The Legal Intelligencer
While Pennsylvania’s natural gas production is on the rise, energy lawyers in the state said that will not have an immediate impact on their practices. But, they said, the numbers forecast a bright future for multidisciplinary energy practices in Pennsylvania, as well as the overall state economy.
The Pennsylvania Department of Environmental Protection published its annual Oil and Gas Report earlier this month, which said Pennsylvania’s natural gas production rate increased to a record high, despite a nationwide downturn in oil and gas drilling activities.
“It reaffirms the idea that we have a stable and productive amount of natural gas,” said Joseph Reinhart, co-chair of Babst Calland’s energy and natural resources practice group. “That means good things for the economy including the lawyers.”
Lawyers said the production statistics will draw industry to Pennsylvania. But the positive consequences, particularly in the legal industry, may not be immediate, as infrastructure remains lacking and the industry overall is still experiencing a downturn.
“It’s going to take a few years for things to play out,” northeast Pennsylvania energy lawyer Stephen Saunders said. When it does, “people that are really committed to keeping up to the developments in the industry, they’re going to have work to do.”
According to the DEP report, more than 4.6 trillion cubic feet of natural gas was produced in Pennsylvania last year, up from about 4.1 trillion in 2014 despite a reduction in the number of natural gas wells being drilled.
Last week, acting DEP Secretary Patrick McDonnell said Pennsylvania’s Marcellus Shale natural gas wells are the most productive in the United States, according to a report in the Observer-Reporter, a southwestern Pennsylvania newspaper.
Reinhart noted that the annual report is not even up to date, since it is based on 2015 numbers. He said production rates have likely increased, and operators are indicating that their capital budgets are increasing.
But Saunders said high production alone does not have a major influence on the industry’s bottom line because natural gas prices are low.
“My clients, they’ve basically said we’re in a holding pattern right now,” Saunders said.
But, he said, when gas prices eventually rebound, energy companies’ budgets will be in shape to make investments.
“Once it does, I think there’s every reason to think that legal work, just as it would be for any other suppliers or vendors of oil and gas, will come back,” Saunders said.
Michael Krancer, chairman of Blank Rome’s energy industry team, said higher production in Pennsylvania will eventually bring more industry activity to the area, and cause a ripple effect throughout multiple legal practice areas.
Some energy-sector investment has already begun. Shell Chemical Appalachia announced in June that it was planning to build a multibillion-dollar petrochemical plant in Beaver County. The complex will use ethane from shale gas producers in the area, according to a release from Shell Global.
“That’s mega industry coming into the area,” Saunders said. “There will certainly be spin-off effects.”
Reinhart said western Pennsylvania will be of particular interest, but the whole surrounding region is likely to benefit.
As companies expand in Pennsylvania it will bring all sorts of legal work to the region, Krancer said. He noted that when he was counsel at an energy company, only 10 to 20 percent of his daily work was in energy law.
“Really the push or the bump comes well beyond energy-related work,” Krancer said. “The [firms] that are really boutique and focused are not poised to do well. They’ve got all their eggs in one basket.”
Saunders said there has been a “culling out” of lawyers who were not well situated to practice in the energy sector long-term. Regulatory and compliance as well as litigation are currently “hot” practice areas in the energy sector, he said, but others have cooled off.
Saunders helps plan the Pennsylvania Bar Institute’s annual Oil and Gas Colloquium and said attendance at this year’s event was high. It mostly consisted of lawyers on the industry side working out of western Pennsylvania, he said.
Krancer said the future for Pennsylvania’s energy industry depends upon how elected officials and regulators approach the infrastructure issues that remain. The high level of production Pennsylvania has seen, he said, underscores the need to get pipelines and other means of transport in place.
“Pennsylvania can be not only a national leader but a worldwide leader in conducting this activity,” Krancer said.
Saunders said getting the right infrastructure in place will help gas prices to rise and make the industry better able to invest in the region.
Both Krancer and Saunders said it’s possible that Pennsylvania could rise to the top of the energy industry if that happens. But Saunders noted that states like Texas and Oklahoma have had much more time to make their mark in the oil and gas industry.
Even when energy-related legal activity begins to increase, Saunders said, it will remain a difficult area to enter. The ongoing downturn has weeded out a number of lawyers whose practices were not diverse enough, making it difficult for newcomers to compete with those who remain, he said.
*Reprinted with permission from the 8/15/16 issue of The Legal Intelligencer. © 2016 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.