Drillers should proactively deal with liability risk: study

Houston (Platts)--13Jun2014/648 pm EDT/2248 GMT


Companies should take proactive steps to reduce the liability surrounding shale gas development, such as revealing the chemical composition of hydraulic fracturing fluid, the author of a research paper on the subject said Friday.

Nathan Richardson, resident scholar at Washington-based think tank Resources for the Future, said that while regulation of shale oil and gas drilling has become a hot issue recently, less attention has been paid to liability issues surrounding such development.

"There's a lot of controversy about how to best regulate shale gas development," he said. "We take no position on that. But, we shouldn't just be talking about regulation. We should be talking about how to make the liability system work for shale gas development."

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The study -- "Managing the Risks of Shale Gas Development Using Innovative Legal and Regulatory Approaches," which Richardson co-authored with Sheila Olmstead, a researcher with the University of Texas at Austin -- examines how the use of the current system for assigning legal liability for damages could be adapted to address many of the potential risks of shale development.

"While there is undoubtedly room for improved regulation, innovative tools are relatively understudied," the study said. "The liability system predates environmental regulation yet still plays an important -- and in some senses predominant -- role."

Many of the everyday risks associated with shale development, such as an accident involving a truck carrying fracking fluid from a drilling site to a wastewater disposal well, already are handled under the existing liability system, Richardson said.

"Some things that are more controversial in these debates, such as damage to groundwater, could in principle be handled by the liability system, and in some cases already are," he added.

Providing information about the makeup of fracking fluid could help people who are harmed by accidental spills, he said.

"They know whether they can sue and who to sue," Richardson said.

But such rules could also be to the shale operators' benefit, he said.

"If they did that, then it would be easier to figure out if they are responsible, and if they are, whether they could be sued," he said.

Although chemical disclosure might raise some questions concerning trade secrets, in the long run it might be less costly for a responsible operator to be more transparent than it would be to try to hide the chemicals used in fracking fluid.

In addition, adapting liability rules could be handled on the state level, an argument that should appeal to oil and gas companies leery of additional federal regulation of their industry.

"Shale gas is regulated on the state level," Richardson said.

In the same way, most liability litigation involving shale oil and gas drillers is usually decided by state courts, where operators' litigation expenses tend to be lower than in the federal legal system.

Even in cases that ultimately are moved to federal court, "the same lessons could be applied," he said.

--Jim Magill, jim.magill@platts.com
--Edited by Annie Siebert, ann.siebert@platts.com

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