New law may affect transactions in Marcellus Shale regions

Parts of the real estate transaction could be affected by the recent state legislation that created an “impact fee” on Marcellus Shale drilling.

The “new” legislation is actually a substantial rewrite of the previous Oil and Gas Act, which only regulated vertical wells.  With the changes, the law now regulates both vertical wells and the horizontal drilling and “fracking” common in the Marcellus region – which is (only the fracking is unconventional) now referred to as “unconventional” wells. While most of the issues will apply to both kinds of wells, this article discusses them only in relation to the unconventional wells.

Many current owners or prospective buyers are concerned about water quality near drilling sites.  The law addresses these concerns through several related provisions designed to provide much more information to property owners and the general public.

When applying for a drilling permit, drillers must now provide specific notices to the owner of the land where drilling will occur, as well as to all neighboring property owners who have a water supply (such as a well) within 3,000 linear feet (more than a half-mile) of the proposed drilling site. The law also requires the state Department of Environmental Protection (DEP) to collect and publish information regarding the chemicals used in fracking fluids, reports of water contamination, and legal/regulatory violations for each producer.

With safety-related information being more available to the public, owners and potential buyers will have more access to information that could affect a property. For example, buyers could find out if there have been reports of water contamination associated with a particular drilling location. And with regulatory violations being made public, buyers might be less likely to purchase properties being drilled by companies with lesser safety records.

The notices provided to property owners will also inform them that they lose certain protections for their water supplies if they do not allow producers to conduct pre-drilling water tests to establish baseline data. Ordinarily, water contamination of a well within 2,500 feet of a drill site that occurs within one year of drilling would be presumed to be caused by the gas company. But an owner who refuses pre-drilling tests will lose the benefit of that presumption and will have to conclusively prove that specific drilling activity caused any contamination.

Realtors® don’t need to become experts on every drill site and every gas producer, nor do you need to memorize every component of the law, but you need to understand what information is available to consumers, and how to help your client get or give the right information.

On the listing side, sellers will have access to much more information than they used to, some of which may need to be disclosed to potential buyers. For example, if two gas wells are drilled near a seller’s water well, the seller will likely have had at least two pre-drilling water tests completed, and will probably have had more tests over time. These tests – and any problems – will need to be disclosed on the seller disclosure form.  Similarly, if a driller on or near the seller’s property is cited for violations, such as a leak in a retaining pool of fracking fluids, the seller may have to disclose the potential for hazardous substances on the property.

On the buyer’s side, Realtors® should familiarize themselves with the types of data available and where to find it, so buyers can be referred to the proper information during the transaction. Buyer agents don’t need to become experts on every driller and every drill site, for example, but should know where to send buyers who want more information about water contamination or regulatory violations.

With the law being so new, several elements have not yet taken effect, and much of this information is not yet published.  PAR will monitor the issue and publish updated information as it is available.  The association will also be looking at how to integrate some of this information into existing forms.  In the meantime, more information is available on the DEP Oil and Gas Programs website.