Law firm presents experts on promising energy extraction method

By Steve Thorpe

Legal News

Fracking.

The word alone sounds ominous.

But the law firm Miller Canfield tried to shed some light on the energy extraction method -- and dispel some myths -- with an informational seminar on hydraulic fracturing at their Troy office on Wednesday, Dec. 7.

The law firm assembled three experts to address the scientific, business and legal aspects of using hydraulic fracturing (commonly called "fracking") to extract natural gas in Michigan. The seminar, called "Natural Gas Exploration in Michigan: What You Need to Know and Why," filled the firm's large conference room and attendees peppered the experts with questions. Other Miller Canfield attorneys were available to answer questions about their related areas of practice, such as environmental law.

"One of the reasons that we wanted to get together was that there are a lot of myths about fracking, and this was an excellent opportunity to provide some education on the topic," said Amy Johnston, the Miller Canfield partner who moderated the session and presented litigation updates.

Why all the emphasis now on fracking? Because it's a booming industry. Consider North Dakota. According to the Minneapolis Star Tribune, extraction techniques like fracking have fueled an economic boom in the state and contributed to a $1 billion budget surplus and the nation's lowest unemployment rate.

Arrayed on the other side of the issue are environmental groups that claim fracking can contaminate ground water and that it uses too much ground water in the process. Counties and municipalities are also dealing with increased stress on roadways, water systems and sewage systems. Wastewater sometimes has to be trucked more than 100 miles to be treated. Where opposition can move dangerously close to "myth" is when opponents claim that fracking causes earthquakes or that the methane itself, which is at the heart of all natural gas, can contaminate drinking water. Another brickbat occasionally hurled is that "fracking is unregulated," which must bring a smile to those dealing with the regulations.

The citizens of states and regions that sit on top of these resources can sometimes see them as mixed blessings, but few doubt the economic benefits.

Geologist Charles F. Barker of Wayne State University laid the groundwork for the presentation with his description of the geological processes that created the natural gas and petroleum resources under the state of Michigan.

"The first thing I was taught in Geology 101 at college in Arizona was the Michigan Basin," Barker said. "Which was kinda cool because I was homesick. It's an incredible geologic feature that's known throughout the world. A geologist in Germany may not know that Michigan's a state, but they'll know about the Michigan Basin."

"A billion years ago," Barker continued, "the continent began to pull apart -- what's called a 'failed rift' -- and the land sagged down to form the basin. Ancient tropical seas moved in that rained down microorganisms and other organic material that were covered up and trapped the material needed to create the hydrocarbons."

Linda Hensel, a geological engineer who worked extensively in the oil and natural gas industry before turning to consulting, then picked up the thread with information on the methods used to commercially find and extract natural gas using fracking.

Because natural gas is produced and suspended differently in shale than in conventional gas reservoirs, innovative methods, including fracking, have been developed to extract the resource. Most pockets of gas are created when natural gas migrates toward the Earth's surface where it is trapped by an overlying layer of impermeable rock. Shale gas resources, on the other hand, form within the organic-rich shale source rock. The low permeability of the shale keeps the gas from migrating to more accessible areas. Without horizontal drilling and hydraulic fracturing, shale gas production would not be economically feasible because the natural gas would not flow from the formation at high enough rates to justify the cost of drilling.

In the end, it's all economics. What is it worth and what does it cost to get it?

"Every year costs go up to do exploration and development," said Hensel.

So how receptive to new energy approaches has the state of Michigan been so far? Most of the seminar participants said they wanted a more hospitable climate for fracking, but conceded that they've already seen improvements since Republican Rick Snyder took office as governor.

"I deal with the DEQ every day. They're trying to be more 'user friendly,' " said Anna Maiuri, a Miller Canfield attorney specializing in environmental law. "But if you compare our regulations with those of surrounding states, we are much more enforcement oriented."

According to a document on the DEQ website, the agency currently has more than 50 staff employed in enforcing these state requirements.

Maiuri was asked how attorneys thread their way through two separate sets of environmental laws - state and federal.

"You do have to juggle both," she said, "but generally, because we've had a strong DNR and DEQ for many years, many federal agencies will defer to us. They typically only get involved when there's some major problem, or when there's a conflict between how the state is implementing the laws versus the federal government."

Because of the opposition of environmental groups and some landowners, litigation is part of the landscape for developers and energy companies. But Miller Canfield has strategies they recommend to their clients to help lessen the litigation risk.

"When providing consulting advice, we try and come in on the 'ground floor' of the process, which is a tremendous benefit to our clients," said Johnston. "We recommend 'full disclosure' about the process, expectations and experiences because, we've found, the more information you provide the less problems you have later. "

The firm has also taken a team approach to this area of their practice.

"At Miller Canfield we have a cross-functional team," Johnston said. "We have well-versed attorneys in all the related areas. For example, we have environmental attorneys, and attorneys in both our U.S. and Poland offices assisting with regulatory issues. I, together with other commercial litigators handle the multitude of pre-litigation and litigation issues that arise in this exciting industry. Additionally, we assist with contract negotiations. We also have attorneys who are well versed on real estate matters and corporate formations for the purpose of either investment or drilling activity. We are fortunate that we are able to tap into all the experiences of our attorneys to put together this team."

Because of the law firm's long-term strategy, which includes early participation in similar exploration and extraction in Poland, it expects to continue to "shine a light" on the complex issue.

Published: Mon, Dec 12, 2011