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Shale gas taps into legal pocket

| Sunday, July 14, 2013, 11:01 p.m.

Companies tapping the Marcellus shale for natural gas spend millions of dollars yearly on legal services, prompting law firms in Western Pennsylvania to expand energy practices and others to set up shop to grab some of the business.

“It has dramatically affected the amount of work and the number of slots that many firms have” for energy law, said Steven Baicker-McKee, a Duquesne University law professor.

Baicker-McKee, recruited by the university from his private practice with Babst Calland, Downtown, spent most of his time practicing energy law for the past 25 years, although the work included coal, petroleum refining and nuclear.

“For the last four or five years, I had a very heavy case load in the Marcellus area,” he said.

When the shale gas-related workload surged, Babst Calland hired about 25 lawyers mostly to handle that work, Baicker-McKee said. Once a small part of the firm's practice, energy law accounts for about one-third of its billings, he said.

As it did with laborers and others in the field, gas drilling brought law firms from Texas and other states to the Pittsburgh region, said Joseph Brendel, council chairman of the Allegheny County Bar Association's Environment and Energy Law Section.

“Those firms have set up shop in Southpointe, where the exploration companies are,” he said.

Southpointe Commerce Park in Cecil hosts more than 50 energy companies, including Consol Energy Inc., Range Resources Corp. and Noble Energy Inc. Other companies, such as GAI Consultants, provide services to the gas industry, such as planning for land development projects.

Many attorneys with energy law experience moved to law firms that expanded their energy law sections.

“Attorneys with significant energy experience are in high demand,” said Brendel, who practices environmental and energy law with Clark Hill Thorp Reed, Downtown.

Nowhere near saturation

There's no way to quantify the volume of work, but the relocations and law firm expansions show that it's significant, Brendel said: “They wouldn't be doing that if the work wasn't there to support it.”

A survey commissioned by a Bridgeport, W.Va., law firm suggests spending on legal work related to shale gas exceeds $100 million a year.

Steptoe & Johnson hired Brand Research Co. to conduct the survey in advance of an energy leadership summit it will hold on Monday and Tuesday in Columbus, Ohio. Brand surveyed 56 oil and gas companies, about 80 percent of whom work in Marcellus shale fields. They reported spending an average of $3.4 million annually on lawsuits, and more than two-thirds cited legal work, such as title research and commercial transactions.

In 2010, Steptoe & Johnson acquired the energy practice of a Meadville law firm and opened an office in Southpointe. Kristian White, managing member of the office, said the firm did so to capitalize on Marcellus and Utica shale-related legal work. Its Southpointe office grew from three to 16 lawyers because of the workload.

“We expect it to increase as the price increases for natural gas,” White said. Higher prices would trigger more drilling and accelerate the trend of energy company buyouts, he said.

“We anticipate the shale play to be active for a couple of more decades at least,” he said.

Don Hodor, executive director of the Southpointe Chamber of Commerce, said six law firms moved into the business park in the past year and several have located in the Route 19 business corridor. He anticipates that will continue.

“You won't reach the saturation point for about 10 to 15 years,” he said.

‘Like a gold rush'

The legal work began booming in 2007, when Range Resources reported the production figures from its Renz 1 well in Mt. Pleasant, Washington County. The news set off a stampede for gas leases in the region and ironically, laid the groundwork for more legal work as people started challenging those leases, said Baicker-McKee.

“For a while, it was like a gold rush here,” he said.

Development companies sent representatives, called “land men” or “land agents,” who tried to lease as many acres as possible, as quickly as possible, he said.

Much of the legal work comes from lawyers trying to break or enforce those hastily written leases, or companies trying to hold onto leases.

“They didn't take time to do things carefully because they were worried that somebody else would beat them in tying up those acres,” Baicker-McKee said.

Most leases require a company to drill within five years, but some delayed because of a slump in natural gas prices and a shortage of equipment and crews.

Some landowners who signed early leases did so for as little as $300 a year. Their neighbors ended up getting $5,000 an acre, plus royalties, so many are fighting lease renewals to try to negotiate better deals, Baicker-McKee said.

Throw in rights-of-way disputes, company mergers and royalty fights, and there's plenty of work for lawyers.

“Whenever there is that much money involved, people are going to watch the money pretty carefully,” Baicker-McKee said.

New lawyers welcome

Duquesne and the University of Pittsburgh responded to the trend by adding energy courses in their law schools.

Duquesne's energy and environmental law concentration enables graduates to approach employers with evidence that they've developed expertise, Baicker-McKee said.

Pitt's law school added three oil and gas law courses to its environmental and natural resources curriculum and will host an Energy Law & Policy Institute on Aug. 1 and 2. Enrollment in its energy law courses has steadily increased, said Diane Hernon Chavis, university spokeswoman.

Kevin Colosimo, managing partner at Burleson LLP's Pittsburgh office in Southpointe, said the work its 35 lawyers perform is related to shale gas in the Appalachian basin.

“Four years ago, none of them were here,” he said.

Much of that work deals with titles, drilling permits, lawsuits and land use issues such as zoning variances.

The nature of the work will change as development of Marcellus and Utica shale fields matures, he said.

“We're still in the land phase,” he said. “We're moving into the operational phase along with the land phase.”

Brian Bowling is a Trib Total Media staff writer. Reach him at 412-325-4301 or bbowling@tribweb.com.

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