Presentation Transcript

1. Unconventional Natural Gas in the Courts: An Overview

   Justice Brian J Preston (Chief Judge, Land and Environment Court of NSW)
2. Summary of presentation Introduction: debate surrounding unconventional natural gas (“UNG”) What is UNG? What types of causes of action may be brought in relation to UNG? Conclusion: thoughts on the forms UNG litigation may take in the future
3. Introduction UNG extraction and production controversial Technological innovations (e.g. hydraulic fracturing [aka. “fracking”] and horizontal drilling) have transformed UNG into viable source of energy Image sourced from Google images
4. Cited benefits of UNG extraction and production Benefits that have been cited include: creation of jobs positive effects on global markets promotion of national security cleaner-burning fossil fuel that offers ideal transitional measure in moving towards a greener economy
5. Cited burdens of UNG extraction and production Burdens that have been cited include: significant adverse environmental risks and impacts groundwater and soil contamination atmospheric pollution adverse impacts on agriculture undesirable social and economic impacts on human communities and populations
6. What is UNG? UNG is generally produced from complex geological structures that prevent or significantly limit the migration of gas through rock
7. What is UNG? Because of the low permeability of the complex geological structures in which UNG is found, fracking and horizontal drilling are used to stimulate the reservoir by creating fissures in the rock, which enable gas to flow more easily through the rock, thereby enhancing production
8. Conventional and Unconventional Gas Deposits Image sourced from NSW Chief Scientist & Engineer, ‘Initial Report on the Independent Review of Coal Seam Gas Initiatives in NSW’ (July 2013)
9. Three types of UNG Coal Seam Gas (CSG): typically extracted from coal seams with depths of between 300 to 100 m below the surface. Primarily composed of methane. Shale Gas:typically extracted from clay-rich sedimentary rock which has naturally low permeability. Tight Gas:typically extracted from reservoirs characterised by very low porosity and permeability (e.g. sandstone).
10. Coal Seam Gas Extraction Images sourced from NSW Office of Water, ‘How coal seam gas is extracted in NSW’ (June 2014)
11. Summary of causes of action UNG litigation may brought in many different areas, including: Tort law (trespass, nuisance, negligence) Contract law Administrative law and civil enforcement Real property, personal property and intellectual property law Criminal law Employment law European Union law
12. Trends in litigation to date Litigation has been between: Landholders and gas companies Rival gas companies Regulatory agencies and gas companies Public interest litigation
13. Tort - Trespass Trespass to land involves unlawful entry by defendant onto plaintiff’s land. Includes taking possession, destroying or damaging anything fixed to the land, wrongfully abstracting minerals or resources from the land, discharging waste or dumping waste on the land.
14. Tort – Trespass cases Coastal Oil & Gas Corp v Garza Energy Trust, 268 SW 3d (Tex, 2008) (no trespass by fracking into neighbouring land allowing gas to flow away: rule of capture) Whiteman v Chesapeake Appalachia LLC, 873 F Supp 2d 767 (ND W Va, 2012) Teel v Chesapeake Appalachia LLC, 906 F Supp 2d 519 (ND W Va, 2012) (owner of subsurface may not be trespassing by using surface for pits for drill cuttings and waste – necessary and reasonable)
15. Coastal Oil & Gas Corp v Garza Energy Trust
16. Tort – Trespass Australian legislation authorises some trespasses: Ownership of petroleum vested in Crown Petroleum titles authorise prospecting, appraisal and production Petroleum titles also authorise construction of works, buildings and associated infrastructure Prospecting title enables access arrangements over land Petroleum titles enable easements or rights of way over land Legislation provides remedy of compensation for persons injuriously affected
17. Tort – Nuisance cases Kartch v EOG Resources Inc, 845 F Supp 2d 995 (ND, 2012) Potential nuisance by construction and maintenance of reserve pit causing contamination of surrounding soil and waters No nuisance by use of reserve pit rather than closed-loop system No excessive noise No excessive odours by flaring No unsanitary condition by litter No storage of unnecessary equipment Flaring of gas that cannot be used: image sourced from Google Images
18. Tort – Nuisance cases continued Strudley v Antero Resources Corporation, 2013 WL 3427901 (Colo App) (nuisance by contamination of air, water and ground from 3 wells around home) Natale v Everflow Eastern Inc, 195 Ohio App 3d 270, 959 N E 2d 602 (2011) (no nuisance by dumping fill, removing trees and locating well pursuant to state approval) Fracking operations in Warren, Ohio: image sourced from Google Images
19. Tort – Nuisance Statutory authority is a defence to action in nuisance Statute must authorise use of land in a way which inevitably involves a nuisance, even if every reasonable precaution is taken
20. Tort – Negligence cases Roth v Cabot Oil & Gas Corporation, 919 F Supp 2d 476 (MD Pa, 2013) (improper drilling affected groundwater and improper waste disposal pits caused contamination) Fiorentino v Cabot Oil & Gas Corporation, 750 F Supp 2d 506 (MD Pa, 2010) (improperly conducted fracking and other activities contaminated land and groundwater) Fracking equipment in Pennsylvania: image sourced from Google Images
21. Contract cases Wiser v Enervest Operating LLC, 803 F Supp 2d 109 (ND NY, 2011) (NY Governor’s memo: required EIS and permit for horizontal drilling and fracking; force majeure event extended primary term; required delay rental payment; failure to do so rendered lease void) Aukema v Chesapeake Appalachia LLC, 904 F Supp 2d 199 (ND NY, 2012) (even if NY Governor’s memo a force majeure event, it did not relieve gas producer of contractual duties or frustrate purpose so as to extend lease) Hite v Falcon Partners, 13 A 3d 942 (Superior Court, Pa, 2011) (delay rental payments can’t extend primary term therefore owner could lease to another party after primary term concluded)
22. Contract cases continued Harrison v Cabot Oil and Gas Corporation, 887 F Supp 2d 588 (MD Pa, 2012) (owner not fraudulently induced to enter oil and gas lease by promise of bonus plus royalties)
23. Administrative law and civil enforcement Four categories Merits review Administrative order appeals Judicial review Civil enforcement No cases yet involving merits review of administrative decisions or appeals against administrative orders concerning UNG Cases involving judicial review of decisions concerning UNG projects and civil enforcement of legislation regulating UNG
24. Judicial review cases Coalition for Responsible Growth and Resource Conservation v United States Federal Regulatory Commission, 485 Fed Appx 472 (2nd Cir, 2012) (failure to consider environmental impact of upstream shale gas development in considering gas pipeline) Center for Biological Diversity v Bureau of Land Management, 2013 WL 1405938 (N D Cal) (environmental assessment for sale of oil and gas lease based on single well and not considering fracking and HD) Dene Tha’ First Nation v British Columbia (Minister of Energy and Mines) [2013] BCSC 977 (no failure to consult with DTFN before selling oil and gas tenures)
25. Judicial review cases continued Europa Oil and Gas Ltd v Secretary of State for Communities and Local Government [2013] EWHC 2643 (Admin) (wrong categorisation of exploration as not being part of “mineral extraction” and hence permissible purpose) Leith Hill, Surrey County, UK: image sourced from Google Images
26. Judicial review cases continued Barrington-Gloucester-Stroud Preservation Alliance Inc v Minister for Planning and Infrastructure [2012] NSWLEC 197; (2012) 194 LGERA 113 (conditions of CSG project approval not uncertain and no failure to formulate and consider precautionary principle) Fullerton Cove Residents Action Group Inc v Dart Energy Ltd (No 2) [2013] NSWLEC 38 (no failure to consider environmental impact under s 111 of EPA Act or to conclude significant effect under s 112 of EPA Act for CSG exploration bore hole near Ramsar wetland) Fullerton Cove: image sourced from Google Images
27. Civil enforcement case O’Connor and O’Connor v Arrow (Daandine) Pty Ltd [2009] QSC 432 (construction of treated water pipeline for CSG project over O’Connor’s land was (1) authorised activity under lease but (2) not included in entry notice and therefore unlawful) Arrow Energy Ltd's Daandine power station at the company's coal-seam gas operations in Dalby, Queensland
28. Property law cases Examples of access to land disputes: Bosley v Cabot Oil & Gas Corporation of West Virginia, 624 F Supp 1174 (SD W Va, 1986) (owner could grant right of way for gas producer over same land already burdened by right of way in favour of Bosley) Hume Coal Pty Ltd v Alexander (No 3) [2013] NSWLEC 58 (access arrangement with owner of dominant tenement allowed access over servient tenement by right of way)
29. Property law cases continued Examples of disputes about interests in property: Power Gas Marketing & Transmission Inc v Cabot Oil & Gas Corporation and Linn Energy, 948 A 2d 807 (Superior Court, Pa, 2008) (Power Gas and Cabot in joint venture – sale of Cabot’s interest to third party contrary to contractual right of first refusal) Ashborder BV & Ors v Green Gas Power Ltd & Ors [2004] EWHC 1517 (Ch) (ownership of and right to operate under oil and gas licences)
30. Property law cases continued Examples of intellectual property disputes: Powder River Basin Resource Council v Wyoming Oil and Gas Conservation Commission 320 P 3d 222 (WY 2014) (whether fracking chemical formulations were trade secrets)
31. Criminal law cases Connell v Santos NSW Pty Limited [2014] NSWLEC 1 (an unconventional gas exploration and production company prosecuted for breaches of conditions of a petroleum title for failure to report spill and inadequate reporting in environmental management reports) US EPA v Chesapeake Appalachia LLC (2013) (Chesapeake prosecuted for illegally discharging crushed stone and gravel into sensitive wetlands) Santos’ exploration work at Narrabri, NSW
32. Employment law cases Nash v Austerberry Directional Drilling Services Pty Ltd [2013] NSWIRComm 37 (Austerberry prosecuted for an offence under the Occupational Health and Safety Act 2000 (NSW) in respect of a workplace incident when horizontal drill pipe recoiled killing a worker) Bombardiere v Schlumberger Technology Corp 2013 BL 95262 (Feb 13, 2013) (a worker claimed damages for burns caused by fracking chemicals) The issue of silica exposure for fracking workers is of increasing importance (US NIOSH and OSHA joint hazard alert in 2012)
33. European Union law European Commission v Republic of Poland [2012] C-569/10 (Fourth Chamber) (failure to comply with EC Directive regarding granting and using authorisations for prospecting, exploration and production of hydrocarbons, including need for process to be free of discrimination and open to all applicants) 22 January 2014: the EC issued a Recommendation on minimum principles for the exploration and production of hydrocarbons (such as shale gas) using high-volume hydraulic fracturing This could give rise to similar litigation Shale gas operations in Poland: image sourced from Google Images
34. Conclusion There are diverse and distinct causes of action that a person, corporation or public interest environmental group may bring to challenge (in the case of a person or public interest environmental group) or protect (in the case of a corporation) the approval and/or subsequent operation of an UNG project or activity. Devising and implementing specific UNG legislation is an ongoing task for governments.
35. Conclusion continued Courts are likely to be afforded increased opportunities with respect to hearing and disposing of disputes concerning UNG projects or activities. In the short term, actions are likely to focus either on common law causes of action or on alleged violations of substantive or procedural rights protected under existing statutes in general areas such as environmental planning, real property, competition and consumer law, and so on.
36. Conclusion continued Once the process of devising specific legal regimes for regulating unconventional gas projects or activities is completed, it is likely that more emphasis will be placed on actions alleging violations of substantive or procedural rights conferred by statutes pertaining to UNG specifically. Likely to see increased public interest litigation The courts will have the opportunity to make a meaningful and relevant contribution to the development of UNG jurisprudence and governance in the future.
37. Conclusion and Coffee Image sourced from Google images