Update on Range Resources & Other Related Litigation

1. Update on Range Resources & Other Related Litigation Kim Hodgman Strasburger & Price, LLP Gulf Coast Environmental Affairs Group January 12, 2012

2. Overview • Range Resources v. EPA • Tennessee Valley Authority v. Whitman • Sackett v. EPA • (pending before the Supreme Court) • What to Watch For / Implications for E&P

3. Emergency Order in Range Resources - Background • In 2010, EPA issued a unilateral order demanding Range Resources (“Range”) conduct an expansive, long-term remedial action, including conducting an extensive study of a twenty-county aquifer, identifying methane flow pathways anywhere within that aquifer. • EPA gave Range no opportunity to challenge the underlying conclusions of the Order. • The case is now pending in both the U.S. District Court and the Fifth Circuit.

4. Timeline of Events & Procedural Background • 2009 –Range wells drilled and begin producing gas. • 2010 – Private well owners claim water was “effervescing.” • Aug. 2010 – EPA began testing private wells and informed Texas Railroad Commission (“RRC”) of the investigation. • Sept. 2010 – Domestic Well 1 removed from service. • 12/7/10 –EPA issues Emergency Order. • 12/18/10 –EPA brings civil enforcement in U.S. District Court for the sole purpose of seeking an injunction and obtaining civil penalties. • Did not question the validity of the underlying conclusions of the order.

5. Timeline of Events & Procedural Background Continued • 1/19 - 1/20/11 – RRC holds hearings. • 1/20/11 – Range files petition for review in Fifth Circuit Court of Appeals. • 3/22/11 – RRC issues order determining Range did not cause contamination. • 6/20/11 – District Court stays case pending Fifth Circuit’s evaluation of the Emergency Order. • 10/3/11 – 5th Circuit Oral Argument

6. EPA’s Authority –Emergency Orders • EPA issued its emergency order pursuant to its claimed authority under Section 1431 of the Safe Drinking Water Act (“SDWA”). • 42 U.S.C. Section 300(i).

7. Safe Drinking Water Act Section 1431 • SDWA 1431 provides: • “Upon receipt of information that a contaminant is present in or is likely to enter an underground source of drinking water . . . which may present an imminent and substantial endangerment to the health of persons, and that appropriate State and local authorities have not acted to protect the health of such persons, [EPA Administrator] may take such actions as he may deem necessary in order to protect the health of such persons.”

8. Enforcement of EPA’s Emergency Orders • Violation of any emergency order issued under SWDA 1431(a) is punishable by a fine of $16,500 per a day for each violation. Violations include failing to comply or refusing to comply with the order issued by the Administrator. • 42 U.S.C Section 400i(b) • The EPA may bring an enforcement action in a United States district court to obtain a permanent or temporary injunction and obtain statutory fines for noncompliance with an emergency order.

9. Range Resources -EPA’s Finding of Facts • EPA’s Finding of Facts in its 12/7/10 Emergency Order conclude that Range is the responsible party for levels of methane and other gases found in two domestic wells outside of Fort Worth. • EPA cited the following facts for its conclusion: • Range’s gas production facilities’ proximity to the domestic wells • Presence of natural gas in two domestic wells • EPA’s own isotopic fingerprint analysis of the methane • Eye witness accounts of the well owners who claimed that they did not notice the presence of natural gas in the water until after Range’s drilling

10. EPA Failed to Show Causation • EPA’s Emergency Order provides no basis for the pathway methane traveled from Ranges’ deep-wells (a mile below surface) to the domestic wells (approx. 200 feet below surface). • Placed burden on Range to show how methane traveled from its deep wells to the Trinity Aquifer. • EPA simply concludes that since there was natural gas in the wells, and Range was the only natural gas production facility in the area, it caused the contamination. • The RRC, however, found in March 2011 that Range was not the source of methane in the domestic wells, but rather, the presence of gas in the wells was from the Strawn formation (a different source than the source that Range gas wells were tapping).

11. EPA’s experts were never required to defend their methodologies • Range was never allowed to controvert the findings of the EPA experts. Range was never given the opportunity to cross-examine the EPA experts or question EPA’s methodology. • EPA never made formal expert reports available to Range and only provided transcripts of the phone calls between the experts and EPA. • EPA did not consider any testing conducted by Range, or other historical test results, that showed the presence of natural gas in domestic wells in the area prior to Range’s 2009 exploration.

12. Range Resources Emergency Administrative Order • EPA ordered Range Resources to: • Within 24 hours, notify EPA in writing that they intend to comply with the Order. • Within 48 hours, provide replacement potable water supplies for all consumers from the two wells identified in the Order. • Within 48 hours, install explosivity meters in the dwellings served by the two wells .

13. Range Resources Emergency Administrative Order • Within 5 days, submit to EPA a survey listing and identifying all private water wells within 3,000 feet of the Butler wellbore track and 3,000 feet of the Teal wellbore track and all of the Lake Country Acres public water supply system. • Within 5 days submit a plan for sampling all head space (air) and dissolved constituent (water) from wells in the surveyed areas. • Head space sampling shall commence no later than 5 days after the submittal of the plan. • Within 14 days, submit a plan to conduct soil gas surveys and indoor air concentration analyses of the properties and dwellings. • Within 60 days, develop and submit a plan to • Identify gas flow pathways to the Trinity Aquifer • Eliminate gas flow to the aquifer if possible, and • Remediate areas of the aquifer that have been impacted

14. Opportunity to Confer with the EPA • The emergency Order gave Range the opportunity to confer with EPA over the terms of the Order within 7 days of receipt of the Order. • The conference, however was not “an evidentiary hearing, does not constitute a proceeding to challenge the Order, and does not give Respondents a right to seek review of this Order.”

15. Constitutionality of EPA’s Emergency Administrative Order • Range is widely viewed as EPA’s “test case” for issuing Emergency Orders under the SDWA. • Range asserts that EPA’s attempt to enforce a unilateral administrative order without first proving by a preponderance of the evidence the contents of that order violates its due process rights.

16. EPA’s Argument before the 5th Circuit • EPA contends Due Process is protected by: • District court judge has authority to decide in equity not to award any penalty. • Arbitrary and capricious review of the Order by the Court of Appeals.

17. Where Range Stands • District Court case is stayed pending 5th Circuit Opinion • Fines don’t accrue during stay. • 5th Circuit has not issued an opinion • Likely waiting on Supreme Court to hear Sackett v. EPA

18. Tennessee Valley Authority v. Whitman (11th Cir. 2003) • TVA also addressed the reviewability of administrative orders. • EPA concluded that TVA violated the Clean Air Act (“CAA”) when it undertook rehabilitation projects at its coal-fired electric power plants. • EPA issued an administrative compliance order “ACO” and only allowed TVA to challenge the underlying findings of the ACO in a sham procedure before the Environmental Appeals Board.

19. Tennessee Valley Authority v. Whitman Continued • The Eleventh Circuit held that the “statutory scheme” under the Clean Air Act “is unconstitutional to the extent that severe civil and criminal penalties can be imposed for noncompliance with the terms of an ACO.” • ACO had no legal effect and did not constitute final agency action. • That court also noted that “EPA has consistently contended that pre-enforcement review of ACOs is unavailable because ACOs allegedly trigger no legal consequences upon noncompliance with their terms.”

20. Key Differences between Range & TVA • TVA involved the CAA and not the SDWA • The order issued under SDWA was an EMERGENCY order. • The Eleventh Circuit specifically declined to determine the constitutionality of an emergency order since the issue was not before the court.

21. Sackett v. EPA –Background • Currently on appeal from the 9th Circuit and pending before the Supreme Court. • The Sacketts filled half of its .63-acre lot in anticipation of building a home. EPA unilaterally issued a Compliance Order against the Sacketts for violation of the Clean Water Act (“CWA”). • The compliance order alleged that the Sacketts’ lot was a wetland, and that they had violated the CWA by not first obtaining a permit prior to filling in their property. • The compliance order required the Sacketts to return the land to its original condition. • Violation of the order exposed the Sacketts to civil penalties up to $32,500 per a day of violation or administrative penalties up to $11,000 per day for each violation.

22. Sackett Property

23. Sackett v. EPADistrict Court’s Dismissal • The Sackets sought a hearing with EPA to challenge the finding that their land was a wetland. EPA refused to hear the matter. • The Sacketts then brought a lawsuit in United States District Court for Idaho seeking declaratory judgment that: • the compliance order was arbitrary and capricious under the Administrative Procedure Act; • that the issuance of the compliance order without a hearing was in violation of the Sacketts’ procedural due process rights; and • that issuance on the basis of “any information available” standard was unconstitutionally vague. • District Court dismissed Sacketts’ claim for lack of subject-matter jurisdiction concluding the CWA precludes judicial review of compliance orders before EPA has started an enforcement action in federal court.

24. Sackett v. EPANinth Circuit Affirms Dismissal • The Ninth Circuit considered the following in its analysis: • Structure of Statutory Scheme • Objectives of the Statutory Scheme • Respond Quickly • Legislative History • Congress knew how to grant pre-enforcement review and did not.

25. Sackett v. EPA (9th Cir.) Statutory Structure Precludes Preenforcement Hearing • Enforcement action already allows an opportunity for judicial consideration of the compliance order. • No Sanction can be imposed, or injunctions issued, for noncompliance with a compliance order until EPA brings a civil enforcement action in district court.

26. Sackett v. EPA (9th Cir.)Any Information Available . . . • The Ninth Circuit disposed of Sacketts’ “any information available” argument by declining to interpret the CWA to impose a civil penalty unless that order was “predicated on actual, not alleged, violations of the CWA, as found by a district court in an enforcement action according to traditional civil evidence rules and burdens of proof.” • The court found this to be a constitutional reading of the statute.

27. Why do we care about a Clean Water Act case? • In finding that there was no due process violation, the Ninth Circuit stated: • EPA is not authorized “to bring an enforcement action on the basis of a violation of a compliance order alone, it follows that a court cannot assess penalties for violations of a compliance order under Section 1319(d) unless the EPA also proves, by a preponderance of the evidence, that the defendants actually violated the CWA in the manner alleged.” • Range makes this same argument for emergency compliance orders issued under the SDWA.

28. What to Watch for in the Coming Months • Does 5th Circuit remand Range to district court for an evidentiary hearing? • This will undercut EPA’s power to enforce emergency orders • If 5th Circuit asserts jurisdiction and conducts an “arbitrary and capricious” review, oil and gas producers will experience more unilateral enforcement from the EPA. • Easier for EPA to show it did not act arbitrarily and capricious than to prove the pathway of methane introduction into well water. • How does the Supreme Court address the due process issues in Sackett? • Is a Pre-Enforcement Hearing required? • Will the court limit its ruling to CWA cases?

29. Q&A