Twice a year, lawyers in Pennsylvania who specialize in family law convene to discuss developments in their field. At this year’s first meeting, just concluded in Lancaster, the Family Law Section of the Pennsylvania Bar Association heard from three experts concerning energy law and its impact on real estate.
Roughly a decade ago, hydraulic fracking came in Pennsylvania and began to radically change the energy industry and real estate values. Within five years it seemed that the Commonwealth was going to become a 21st century Texas. As deposits of natural gas became to come on line by 2008, energy prices spiked to record highs. Using crude oil prices as the benchmark oil reached $140 a barrel in 2008 but then dropped just as fast, then climbed from $40 a barrel back into the $80-110 range. 2014 saw another rapid decline in prices, falling first to $50 and then dropping to today’s price of $29 a barrel.
This precipitous decline has caused fits for energy producers prompting some to lose 2/3 or more of their market capitalization in the past two years. It has also slowed production and royalty income as well. The result has created an impression that the shale gas boom was going into hibernation.
There is truth to this but as the experts presenting in Lancaster noted, the industry remains a fast evolving one. The return of the energy industry to Pennsylvania has not only prompted a revolution in technology. Falling prices have forced geologists and engineers to think more creatively about what can be extracted and how most efficiently to accomplish that. Today, the industry is looking beyond Marcellus shale to other forms of energy deposits. Among those noted by Bud Shufstall, an energy attorney with Northwest Savings Bank is a return to the original oil fields discovered in the 1860s with a process that extracts oil deposits which heretofore could not be recovered.
A couple of points seem clear. Energy producers are evolving in terms of what mineral and gas deposits they want and how they may be extracted. Pennsylvania law on this subject which evolved from 1870-1920 and then was largely ignored for almost a century is now being revived to address new technologies. Family lawyers trying to dabble in this field do so at their peril because they may be focusing on both the wrong form of subsurface deposit as well as the wrong form of agreement to address what lies below the surface.
The divorce law itself has not formally addressed these subjects. The consensus of the experts, including Brandon Otis, a valuations expert from BDO Seidman and Taunya Rosenbloom, an energy attorney in Athens, PA was that a subsurface deposit for which there was no technological means of extraction had no value until the technology changed that. But that conclusion may be subject to challenge in a judicial setting. Then there is the problem confronting Mr. Otis of trying to put a value on what lies below in a world where natural gas prices have fallen 25% in the past 11 weeks. Prices may be depressed but one thing is emphatically clear. Pennsylvania is the second largest producer of natural gas in the United States and it is going to remain a focal point of energy production for many years to come. Those substances trapped below ground are going to be valued and divided whenever there are marital rumblings of the people who live above ground. Doing it correctly is no easy task.