AB Resources
Aera Energy, LLC
Anadarko Petroleum Corporation
Anderson & Associates Mineral Land Service
ANH Refractories Company
Antero Resources
Antero Resources Appalachian Corporation
Atlas Energy
Ben Energy
Berkley Oil
Bluescape Resources
Booth Energy
Broad Street Energy
Cabot Oil & Gas Corporation
Caiman Energy, LLC
Chesapeake Energy Corporation
Chevron Appalachia, LLC
CNX Land Resources, Inc.
Cohort/JW Operating
ConocoPhillips Company
CONSOL Energy, Inc.
Devon Energy Corporation
List of RESPONDENTS’ COMPANIES
Dominion
Eastland Energy Group, Inc.
Energy Corporation of America
EQT Corporation
Graves & Company
Grenadier Energy Partners
Gulfport Energy Corporation
KC Cooper
Lake Region Oil
Murex Petroleum Corporation
Murray Energy Corporation
Newfield Exploration
NiSource
Northeast Natural Energy, LLC
Noble Energy
PDC Mountaineer
Percheron
Providence Energy Group, Inc.
Providence Resources, LLC
Range Resources
Range Resources Appalachia
Reliance Holding USA, Inc.
Reserve Energy
Rex Energy
Seneca Resources Corporation
Shell Oil Company
Sierra Buckeye, LLC
Southwestern Energy Production Co.
Statoil
Stone Energy Corporation
Sylvan Energy
Talisman Energy USA, Inc.
Texas Keystone
Tioga Resources, LLC
Vitruvian Exploration, LLC
Whitmar Exploration Co.
Worthington Energy Consultants
WPX Energy
XTO Energy, Inc.
Industry Experts
Bexar County Economic Development
University of Texas Center for
Community and Business Research
Columbus Business First
Daily News
Independent Research Scientist with
U.S. Shale Expertise
Companys’ Annual Revenue
100
50
25
0
75
$50 – $99
million
$500 – $999
million
$100 – $499
million
Less than $50
million
$1 billion +
RESPONDENTS’ industry SECTORS
Oil and Gas
100
50
75
25
0
Midstream
14%
Pipeline
9%
Support for Oil &
Gas Operations
6%
Drilling
23%
Other
5%
Energy
29%
Production
32%83%
Several repondents identify themselves with multiple sectors.
30% 1% 13% 10% 47%
4. Top legal issues in the field
Every
opportunity
has its legal
challenges.
A range of legal challenges confront decision-makers in
their shale activities. No surprise there. But the areas in
which they have the highest volume of challenges are title
and real estate, transactions, litigation, regulatory and
environmental–in that order. When asked which matters
require the most help from outside counsel, litigation is
first, followed by title and real estate, and then private
financing and related securities. Presumably, this reflects
subject matter expertise not always found in-house.
Top legal issues in the field
decision-makers face these challenges sometimes or often
use outside counsel more than half the time for
45% 39% 26% 42%
Government
Relations
Private Financing &
Related Securities
Labor &
Employment
Other
100
50
25
100
50
75
25
0
100
50
75
25
0
100
50
75
25
0
85%
Title & Real Estate
74%
Transactions
90%
Litigation
60%
Regulatory
61%
Environmental
52%
Government
Relations
76%
Private Financing &
Related Securities
46%
Labor &
Employment
94% 77% 72% 70% 60%
Title & Real Estate Transactions Litigation Regulatory Environmental
75
0
5. The volume of disputes
50% 93%
of shale developers
say disputes arise
quarterly or more
frequently
of shale
developer
disputes will
either increase
in frequency
or remain at
the same high
volume in the
next twelve
months
It’s not just shale gas or oil production that keeps
shale developers busy. Half reported facing a
steady flow of lawsuits at least quarterly, some as
often as monthly or even weekly. And the pace
looks to remain steady. Nearly all of those working
in U.S. shales expect the number of legal disputes
to increase or remain the same in the coming year.
Methods of defense vary, but practical settlements
appear to make the most business sense.
The volume of disputes
As activity
deepens, so
does the volume
of disputes.
Pre-Trial Settlement
Mediation
Other
Litigation/Trial
Arbitration
100
50
75
25
0
DISPOSITION OF LEGAL DISPUTES
74%
Settled
26%
Went to Court
Faced with various suits, clients use multiple defense methods.
METHODS OF DEFENSE USED
AGAINST LAWSUITS
65%
46%
42%
67%
10%
6. The nature of disputes
Not surprisingly, decision-makers most often cited
lawsuits arising from acquisition and use of land as
four of the top five reasons for disputes. Moreover,
lawsuits related to mineral title and contracts are
the most frequently encountered and perhaps
expected by producers. Environmental lawsuits
are the most concerning to shale developers. This
concern is likely related to unpredictability, cost,
complexity and public relations.
The nature of disputes
Lawsuits mostly
driven by fights
over rights.
Real Estate
Regulatory
Mineral Title
Personal Injury
Contracts
Class Action
Labor & Employment
Business Torts
Toxic Torts
Other
Environmental
MOST NUMEROUS LEGAL DISPUTES IN PAST YEAR
1005025 75
73%
57%
35%
27%
19%
12%
9%
8%
6%
3%
14%
0
100
50
75
25
• Environmental
Issues
• Property Damage
• Payment of Gas
Royalties
• Regulatory Disputes
• Employment
Disputes
• Premises Liability
• Zoning Disputes
• Labor Disputes
• Insurance Disputes
• Deliberate Intent
THE TOP 5 REASONS FOR LAWSUITS
60%
LandownerDisputes
55%
TitleIssues
51%
ContractIssues
51%
LeaseDisputes
42%
PropertyRights
Other Reasons
Regulatory
Class Action
Environmental
Real Estate
Mineral Title
Personal Injury
Labor & Employment
Business Torts
Product Liability
Other
Contracts
DISPUTES OF MOST CONCERN
56%
52%
30%
26%
23%
19%
10%
6%
2%
2%
12%
Toxic Torts 7%
0 1005025 75
7. For those whose litigation
spend is their largest budget
item, the average annual
spend rises to $8.6 million.
This amounts to two and a
half times the average for
title and real estate when it is
the largest spend.
On average, shale
developers spend $3.4M
annually for litigation
in the shales.
Half of shale developers report that their largest
spend on legal services related to U.S. shales is
for title and real estate. Litigation was named by a
third of the shale players and transactions by most
of the rest. While litigation is not the largest spend
among all shale developers, when it is reported as
largest, it is dramatically larger. This may explain
the earlier cited prevalence of settlements.
Drilling down on legal costs
IS LITIGATION the LARGEST
SPEND FOR LEGAL SERVICES
RELATED TO THE U.S. SHALES?
USE ALTERNATIVE FEE
ARRANGEMENTS?
34%
66%
Yes
No
13%
13%
Yes
59%
28%
No
Not Sure
Drilling down on legal costs
50
25
Title, real estate
and litigation
top the budget
charts.
Litigation
Transactions
Environmental
Private Finance/
Securities
35%
14%
1%
2%
Title &
Real Estate
48%
0
LARGEST SPENDS
8. Naturally
resourceful
counsel
200 attorneys and 200 paralegals serving
only the energy industry
220 in-house land professionals
12th largest energy practice in the country–
Energy Law 360
Largest team of oil and gas lawyers
in the East
30 former in-house energy attorneys who
know the industry
Vigorous efforts to shape energy law
for the future
Scalable, time-sensitive land and title
solutions to meet client needs
Robust in-house abstracting resources
Nationwide title services
Top rated by Best Lawyers in America®
&
Chambers USA in Oil, Gas & Energy Law
Strategic locations in U.S. shale plays,
including Marcellus and Utica
Serving energy and natural resource clients
since the firm’s founding 100 years ago
About Steptoe & Johnson
Depth of Energy Experience
DEpth and breadth
Colorado
Kentucky
Ohio Pennsyl-
vania Te x a s
W e s t
Virginia
Mineral Title Opinions
• More than 7,000 mineral title opinions
in 2012
• Uniform quality, opinion formats and
approaches to title analysis and
reporting all major basins
Environmental & Regulatory
• In-house FERC and public utility experience
Litigation
• Experienced team of mineral title litigators
who know the courts and the industry
• 75 seasoned litigators
• 60% individually recognized as leaders in their
field by The Best Lawyers in America®
Deals
• $6.2B in recent transactions
Emergency Response Team
• Trained multi-disciplinary Emergency
Response Team
• Provides instantaneous support to in-house
emergency response teams
Government Relations
• Government relations team experienced in
shaping eastern oil and gas legislation
• Strategic relationships provide clients with
connections
Colorado | Kentucky | Ohio | Pennsylvania | Texas | West Virginia
Recognized strengths
in Energy, Litigation,
Transactional, and Labor
& Employment Law 285 14 40Attorneys Offices in 6 states Practice Areas