Drillers Silence Fracking Claims With Sealed Settlements

Jim Efstathiou Jr. & Mark Drajem     Bloomberg Businessweek    June 06, 2013

Ray Kemble delivers fresh water to a home that had their water contaminated due to hydraulic fracturing on January 18, 2012 in Dimock, Pennsylvania.

Chris and Stephanie Hallowich were sure drilling for natural gas near their Pennsylvania home was to blame for the headaches, burning eyes and sore throats they suffered after the work began.

The companies insisted hydraulic fracturing the technique they used to free underground gas wasn’t the cause. Nevertheless, in 2011, a year after the family sued, Range Resources Corp (RRC). and two other companies agreed to a $750,000 settlement. In order to collect, the Hallowiches promised not to tell anyone, according to court filings.

The Hallowiches aren’t alone. In cases from Wyoming to Arkansas, Pennsylvania to Texas, drillers have agreed to cash settlements or property buyouts with people who say hydraulic fracturing, also known as fracking, ruined their water, according to a review by Bloomberg News of hundreds of regulatory and legal filings. In most cases homeowners must agree to keep quiet.

The strategy keeps data from regulators, policymakers, the news media and health researchers, and makes it difficult to challenge the industry’s claim that fracking has never tainted anyone’s water.

“At this point they feel they can get out of this litigation relatively cheaply,” Marc Bern, an attorney with Napoli Bern Ripka Sholnik LLP in New York who has negotiated about 30 settlements on behalf of homeowners, said in an interview. “Virtually on all of our settlements where they paid money they have requested and demanded that there be confidentiality.”

Energy Transformation

Because the agreements are almost always shrouded by non-disclosure pacts a judge ordered the Hallowich case unsealed after media requests no one can say for sure how many there are. Some stem from lawsuits, while others result from complaints against the drillers or with regulators that never end up in court.

“We are transforming our energy infrastructure in this country from burning coal for electricity to potentially burning a lot of natural gas,” Aaron Bernstein, associate director of the Center for Health and the Global Environment at the Harvard School of Public Health, said in an interview. Non-disclosure agreements “have interfered with the ability of scientists and public health experts to understand what is at stake here.”

Gas Alliance

Confidentiality agreements are included in settlements for many reasons and don’t constitute an admission of fault, according to an industry spokesman.

“The practice is common in every type of litigation in every industry,” Dan Whitten, spokesman for America’s Natural Gas Alliance, a Washington-based industry group, said in an e-mail. “It is often the case that it is less burdensome to settle even on claims that have no merit than to go into a protracted court battle.”

One driller, Southwestern Energy Co (SWN). of Houston, said it agreed to settle a class-action complaint of water contamination in Arkansas last year only if the agreement remained open so there would be no suspicion.

“If we had a confidentiality agreement, everybody would have thought ‘oh gosh, what did Southwestern do here. They got away with something and just paid these guys a pittance,’” said Mark Boling, Southwestern’s general counsel. The $600,000 the company paid three families was a fraction of what the legal fees would have been to see the case through, he said.

Legal Threat

Another driller, Encana Corp. (ECA) of Calgary, took a different approach, threatening legal action to keep details of a case out of view of the Colorado Oil and Gas Conservation Commission.

Laura Amos believed gas drilling near her home in Silt, Colorado, about 160 miles (257 kilometers) west of Denver, was to blame for a tumor she developed. Encana, which owns the well, disagreed that fracking made her sick. Yet the company bought her 30-acre property in 2006 for $310,000, according to public records.

Amos’ complaint and the existence, though not details, of a settlement and non-disclosure pact were disclosed in filings with the oil and gas commission. In December, the agency subpoenaed Amos to testify about a rule it was considering to require water tests. Matt Sura, an environmental attorney in Boulder, Colorado, who represented conservation groups that were seeking Amos’ testimony, said an Encana attorney told him the company would sue Amos if she talked. She didn’t want to face a lawsuit from Encana and Sura said he asked the commission to withdraw the subpoena.

‘Relevant Testimony’

“She had really relevant testimony,” Sura said in an interview. “Because they’ve bought everyone’s silence, they often state that they haven’t damaged anyone.”

In filings with the commission, Amos said gas drilling on a neighbor’s property in 2001 caused her water well to blow out “like a geyser at Yellowstone.” Two years later she said she developed health problems that her doctors could not explain and she believes were related to the drilling.

The commission had concluded that Encana was responsible for methane in Amos’s well, though it said it found no evidence of fracking fluids in her water. Encana disputed the finding yet agreed to a $99,400 fine and to monitor the well until methane levels dropped.

“Encana settled the Amos case as it had been an issue a predecessor company had been working with since 2001 and rather than continue with a lengthy and costly process, Encana decided to settle,” said Jay Averill, a spokesman for Encana, in an e-mail. He didn’t respond to a question about why the company sought to keep Amos from testifying to the commission.

Amos declined to comment on any aspect of the case when contacted by telephone.

Horizontal Drilling

“Why are they settling all these cases?” Deborah Goldberg, managing attorney with the environment group Earthjustice, said in an interview. “There’s obviously information that they don’t want to get out there.”

Michael Gerrard, director of the Center for Climate Change Law at Columbia University, said corporations often insist on confidentiality.

“Companies don’t want other potential plaintiffs to know how much money the companies were willing to pay for a settlement,” he said in an e-mail.

Advances in fracking and horizontal drilling have lowered energy prices, created thousands of jobs and helped reduce emissions blamed for global warming. President Barack Obama has highlighted the benefits of natural gas, including jobs created in the industry, in major speeches.

The technology, in which millions of gallons of water and chemicals are forced underground to free trapped gas, has brought drilling operations to within hundreds of feet of schools, homes and farms. With that has come complaints of drinking water contamination which the industry has forcefully denied.

No Contamination

“There has never been a case of groundwater contamination as a result of hydraulic fracturing,” Jack Gerard, president of the American Petroleum Institute, a trade group representing the oil and gas industry, said in an April 23 interview with Bloomberg Radio.

Such claims rest in part on viewing fracking in isolation from the drilling that precedes it and the disposal of wastewater that follows. Defined narrowly, fracking is the step in the middle in which water and chemicals are forced underground to break up rock and free gas and oil.

Regulators in Pennsylvania, however, have linked gas and oil drilling with about 120 cases of water contamination from 2009 to 2012, according to documents obtained through a state right-to-know request. The documents don’t say if it was the fracking stage that was to blame, as opposed to faulty drilling or waste disposal.

Public Concern

“At the end of the day the public is less concerned with the niceties of whether it’s coming from the fracturing of the shale or whether it is coming from the failure of the well casing because as far as they’re concerned, it’s all hydraulic fracturing,” Mark Brownstein, chief counsel for the Environmental Defense Fund in New York, said in an interview.

The U.S. Environmental Protection Agency is conducting a long-term study of the potential impact of fracking on water.

Settlement terms in the Hallowich case were unsealed over the objections of the driller, Range Resources, by Washington County Common Pleas Court Judge Debbie O’Dell-Seneca who said companies failed to show they’d suffer harm to trade secrets or reputations if the records were open.

Hallowich Case

MarkWest Energy Partners LP (MWE) and Williams Cos.’s (WMB) Williams Gas unit joined in the June 2011 agreement, which included the transfer of the Hallowich home in Hickory, about 25 miles (40 kilometers) southwest of Pittsburgh. The family received $594,820, including $10,000 for each of their two children. The rest of the $750,000 went to attorneys’ fees, according to court documents.

Unlike most settlements, the deal required court approval because minor children were parties to the case. That put the settlement in court, where newspapers and public interest groups challenged an order sealing the case.

“We support the judge’s decision to release the file, which now clearly shows that the state’s extensive investigations clearly proved that there were no environmental or health impacts,” Matt Pitzarella, a spokesman for Range, which is based in Fort Worth, Texas, said in an e-mail. The problems the Hallowiches experienced were from the nuisance of drilling and related activities nearby, he said.

‘Can’t Talk’

As part of the settlement, the Hallowiches signed an affidavit stating there is no medical evidence that their symptoms are related to gas drilling. The Pennsylvania Department of Environmental Protection had said it “cannot conclude” that drilling contaminated the water, a finding the family disputed in its lawsuit. They alleged the agency refused to adequately investigate and outsourced some of the testing to Range Resources itself.

The Hallowiches declined, through their attorney, to discuss the case.

“My clients signed a confidentiality agreement,” Peter Villari, their lawyer, said in an interview. “They can’t talk to you.”

In the end, settlements undermine the industry’s credibility, Robert Kennedy Jr., president of the environment group Waterkeeper Alliance, said.

“The industry is asking us to trust it on the one hand, at the same time it’s gagging people who get sick so that they’re not allowed to talk,” Kennedy said in an interview. “Local doctors, the medical community and citizens who are in these areas need to know.”

Ruggiero Case

The outcome of Tim and Christine Ruggiero’s case remains secret though it didn’t start out that way. For a time, they detailed their travails on a timeline posted online.

The Wise County, Texas, couple had their well water tested in September 2009 before Aruba Petroleum drilled on their property, according to the timeline. The water was found safe to drink. In October, Christine Ruggiero saw a black liquid shooting from the drilling rig and had their water tested again. Those tests showed chemicals linked to gas exploration and fracking such as benzene and acetone, according to the consultant’s report, which was posted online by the anti-fracking website Earthworks.

Tim Ruggiero wrote a blog post on Earthworks in January, 2012, saying: “Our ordeal living in Gasland has ended,” a reference to the 2010 film that documents alleged environmental damage from fracking.

In an interview, he would only say, “The matter has been resolved.” Public records show Aruba, which is based in Plano, Texas, in late 2011 bought his home in Decatur, about 44 miles (71 kilometers) north of Fort Worth. The recorded sale price was $10 “and other considerations,” according to the deed.

Safety Limits

The EPA tested the Ruggieros’ water and found no evidence of contaminants above the safe-water drinking limits, Jim Lovett, an Aruba executive, said in an interview. An EPA spokeswoman declined to release the results.

“All I’m allowed to say is the dispute has been settled,” Lovett said.

After Jeff and Tina Richardson complained that gas drilling ruined the well water at their home in Wellsboro, Pennsylvania, about 100 miles (160 kilometers) northwest of Scranton, Royal Dutch Shell Plc (RDSA) gave them bottled water and paid for a hotel room to shower in. The couple is asking for much more.

Water tests conducted after East Resources Inc. drilled the well revealed methane levels as high as 31 milligrams per liter. The U.S. Interior Department recommends monitoring when levels rise to 10 milligrams, and immediate action at 28.

Shell Purchase

In a May 16, 2012, letter, Pennsylvania regulators said gas drilling had impacted Richardson’s water. Shell provided replacement water even though regulators never directly linked the company to issues with the family’s drinking water, according to Kelly op de Weegh, a spokeswoman for Shell, which is based in The Hague and bought the gas well from East Resources in 2010.

The couple lives in an area where methane naturally seeps into aquifers, op de Weegh said.

Chesapeake Energy Corp. (CHK) provided a similar explanation after agreeing to pay $1.6 million to buy three families out of their homes in Terry Township, Pennsylvania, about 50 miles (80 kilometers) northwest of Scranton. The settlement included payment for the properties plus other compensation.

Chesapeake, which is based in Oklahoma City, settled even though there were no water tests at the affected homes before drilling, the company said in a statement.

‘Bring Closure’

“The pre-drill testing that we do have in the area shows that a significant percentage of the residential wells had measurable methane levels prior to any Chesapeake drilling activity in the area,” according to the statement. Chesapeake “has entered into the settlement so the families and the company could bring closure to the matter.”

Richardson declined Shell’s offer of a water filtration system, which he said doesn’t guarantee chemicals used in fracking will be removed. When the couple turned down the offer, Shell stopped paying for hotel showers.

The Richardsons are now seeking a way out of the “dream” house they built in 1993 where today, they only use tap water to flush the toilets.

“We thought we did everything right to protect ourselves,” Richardson, who is 60 and works for a financial services company, said in an interview. “We’re asking for a settlement. At this point they’re refusing to buy us out. I don’t know if I’m ever going to feel safe drinking the water.”