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We Can Fight the Russian Bear with Fracking. Will We?

Constitution Pipeline - MarkindDaniel B. Markind, Esq.
Weir and Partners, LLP

 

The Russian bear is on the move but the West has a powerful weapon to fight it—fracking. Will we use it to put this rampaging beast back in his cage?

In the two weeks since the Pennsylvania’s Supreme Court second Robinson decision, Russian President Vladimir Putin made a far more significant decision.  On October 7, Putin moved his Iskander ballistic missiles, capable of carrying nuclear warheads, into Kaliningrad, the Russian enclave between Poland and the Baltic States.

The Putin gambit clearly is an attempt to intimidate Europe near the end of President Obama’s term.   It comes when Russian warplanes are carpet bombing Aleppo in Syria, Russian ground troops support the Assad Regime, Russia has annexed Crimea and Russian-backed insurgents continue to occupy Eastern Ukraine.  The West is in no position to resist him.  With winter approaching, Western Europe remains dangerously dependent on Russian natural gas.  This difficult situation was not inevitable.  It is a byproduct of shallow Western strategic thinking.

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At long last, natural gas supplies are reaching the UK from Western Pennsylvania and Eastern Ohio, but only in middling amounts.  Full scale export of American gas will require a build-out of our pipeline systems, development of the terminals in Marcus Hook and Philadelphia, a commitment from the Federal government to grant export licenses in a timely fashion, and a realization in Europe that it no longer can just assume away the dilemma between its security needs and its environmental perfectionism.  As things stand now, we are at least two to three years away from any true diminishment of Russia’s energy control over Europe.  Unfortunately, expect things to get much more dangerous before they get better.

Back in the Mid-Atlantic, the Pennsylvania Robinson decision is expected to have relatively little impact on Pennsylvania natural gas production in the near term.  Most producers seemed to anticipate much of the holding.  While it will not be the world they expected when Act 13 was passed in 2012, it will be something to which they have resigned themselves. The Scranton Times-Tribune editorialized that the Court and low prices have given the State a second chance to get the tax and regulatory structure for natural gas right.

To the West, the Ohio Supreme Court issued its decision in Corban v. Chesapeake Exploration.  This case dealt with the State’s Dormant Minerals Act, which was enacted in 1989 and amended in 2006.  The Act holds that if there is no “savings” event within 20 years (such as drilling, a recorded instrument mentioning mineral rights, etc.), a surface owner who does not own mineral rights may obtain them by following certain procedures such as giving the last mineral rights owner notice, filing a notice of abandonment and not receiving any objection from the last known mineral rights owner.  The notice provisions were added in 2006 to make it more difficult for the surface owner to claim ownership.

The Corban decision, one of the first to come down under this Statute, regarded surface owners who claimed they succeeded to subsurface title between 1989 and 2006, meaning they did not have to follow the notice and filing provisions of the 2006 amendments.  This caused great uncertainty in Ohio over who owned these previously-severed mineral estates.  The Ohio Supreme Court decided against all of the lower courts and ruled, in effect, that the 2006 amendments had to be followed for a surface owner to merge the estates, regardless of when the alleged abandonment took place.  Brushing aside claims of retroactivity, the case simplifies the determination of who owns what mineral rights in Ohio.

Finally, in Maryland, the State Department of the Environment announced its new proposed regulations that finally could permit Maryland’s western Garrett and Alleghany Counties to commence drilling.  The regulations are billed as the toughest anywhere, and reflect the culmination of a years-long process begun during the Martin O’Malley administration.   Among the provisions are a prohibition of a well pad from being located within 2,000 feet of a private drinking water well or a source for public drinking water; one year baseline testing of surface and groundwater before well pad construction, and the use of four concentric layers of steel casing and cement for well construction.

With oil and gas prices rising, the glut mostly gone and cold weather approaching, it is going to be a very interesting winter.

Editor’s Note: I would be remiss to not point what my good friend Nick Grealy would hasten to add; that developing the UK’s own shale should be a national security priority for that nation. They have tremendous shale resources and not developing them would be a crime. Now that the UK government has approved drilling and fracking for Cuadrilla wells in Lancashire, one can hope they’re on their way. But it would be nice to let have us a piece of that market, too. We’d love to ship more Marcellus Shale LNG to the UK, after all!

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