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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 ShaleKreyenhagen Formation Lower Smackover Brown Dense Formation Oriskany FormationPearsall ShalePiceance 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.
Participant profiles and demographics
How we didthe study.
The Brand Research Company conducted a total of 101interviews from January through March 2013 with 96legal service buyers at 56 companies doing business inU.S. shales, and 5 industry experts. The list of potentialrespondents 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 ResourcesAera Energy, LLCAnadarko Petroleum CorporationAnderson & Associates Mineral Land ServiceANH Refractories CompanyAntero ResourcesAntero Resources Appalachian CorporationAtlas EnergyBen EnergyBerkley OilBluescape ResourcesBooth EnergyBroad Street EnergyCabot Oil & Gas CorporationCaiman Energy, LLCChesapeake Energy CorporationChevron Appalachia, LLCCNX Land Resources, Inc.Cohort/JW OperatingConocoPhillips CompanyCONSOL Energy, Inc.Devon Energy Corporation
liST Of RESpOndEnTS’ cOmpaniES
DominionEastland Energy Group, Inc.Energy Corporation of AmericaEQT CorporationGraves & CompanyGrenadier Energy PartnersGulfport Energy CorporationKC CooperLake Region OilMurex Petroleum CorporationMurray Energy CorporationNewfield ExplorationNiSourceNortheast Natural Energy, LLCNoble EnergyPDC MountaineerPercheronProvidence Energy Group, Inc.Providence Resources, LLCRange ResourcesRange Resources AppalachiaReliance Holding USA, Inc. Reserve EnergyRex Energy
Seneca Resources CorporationShell Oil CompanySierra Buckeye, LLCSouthwestern Energy Production Co.StatoilStone Energy CorporationSylvan EnergyTalisman Energy USA, Inc.Texas KeystoneTioga Resources, LLCVitruvian Exploration, LLCWhitmar Exploration Co.Worthington Energy ConsultantsWPX EnergyXTO Energy, Inc.
Industry Experts Bexar County Economic DevelopmentUniversity of Texas Center for
Community and Business Research Columbus Business FirstDaily NewsIndependent Research Scientist with
U.S. Shale Expertise
cOmpanyS’ annual REvEnuE100
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%
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
RelationsPrivate 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
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 disputesAs 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%
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 disputesLawsuits 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 yEaR1005025 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%
Land
owne
r Dis
pute
s
55%
Title
Issu
es
51%
Cont
ract
Issu
es
51%
Leas
e D
ispu
tes
42%
Prop
erty
Rig
hts
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
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
EnvironmentalPrivate Finance/
Securities
35%
14%
1%2%
Title & Real Estate
48%
0
laRgEST SpEndS
Naturally resourceful counsel
200 attorneys and 200 paralegals serving only the energy industry220 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 futureScalable, time-sensitive land and title solutions to meet client needs
Robust in-house abstracting resources
Nationwide title servicesTop rated by Best Lawyers in America® & Chambers USA in Oil, Gas & Energy LawStrategic locations in U.S. shale plays, including Marcellus and UticaServing 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 Pennsy l -
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 40
Attorneys Offices in 6 states Practice Areas