OIL AND GAS

Federal challenges, local control dominate year in litigation

In the scrappy world of oil and gas law, 2015 was a year characterized by marquee legal battles, deadlocked debates and new conflicts that will seep into courtrooms in coming years.

Federal challenges, vulnerabilities from the oil price bust and disputes over regulatory authority plastered the dockets for industry lawyers and their environmental counterparts this year. As usual, each side notched significant legal victories to advance its causes, but major questions are still pending in the courts.

"I personally think that 2015 was really a monumental year for both litigation and regulatory action," said Arnold & Porter attorney Matthew Douglas, who has been tracking lawsuits across the country. "There was so much that happened."

Chief among the big developments was the government's new rule for hydraulic fracturing on public and tribal lands. The rule came after years of drafting and negotiating with industry and environmentalists but was immediately challenged by multiple industry groups and states upon its release in March.

Another area steeped in litigation is the long-running debate over "local control" of development. While New Mexico and Ohio courts handed down decisions on the issue this year, the major battleground of Colorado is still at play.

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Other technical areas of oil and gas law -- earthquake liability, workforce litigation -- have also been contentious throughout the year and promise more legal wrangling to come.

"The amount of litigation is increasing, and the number of reported cases is staying at a very high level," said oil and gas legal scholar Bruce Kramer. But, he said, the industry still faces legal uncertainty on many issues.

Fracking rule showdown

After a 2014 filled with local-level litigation challenging various aspects of oil and gas development, this year was notable for the slew of industry and environmental challenges at the federal level.

Most high profile, of course, has been the industry-led challenge to the Obama administration's new fracking rule. The Independent Petroleum Association of America and Western Energy Alliance sued the Interior Department within minutes of the unveiling of the fracking rule in March. Western states, including Wyoming, Colorado, Utah and North Dakota, filed their own suit, and the Southern Ute and Ute Indian tribes were fast on their heels.

While the Southern Utes forged their own legal path and are now in settlement talks, the other plaintiffs are pushing their challenge together on two different fronts: the U.S. District Court for the District of Wyoming and the 10th U.S. Circuit Court of Appeals.

The dispute is nowhere near resolution, as the opposing sides argue over specifics of the rule and over the very foundation of the Bureau of Land Management's mission: Does the agency have the authority to regulate fracking on public lands (EnergyWire, Oct. 1)?

"It's huge," Douglas said. "To find that they lacked authority and that the proposed rules lacked evidentiary support was a huge win for the industry."

Other federal regulations have also attracted industry challenges, and more are expected to be targeted in the coming year, including U.S. EPA's anticipated restrictions on methane emissions from oil and gas operations.

"Nobody is pleased with the federal government's position," Kramer said. "Certainly in the Intermountain West, even in the purple states, there is a very strong anti-federal approach."

And attorneys general in those states have made clear that they are ready to fight any federal environmental rules that may tread on state jurisdiction. In addition to the fracking rule, states in the West and elsewhere have lined up to bring legal challenges against EPA's Waters of the U.S. rule and the agency's landmark Clean Power Plan.

Settlements and sacred land

Meanwhile, environmentalists have fared well on some of their own federal challenges. After the Environmental Integrity Project and other groups filed suit pushing EPA to include the oil and gas industry in disclosure requirements for toxic emissions, the agency announced this fall that it would propose new regulations to cover natural gas processing plants (EnergyWire, Oct. 28).

Groups are also negotiating with Interior over environmental analysis for offshore wells in the Pacific Ocean. After the Center for Biological Diversity and the California-based Environmental Defense Center separately sued Interior for allegedly "rubber-stamping" drilling applications without updated environmental review, the agency moved into settlement discussions with both groups (EnergyWire, Aug. 20).

Also on the federal front this year were two debates over oil and gas development in or near areas considered sacred by tribes.

In Montana, long-suspended drilling permits in a potentially sacred site near the Blackfeet Indian Reservation drew an industry lawsuit in 2013, which saw a flurry of activity this year. Interior signaled in November that it would cancel the contested lease.

The litigation is still active, and any lease cancellation is expected to be challenged by industry, but the agency's move was celebrated as a big win for environmentalists and tribal advocates who have been pushing to protect the area for decades.

Down in New Mexico, meanwhile, environmentalists and tribal advocates haven't been as successful. There, the sacred area at issue is Chaco Canyon and surrounding lands rich with ancient Pueblo artifacts and tribal ruins. Environmentalists sued BLM in March, pushing the agency to stop allowing fracking so close to sensitive areas. The judge denied the plaintiffs' request for a preliminary injunction, and leasing in the region has continued without interruption.

State battles

The "local control" debate that dominated dockets in 2014 bled into the current year and isn't over yet.

A district court became the first federal jurisdiction to rule against local fracking bans in January, throwing out a ban in Mora County, N.M., as a violation of state law. The highest court in Ohio soon followed with its own decision, throwing out a de facto ban in an Akron suburb in February and rejecting another city's "community bill of rights" designed to block fracking in March.

Both decisions left wiggle room for local governments to enact less-stringent regulations that affect oil and gas development, but new litigation testing those limits has yet to arise.

"They resolved it in a way that will lead to more litigation because it's an ad hoc situation," Kramer said. "It depends on whether city attorneys or township attorneys decide to push the envelope."

In Texas, litigation over the city of Denton's fracking ban raised eyebrows at the state Legislature, which enacted a law prohibiting such bans. The law took effect in May, Denton retreated from its ban, and the lawsuits were dropped.

In Colorado, on the other hand, local governments have not been shy about pushing the limits. After multiple local bans were struck down in 2014, two cities are now facing off against industry and the state at the Colorado Supreme Court. Oral arguments were held earlier this month, and a decision from the court is expected in the new year.

"I think Colorado's been a battleground for the debate over local control of fracking," Earthjustice attorney Michael Freeman said. "The Supreme Court judgment in those two cases is going to have obviously a huge impact in Colorado, but it also may be something other states are looking at."

If the court sides with industry and Colorado regulators, further pushes for statewide ballot measures blocking fracking are likely. Freeman warned that there's no end in sight for litigation over drilling and fracking near residential areas.

"As long as you've got a state agency that's approving permits that lets companies drill in people's backyards and near elementary schools, you're going to get local residents angry who want to exercise some control over industrial development that happens in their town," he said.

Earthquakes

Another area ripe for battle in the courtroom is induced seismicity from wastewater disposal wells.

"Litigation over increased seismic activity that has been tied to disposal wells has not really taken off yet, but there are signs that it might," Douglas said. "There was a lot of activity there in 2015 that is going to come to a head in 2016."

The case causing the most headaches for industry so far is a personal injury and property damage lawsuit in Oklahoma, where plaintiff Sandra Ladra sued New Dominion LLC and Spess Oil Co. for allegedly causing a magnitude-5.7 earthquake that caused her fireplace to collapse and injure her. Despite multiple industry attempts to get the case dismissed, it's still active in state court.

Ladra's lawyer is representing another Oklahoma resident, Jennifer Lin Cooper, in a purported class action that targets the same companies for the same earthquake.

But the most threatening litigation is on the horizon. The Sierra Club filed notice in late October that it planned to sue four oil and gas producers for violating the federal Resource Conservation and Recovery Act while operating disposal wells that have been linked to quakes (EnergyWire, Nov. 3). A lawsuit from the environmental group is expected in late January or early February.

Meanwhile, some states, including Oklahoma and Kansas, are working to update their wastewater disposal regulations to avoid earthquakes. According to Kramer, the new regulations and permits will open new doors to litigation from both industry and environmentalists.

Price slump

Still, despite many avenues for litigation in the coming year, experts were quick to point out the impact the price slumps for both oil and natural gas would have on legal spending.

In some areas, oil and gas companies may be more vulnerable to litigation against them. Belt-tightening in the industry is expected to trigger related employment litigation.

"The longer that somebody's out of work, the more desperate they may become and the more likely it is that they'll go see a lawyer," Baker Donelson attorney Steve Griffith told EnergyWire earlier this year (EnergyWire, June 24).

But low commodity prices may also mean a slightly less litigious industry, with smaller companies in particular becoming reluctant to go to the courtroom to challenge government actions.

"In reality, [small companies] don't have the time to sit there and pay lawyers a lot of money to challenge everything," Kramer said. "Commodities prices have a big impact. If you're slashing capital expenditures, you're not going to increase attorneys' fees."

Freeman added that the decreased drilling may also lead to a detente in squabbles over development near residential areas.

"Assuming that companies still want to keep drilling in close proximity to residential neighborhoods, that's going to continue to be a long-term fight," he said. "But with oil at $35 a barrel, who knows if that will continue for the near term."

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