New York's top court: State ban on hydraulic fracking didn't extend companies' drilling leases

IndustriesAssociated Press

The New York moratorium on hydraulic fracturing doesn't allow energy companies to extend leases with landowners beyond the expiration dates in their contracts, the state's highest court ruled Tuesday.

The Court of Appeals answered that question for a federal appeals court reviewing the case. It follows a federal judge's 2012 ruling for the landowners, also concluding the leases expired.

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"Basically it's going to be the end of the case," said attorney Thomas West, representing Inflection Energy and other companies. "We expect the Second Circuit issues its decision applying the certified answer."

The contract clause triggering extensions due to an event beyond the parties' control would apply if drilling for oil and natural gas had begun, the Court of Appeals said. However, the normal contract expiration periods — five years plus ordinary agreed-upon extensions — apply during the leases' initial term granting drilling and exploration rights, the seven judges unanimously agreed.

Hydraulic fracturing releases gas from rock by injecting wells with chemically treated water at high pressure. The technique is currently banned in New York.

It has generated tens of billions of dollars in industry profits and landowner royalties, and has reduced energy bills and fuel imports. But it has also brought concerns and sparked protests over air and water pollution, earthquakes, property devaluation and truck traffic.

"I don't know how much it matters at the exact present time in New York," said attorney Peter Bouman, representing 35 landowners who had leases. "It matters across the country because this kind of lease is in an awful lot of jurisdictions."

Case law from New York's highest court is often influential with other courts, Bouman said.

Most of the leases were signed in 2001. Then Gov. David Paterson ordered environmental reviews in 2008 and then in 2010 prohibiting drilling permits until the final review was completed.

Last December, after further reviews, the Cuomo administration decided to prohibit fracking for natural gas because of what regulators called unexplored health risks and dubious economic benefits.

Losing Tuesday at the Court of Appeals would have had a major impact on the landowners, leaving them at the mercy of the gas companies for a long time, Bouman said. "There's a lien on the land. You can't sell it. You can't borrow against it a lot of times. And somebody else owns, and in fact has a right to, all of the mineral interests under the land. When the technology improves those mineral rights could be worth far more than the land itself."

West said he believes most of the leases that would be affected by this case have already been abandoned by the companies. Between the Cuomo administration in December declaring a ban on the drilling method and adverse court decisions, "it creates a very hostile environment for the industry" that doesn't exist in most other states, he said.

He said the court erred in its interpretation of clear and explicit contract language, West said.