Energy companies that want to frack in New York have been hit with another setback.
The Court of Appeals for the Second Circuit in New York last week upheld a lower court ruling that a 2010 state moratorium on the controversial practice couldn’t be used to justify lease extensions for energy companies. It’s a win for landowners in Tioga County and no doubt a disappointment to Inflection Energy, LLC, Victory Energy Corporation, and Megaenergy, Inc., the companies trying to foist the risks associated with regulatory uncertainty off on the little guy.
The case deals with the three oil and natural gas developers that leased property from landowners on the edge of the Marcellus Shale formation, which extends through much of Pennsylvania and into western New York. The companies signed five-year lease agreements in the early 2000s, intending to develop gas deposits there through the technique known as hydraulic fracturing.
The leases included a provision that allowed that term to be extended, after development had begun, for as long as the properties continued to be productive. The companies’ plans under the initial agreement were foiled in 2010, when the state legislature voted to institute a three-year moratorium on fracking in New York State.
The 2010 moratorium – and a subsequent outright ban which came down earlier this summer — was prompted over environmental concerns about the relatively new technology, which involves injecting water and chemicals at high pressure into bedrock, fracturing the stone and releasing gas that can then be exploited.
Unable to carry out extraction during the temporary ban, the companies informed the landowners that they were invoking the lease’s extension clause, arguing that the moratorium constituted a force majeure — an unexpected event that could alter the terms of the agreement. But in this case, it wasn’t an act of god but an act of David Paterson — the former New York Governor who in 2008 ordered a “formal public environmental review” of this whole fracking business that led to its subsequent banning — which the court ruled, doesn’t count as force majeure.
The lower court, the U.S. District Court for the Northern District, held that the provisions of the lease wouldn’t have been extended, in any case, by the finding of a force majeure. It was a decision based on the wording of that particular lease. The appeals court said the case involved “significant and novel issues of New York law concerning the interpretation of oil and gas leases, a legal field that is both relatively undeveloped in the State and of potentially great commercial and environmental significance to State residents and businesses.”
But to the satisfaction of lots of environmentalists in New York, it’s a case that won’t have much bearing in the future, at least in this state.