As industry and environmental groups battle over the proposed moratorium and Gov. Paterson’s ban on a much-debated natural gas extraction technique in New York, some locals might do well to learn some French.
Attorneys representing gas companies and landowners agree: if Gov. David Paterson signs the bill currently under consideration, it would bolster industry claims of force majeure.
A French phrase meaning “superior force,” force majeure is a legal clause in some mineral rights leases that allow the terms to be extended under certain unforeseen circumstances that prevent normal oil or gas drilling operations.
You can expect that a number of gas companies that will say, ‘We’re going to invoke the force majeure clause in our lease,'”
Since Paterson put high-volume hydraulic fracturing — a gas extraction technique that utilizes a high-volume mix of water, sand and chemicals — on hold in July 2008, a handful of companies have claimed his executive order as a “force majeure” event and extended some expiring oil and gas leases. Some of those leases were signed a decade ago for a few dollars per acre, far less than the thousands of dollars commanded since technological advances allowed companies to tap into the gas-rich Marcellus Shale formation.
Then again, Paterson’s order leaves some wiggle room, attorneys argue.
Large-scale drilling operations in the Marcellus are effectively on hold until the state Department of Environmental Conservation completes a generic Environmental Impact Statement that would cover most drilling operations.
Gas companies, however, could conceivably complete a site-specific Impact Statement for each well they want to drill and receive a permit from the state, though none have tried and it is discouraged by the DEC.
The moratorium bill, if signed by Paterson, would close that loophole until May 15, giving the companies firmer legal ground, according to some attorneys.
“Every day, I have people in my office who signed leases 10 years ago for $3 an acre, and the gas industry is trying to extend every single one of those 10-year-old leases,” said attorney Scott Kurkoski of Levene Gouldin & Thompson, who represents the Joint Landowners Coalition of New York. “This new moratorium will only give them additional ammunition to do that.”
An Albany-based industry attorney said Paterson’s 2008 executive order is enough to enact the force majeure clause, and a legislative moratorium only adds to it.
“It doesn’t matter whether it’s a de facto moratorium or if it’s black and white as part of the law,” said Thomas West, who represents Chesapeake Energy and other natural gas companies. “But certainly when the Legislature comes along on top of the governor’s directive and enacts a statutory moratorium, it makes it that much clearer that the industry can’t drill until the moratorium is completed.”
Force majeure has already led to one federal lawsuit in New York, when a set of Harpursville and Colesville landowners sued Ohio-based Belden & Blake Corporation when the company tried to extend their decade-old leases that were set to expire. Chesapeake, represented by West, owned a stake in those leases and has since intervened in the case, which is currently in the discovery period.
Last year, Attorney General Andrew Cuomo’s office reached a settlement with Fortuna Energy (now Talisman) after the company tried to extend leases through force majeure even though it wasn’t expressly written into the terms.
The moratorium bill would have prevented the DEC from awarding permits for any hydrofracking operations in low-permeability formations like the Marcellus and Utica shales until mid-May.
The industry said the bill could be a job killer because it would also ban vertical hydrofracking, which uses far less water and chemicals and has been allowed in New York for decades.
Paterson has been under intense pressure to sign the bill from environmental groups who have been critical of fracking.
Kellie M. Place “The Land Expert”
“Upstate New York’s Real Estate Development Expert”
Century 21 Chesser Realty