May 13, 2013
On May 2, 2013, the Third Department of the New York State Supreme Court, Appellate Division, upheld a municipal zoning ordinance banning “all activities related to the exploration for, and the production or storage of, natural gas and petroleum,” in the case of Norse Energy Corporation USA v. Town of Dryden.
The Town of Dryden passed the ordinance in 2011 amid concerns about the environmental impact of high volume hydraulic fracturing, or “fracking,” in the Marcellus Shale. The ordinance was challenged by Anschutz Exploration Corporation, an oil and gas exploration company that owned leases covering approximately 22,200 acres of land in the Town of Dryden. Anschutz – which later assigned its interest in the leases to Norse, the appellant in the case – argued that Dryden’s ordinance was preempted by a provision of New York’s Oil, Gas, and Solution Mining Law (the “OGSML”), which states that the OGSML supersedes “all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries . . . .” New York Environmental Conservation Law 23-0303(2). Anschutz (and later Norse) argued that this preemption clause prevents municipalities from using their zoning powers to ban fracking within their borders, while Dryden argued that the zoning provision was not the type of regulation targeted for preemption by the OGSML.
Since the OGSML does not define what it means by “regulation of the oil, gas and solution mining industries”, the court in Norse Energy Corporation examined the legislative history of the law in order to determine whether the Town’s zoning ordinance fell within the ambit of the preemption clause. The court ultimately concluded that the OGSML was aimed at “insur[ing] uniform statewide standards and procedures with respect to the technical operational activities of the oil, gas and mining industries”, and not to regulate where those activities could take place. Hence the OGSML would preempt a local law that attempted to regulate the actual operation of a natural gas well, but, the court held, it did not “usurp the authority traditionally delegated to municipalities to establish permissible and prohibited uses of land within their jurisdictions.”
This decision has important implications for fracking in New York State. According to Earthjustice, an environmental group involved in the litigation, over 150 municipalities in New York have passed zoning ordinances banning or restricting fracking within their borders; in fact, a similar ordinance passed by the town of Middlefield was upheld by the same court on the same day. Another group, FracTracker, has compiled a table of municipal zoning actions on fracking in New York state, showing 55 bans and 105 moratoria on fracking, as well as several municipalities that have passed resolutions in favor of fracking. The Norse Energy Corporation decision could encourage other municipalities to pass their own zoning resolutions restricting or banning fracking within their borders.
For more information about hydraulic fracturing and zoning matters, please contact Steve Barshov.
December 5, 2012
On November 15, 2012, in Aukema v. Chesapeake Appalachia, a judge in the U.S. District Court for the Northern District of New York ruled that several leases to drill for gas in the Marcellus Shale had expired, despite the gas companies’ claim that the delay in permitting associated with New York’s environmental review process constituted a force majeure extending the lease. The court also ruled that “delay rental” payments by the companies did not extend the leases beyond their primary term. This decision could have significant repercussions for gas leases in New York State.
All of the leases considered in Aukema were originally signed between 2000 and 2006, and ran for a primary term of five to ten years. During that term, the lessees paid the landowners a “delay rental” payment. If the gas companies began producing gas from the land during the primary term, the lease would extend into a secondary term for as long as production continued, and the landowners would receive a percentage of the revenue from the gas as a royalty instead of receiving continued delay rental payments.
In 2008, Governor Patterson directed the Department of Environmental Conservation (“DEC”) not to issue any permits for gas wells that would involve high-volume horizontal fracturing (“HVHF”) until DEC had studied the environmental impacts of HVHF and issued a new Generic Environmental Impact Statement (“GEIS”). Although the primary term of the leases at issue had expired, the gas companies argued that the delay in permitting, and the de facto moratorium on permit issuance, triggered the leases’ “force majeure” clause.
The court ruled, however, that the “force majeure” clause did not apply because the gas companies could have used conventional drilling techniques – which had been analyzed in a 1992 GEIS and can be permitted under existing regulations – to explore for gas and thus did not need to await the new GEIS to begin producing gas from the leased property. Hence, the court concluded, performance under the contract was not impossible and the force majeure clauses did not come into effect.
The court also held that payment by the gas companies of delay rental payments pursuant to the lease terms could not extend the primary term of the leases. The gas companies contended that the continuing payment of delay rentals, by itself, extended the primary term of the leases. The court disagreed, noting that delay rental payments originally arose when courts began to infer that lessees had an obligation to begin production immediately. Delay rental payments serve only to defeat that assumption, by taking the place of the royalty payments that would be made if production began. Since delay rental payments therefore serve only to negate the implication that production will begin immediately, the Aukema court held that they do not extend the primary lease term.
This decision has important implications for gas leases in New York because many have nearly identical force majeure and delay rental payment provisions to the ones at issue in Aukema. The Aukema decision, if upheld on appeal, could mean that many gas leases in New York have expired. The continuing delays in DEC’s rule making process – including DEC’s recent request for a 90-day extension of its rule-making process on natural gas, the public comment period necessitated by that request, and the pending Department of Health review – could lead to the expiration of additional gas leases. This could open the door to new leases being negotiated at terms likely to be more favorable to lease owners.
For more information, contact Chris Amato or Steven Barshov.
December 3, 2012
Last week, the New York State Department of Environmental Conservation (“DEC”) finalized regulations requiring permits for surface water and groundwater withdrawals exceeding 100,000 gallons per day. Previously, water withdrawals exceeding that threshold had to be reported to DEC, but permits were only required for drinking water suppliers.
The new permitting regime is expected to cover a broad range of manufacturing, business, and industrial water users, as well as hydraulic fracturing operations that inject large volumes of water into shale formations to extract natural gas. Agricultural water withdrawals are subject to more flexible monthly, as opposed to daily, permitting thresholds, and groundwater pumping at inactive hazardous waste remedial sites under a consent order or agreement is exempt from state permitting requirements.
The first deadline for permit applications – beginning with systems that withdraw or capable of withdrawing 100 million gallons per day – is June 1, 2013. The full permitting system will be phased in over the next five years, although parties that previously reported water withdrawals to DEC under existing state law may be eligible for a streamlined “initial permit” process that incorporates their existing water withdrawal capacity.
The water withdrawal regulations were initially proposed a year ago, and they implement legislation signed by Gov. Cuomo in August 2011. For more information on water withdrawal permitting, contact Dan Riesel, Michael Lesser or Jonathan Kalmuss-Katz.
November 29, 2012
*** Updated 11/30/12 with link to revised text of proposed hydrofracking rules ***
This week, the New York State Department of Environmental Conservation (“DEC”) formally sought a 90-day extension of its rule making process for its proposed regulations governing the natural gas drilling technique of high-volume hydraulic fracturing (“hydrofracking” or “fracking”).
The 90-day continuation includes a new 30-day public comment period on the revised text of the proposed rules, which were posted to DEC’s web site. DEC will accept comments on the revised draft regulations from December 12, 2012 through January 11, 2013. The 90-day rule making extension will delay any decisions on new hydrofracking permits until 2013 or later.
Governor Cuomo and DEC cited the New York State Department of Health’s (“DOH”) ongoing review of the health impacts of the proposed regulations as the reason for the delay in adopting the rules.
Under Section 202 of the State Administrative Procedures Act (“SAPA”), DEC has one year from the date of the last public hearing announced in its notice of rule making to adopt the proposed rule. That deadline was set to expire this week. In order to keep the rule making process from expiring (and thus avoid having to start the rule making process over again), the agency submitted a notice of revised rule making to the New York Department of State (“DOS”).
The notice of revised rule making involves more than just a simple request for an extension. SAPA requires the notice to include the revised text of the rule, as well as an assessment by DEC of all public comments received on the proposed rule (DEC received more than 66,000 comments on the 2011 draft regulations). DEC is also required to provide an analysis of the issues raised by the comments and significant alternatives suggested therein.
It remains to be seen whether additional regulatory changes may yet result from the pending DOH review. Substantial revisions could require another notice of revised rule making and comment period, pushing the date for final regulations further into 2013.
For more information on DEC’s proposed regulations and other hydrofracking issues, contact Chris Amato or Steven Barshov.
October 10, 2012
With towns, villages and other municipalities across New York facing major decisions about the potential for high-volume hydraulic fracturing (“hydrofracking” or “fracking”) in their communities, Sive, Paget & Riesel P.C. and the Government Law Center at Albany Law School recently co-sponsored an all-day conference on “Municipal Law and Planning: A Local Perspective on Hydrofracking.” The September 28, 2012 conference attracted more than 130 participants and featured a broad range of speakers, including Sive, Paget & Riesel Principals Chris Amato and Steven Barshov.
Units of local government are anticipated to be among those most affected by the potential introduction of high-volume hydraulic fracturing. With New York State’s anticipated delay in finalizing its environmental review and proposed regulations of hydrofracking, local officials currently have an opportunity to assess and update their comprehensive plans, zoning laws, and municipal codes in advance of any new drilling.
The conference focused on the application of local land use and planning tools to control fracking and its impacts. Chris Amato spoke on the review of hydrofracking under SEQRA, and Steven Barshov spoke about the powers of municipalities to regulate fracking and the interconnection between local comprehensive plans and the currently proposed State regulations. Other topics discussed included the current status of the Department of Environmental Conservation’s proposed regulations and environmental review; water withdrawal and disposal issues; municipal ethics, particularly ethical considerations if municipal officials or their families enter into new drilling leases leases; updates on pending litigation concerning local bans and motaria; and training opportunities for municipal officials.
A program description is available, and a video of the conference will shortly be posted, online at http://www.albanylaw.edu/glc/programs/Pages/recent-events.aspx. For more information on the conference or municipal regulation of hydrofracking, contract Chris Amato or Steven Barshov.
October 5, 2012
A Broome County judge this week invalidated the City of Binghamton’s local law that prohibited any land, body of water, building or other structure within the city to be used for new natural gas drilling exploration, extraction, or support activities.
Binghamton’s ordinance, which was scheduled to expire on its own on December 31, 2013, was not a zoning law, but was rather adopted under the city’s police powers. The court found that the December 2013 expiration date made the local law a moratorium, or emergency stop-gap measure, and that it was thus required to demonstrate a dire need for the measure. Because the New York State Department of Environmental Conservation has yet to approve regulations that would permit natural gas drilling in the state, the court reasoned, Binghamton had not demonstrated that any dire emergency existed for which the moratorium was required.
Despite the invalidation of the Binghamton ordinance, the Community Environmental Defense Council, counsel for Binghamton, heralded the decision as largely upholding the power of local governments to enact land use laws restricting natural gas exploration, storage and extraction. Justice Ferris Lebous, the presiding judge in the matter, adopted as “well reasoned” and “well founded” the prior decisions in Anschutz Exploration Corp. v. Town of Dryden (Tompkins County) and Cooperstown Holstein Corp. v. Town of Middlefield (Otsego County), which ruled that the state Gas Mining Law, ECL § 23-0303(2), does not supersede local governments’ rights to regulate the use of lands within their jurisdiction. The decisions in both of those cases, which upheld local bans on hydrofracking, have been appealed. Binghamton’s mayor has indicated that he will likely seek appeal as well.
As the Times-Union reports, more than 30 local governments in New York have enacted bans on gas drilling, and more than 80 have enacted moratoria.
The Broome County ruling follows on the heels of a decision in federal court dismissing the lawsuit brought by the New York Attorney General and environmental groups seeking federal environmental review of proposed natural gas drilling in the Delaware River basin. Judge Nicholas Garaufis of the Eastern District of New York found that the plaintiffs’ claims were speculative and relied “on a chain of inferences that may never come to pass,” and thus that the plaintiffs did not have standing to sue. Specifically, the Delaware River Basin Commission has issued draft regulations that would allow hydraulic fracturing in the basin, but has not yet finalized those regulations. Because the regulations are still in draft form, the court refused to find that an injury was imminent.
May 2, 2012
Last month, the U.S. Environmental Protection Agency (“EPA”) issued its first-ever regulations governing emissions of air pollutants from hydraulically fractured natural gas wells, requiring natural gas producers to install new equipment to capture wellhead emissions on new or re-drilled wells no later than January 2015.
In addition to releasing natural gas (methane) that is recovered and sold as the main product of the hydraulic fracturing (or “fracking”) process, fracking also releases excess methane, benzene, hexane, volatile organic compounds (“VOCs”) and other pollutants that escape from the wellhead into the air, particularly during the stage of well “completion”, when newly drilled wells transition from the drilling phase to production phase. Each of these gases has environmental impacts. Methane is a greenhouse gas twenty times more powerful than carbon dioxide. Benzene (a human carcinogen) and hexane are toxics with known human health impacts, while VOCs contribute to the formation of smog. EPA’s regulations will require natural gas producers to capture these emissions at the wellhead using add-on equipment known in the industry as “green completions” or “reduced emissions completions.” Such equipment is already required by state regulations in Wyoming and Colorado.
While EPA initially proposed that the regulations would go into effect immediately, the final regulations only require natural gas producers to have green completions equipment installed on new or re-drilled wells by January 2015. The natural gas industry had lobbied for the delay in implementation, and EPA cited the lack of sufficient supplies of green completions equipment as the reason for the delay until 2015. Well operators will be required to flare their emissions until the new technology is installed.
The EPA estimates that green completions technology will be cost effective for the industry because the captured methane gas can be sold, and because natural gas companies currently using the technology have reported that green completions can be a profitable addition to their wellhead operations.
The full text of the regulations is available here.
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