Small community of South Fayette focus of big Marcellus Shale controversy

Lawsuit, elections turn South Fayette into major test case

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South Fayette is one of dozens of Pennsylvania communities to regulate gas drilling, but one of only two being sued by Range Resources for doing so.

It's a dispute that has turned South Fayette into an unlikely test case for drilling regulations across the Marcellus Shale region -- and has thrust an issue of national resonance into the realm of small-town politics.

Western Pennsylvania's dominant driller calls the township's regulations an illegal ban on natural gas development that's holding back development on leases set to expire, taking more than a billion dollars with them, at a time when the driller says it is short on cash.

Some South Fayette residents think they have a lot to lose, too: Drilling rigs don't mesh with subdivisions. A citizens group, Friends of South Fayette, has spent more than $20,000 to protect the ordinance approved last November that prohibits surface drilling in the community's neighborhoods, parks, farms and school zones.

Citizens of the affluent community show up at meetings in business attire and aren't in the least daunted by the phalanx of Range lawyers lined up before them arguing that the ordinance won't stand up in litigation.

"What a strategic error on the part of the industry to think this town was going to settle for that," said Keith McDonough, a major financial backer of the Friends of South Fayette.

The Range challenge is scheduled to be heard by the township zoning hearing board Nov. 9 -- one day after municipal elections, in which drilling has become the singular issue. It was to have been heard earlier this month, but that meeting was short-circuited when the township solicitor called on board members who have signed leases with Range to recuse themselves. The case is expected to move on to a higher court, where a ruling in favor of the Fort Worth, Texas-based Range Resources could overturn scores of small-town ordinances across the state.

The company would like to see statewide uniformity in regulations, something it argues would provide regulations to townships that cannot afford coffer-draining legal fees.

A scenic community

South Fayette makes for an unlikely battleground. The bedroom community -- 15 miles from Downtown on the Allegheny-Washington county border -- caters to Pittsburgh professionals who want views of rolling hills from the comfort of a 3,000-square-foot home. The median income almost hits $70,000. Most of the old farmland has been sold to subdivision developers, but there's still enough greenery to warrant a real estate listing description as "scenic." Pittsburgh Magazine not long ago named it one of the area's best suburbs.

Before drilling, most of the chatter was about a new shopping district planned for the township of 15,000. Like other affluent suburbs -- the ones that combine the rural with the residential -- it saw drilling as a spectator sport, something happening elsewhere.

But in the battle over how much and where to allow natural gas drilling, the two sides now are playing for keeps.

Range Resources has hired attorneys with experience fighting ordinances. Its partners are reaching out to South Fayette officials -- and in some cases, have hired them.

South Fayette groups have recruited new candidates for commissioner who get endorsed by national advocacy organizations. One incumbent was sent threatening text messages.

As with any small-town controversy, the details in the case can seem unique to South Fayette (ammunition here comes in the form of revoked birthday party invitations). But the shifting makeup of the community over the past year provides a glimpse into the litigation and division that other townships across Appalachia may face as drilling migrates out of Pennsylvania's southwestern pocket.

Suddenly, South Fayette seems less like a border town and more like a levee.

A lucrative location

Range Resources has made it clear there's a lot of money to be made in South Fayette. In a 2009 PowerPoint presentation for South Fayette officials drafting the drilling ordinance, the company estimated $180 million in royalties could be made by South Fayette landowners.

South Fayette's township budget this year: $11.9 million.

Range Resources could have argued against any of the ordinances in communities around the state that the company interprets as de facto bans on gas drilling, company executives said. But it was the expiring leases in South Fayette and neighboring Cecil -- which Range Resources sued earlier this month -- that prompted that area to be targeted.

Communities such as Forest Hills, in Pittsburgh's densely-settled eastern suburbs, have issued outright bans on drilling that could have been contested.

But there's "just not the immediate drilling plans" to encourage legal action like there is in South Fayette, said Matt Pitzarella, Range Resources director of public affairs.

The South Fayette-Cecil border is a highly leased portion of land the company is eager to develop. A court ruling in favor of the company in both townships could create 46 square miles of unregulated land along the Allegheny County border.

The company, meanwhile, has a cash-flow problem that could be mitigated by the South Fayette development, Mr. Pitzarella said. Drilling comes with hefty upfront costs, and it can take years for a well to start turning a profit from the gas it extracts.

When making the case to South Fayette, Range Resources said a theoretical development of eight drilling pads could access 240 billion cubic feet of gas in South Fayette alone.

Range Resources estimated the township's reserves to be worth $1.2 billion.

A lease under the campus

Three months after the township ordinance passed, members of the South Fayette school board quietly signed a lease with Chesapeake Energy Corp., another energy company working in the region.

The vote was taken during a sparsely attended February committee meeting held in the middle of a snowstorm. Introducing the motion was school board member Bill Sray, who holds Chesapeake leases on about 200 acres near the school campus. His cousin, Tom Sray, is a township commissioner.

Four of the nine board members were absent. The vote was 5-0.

While drilling rigs are not allowed on the surface of school property, the lease permits horizontal drilling underneath the campus that originates from nearby properties. The school made $414,000 in acreage fees from signing the lease.

Making a public school district a business partner is not new to the gas industry.

Chesapeake has leases with several school districts in Pennsylvania and West Virginia, said Stacey Brodak, the firm's director of corporate development. The Oklahoma City-based driller has signed leases with nearly every school district in Fort Worth, Texas.

The idea of a drill site near the South Fayette campus led resident Alexander Czaplicki to consider moving his family to Florida, where he has some business connections and there's no chance for drilling.

"Sometimes I wonder, am I being paranoid?" he said.

As the drilling dispute heightened this year, humdrum public meetings in the township became charged events that required bigger auditoriums. Residents brought flipcams.

After 12 years as a South Fayette commissioner, Sue Caffrey decided not to run for a fourth term because of the "toxic environment."

"Now there's broken relationships and a lot of people who don't feel good about the way government happens," Mrs. Caffrey said. "And I'm one of them."

She said some board and community members spread misinformation and innuendo via Twitter, Facebook and text message. Neighbors stopped talking. Children were in danger of losing birthday party invitations because of a parent's stance on drilling.

The husband of a drilling opponent sent Mrs. Caffrey a threatening email. He told police it was sent in a moment of passion and that he didn't mean any harm.

After that, she said, police began attending public meetings to ensure "no one was going to act in a way they might regret later."

Lawyered up

In its 2010 annual report to shareholders, Range Resources said it saw a year-over-year increase of $4.2 million in legal fees and legal settlements. The company's legal fees in South Fayette have "not been a significant cost" for the company, said Mr. Pitzarella.

Range Resources hired attorneys from the Southpointe office of Fulbright & Jaworski for the case, including Kenneth Komoroski, who specializes in representing energy firms embroiled in citizen lawsuits.

Mr. Komoroski represented Texas-based Chief Gathering LLC in a suit filed by three Luzerne County families in September, trying to keep a gas pipeline out of their exclusive subdivision. He represented Houston-based Southwestern Energy Production Co. to defend its plans for a gas well against a Lackawanna County ordinance in May.

Mr. Komoroski also represented Cabot Oil and Gas when that Houston-based company was charged with contaminating 18 residential water wells in Dimock, Pa.

Range Resources said it hasn't communicated with South Fayette officials outside of legal matters since filing the lawsuit. But some of its business partners have.

MarkWest Liberty hired two township officials in the past six months. In April, South Fayette engineer Dave Gardner left to work for the Southpointe office of the gas compressor station and processing plant firm.

And last week, the Pittsburgh Post-Gazette received reports that resigning township manager Michael Hoy was headed to MarkWest after 11 years with the township.

MarkWest is a strategic partner of Range Resources, and the two firms have developed gas sites in tandem across Pennsylvania.

The firm declined to comment on personnel matters, saying their clients dictated where they operate.

"Our gathering activities are principally driven by the drilling plans of our producer customers," the company said.

Another Range Resources partner to reach out to commissioners was Texas-based seismic testing firm Dawson Geophysical Co., whose Southpointe personnel lobbied commissioners against a proposed township ban on explosives earlier this month in an email obtained by the Post-Gazette.

Mr. Pitzarella said Range Resources never asked its business partners to intervene in South Fayette decisions.

The election

Mr. Czaplicki, the dad who once entertained a move to Florida, is running for school board.

Eight candidates are vying for the four commissioner seats up for grabs Nov. 8. Seven of those are first-time candidates; all but one backs the township ordinance being challenged by Range Resources.

Mother-of-two and cheerleading coach Jennifer Francis began attending public meetings last year and decided to run for commissioner with fellow resident Heather LeViseur in support of the restrictive drilling ordinance.

"Just because somebody has a different view than me, it doesn't make them wrong," she said. "It doesn't make them a bad person or an enemy."

Anita Z. Cardillo, a commissioner candidate who's lived in South Fayette for more than 20 years, said drilling made her take a look at local politics.

"I think the real issue is individual freedom and private property rights," she said.

Her husband, Fred Cardillo, is one of the zoning board members called upon to recuse himself from the Range Resources decision because of his family's leases.

Four candidates for commissioner -- Lisa Malosh, Deron Gabriel, Todd Miller and Joe Horowitz -- are running together as an unofficial ticket defending the township regulations. Two are Republicans, two are Democrats.

Mrs. Malosh said the drilling issue hasn't divided the community as much as unified those with similar concerns.

"People want to protect their homes and their kids and the things they enjoy, and that really brought a lot of people together," she said.

The chance for a new majority on the board -- and setting a precedent for drilling regulation in Allegheny County -- led the national environmental advocacy group Clean Water Action to make those four candidates its only local endorsement in this year's regional elections.

"We don't always go toward the municipal races," said Steve Hvozdovich, the organization's Marcellus Shale policy associate. "But we saw this as an important race for the environment."

Erich Schwartzel: or 412-263-1455. Andrea Iglar: .


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