Suit to Overturn NY Fracking Ban Likely to Set Precedent
Lenape Resources' lawsuit seeking to overturn New York State’s ban on hydraulic fracturing is likely to be a precedent setting case, said Michael Joy, a Energy and Natural Resources partner with the law firm Reed Smith.
However, Lenape has filed the case not to make a point, "but to save another small business in New York from being forced to close down because of oppressive government regulation," Joy said in a statement.
Lenape filed suit against the town of Avon, N.Y., and the New York State Department of Environmental Conservation Nov. 14 seeking to overturn the moratorium on hydraulic fracturing. The rule, which was enacted by the town's board in late June and finalized in July, placed a moratorium on oil and natural gas exploration, drilling and development, penalizing violators with criminal fines and jail time.
However, Lenape's oil and gas well operations were grandfathered into the law; Lenape argued that the clause does not allow Lenape to conduct essential field operations.
"Lenape is not proposing any new or unusual activity inconsistent with existing activities in the Town of Avon that is creating a dire necessity, the Prohibition on Natural Gas is not reasonably calculated to alleviate or prevent a crisis condition in the Town of Avon, and the Town of Avon is not taking action to rectify any real or perceived threat to the health, safety and welfare of any Town of Avon resident," Lenape said in the filing.
If Avon is allowed to enact the ban, Lenape said it would seek actual and compensatory damages of no less than $50 million, the company said in the filing.
"Lenape Resources is absolutely concerned about the rampant spread of local laws attempting to ban natural gas in New York, but the action against the Town of Avon is to reverse an unlawful and improper local law that will force another small business in New York to close," Joy said in a statement.
"The issue is before the courts and we will let that process progress," said Emily DeSantis, director of public information for New York's Department of Environmental Conservation, in a statement.
Oil and gas exploration and production is nothing new to York, and has taken place in the state for 150 years. Low-volume hydraulic fracturing has taken place in New York state since the 1950s, while horizontal drilling has been used in New York since the 1980s.
In 1981, New York's Department of Conservation implemented a law which gave the state the right to regulate oil and gas operations, overriding the ability of local towns to regulate hydraulic fracturing. The law was implemented as the nation faced an energy crisis, and states were seeking to exploit their hydrocarbon resources, Joy said.
In the mid-1980s, the town of Kiantone, N.Y., adopted a local law trying to regulated oil and gas development, just like Avon is trying to do now. However, the court ruled in the case, EnviroGas vs Kiantone, against Kiantone, and held that the legislature had preempted all local regulation of oil and gas. This case made clear that the state has the exclusive right to regulate all oil and gas operations, preempting all local regulations of these activities, Joy noted.
The Fourth Appellate Court also upheld the lower court decision, setting a precedent in New York that the Department of Environmental Conservation, not the local government, had exclusive authority to regulate all aspects of oil and natural gas.
However, some towns in recent years have sought to indirectly ban or regulate hydraulic fracturing by implementing zoning laws or other regulations ahead of when the state does start issues permits for hydraulic fracturing, Joy told Rigzone.
While the 1980s case involving Kiantone followed the state law, court rulings involving the towns of Middlefield and Dryden upheld efforts by these towns to ban local drilling. These decisions go ahead the fact that only the state can regulate oil and gas operations.
"The Kiantone case was not even referenced in these legal opinions, which is highly improper," Joy commented.
However, a court ruling earlier this year involving the city of Binghamton went against the town's efforts to establish a moratorium.
In the case of Lenape, the town of Avon put a grandfathering clause in the law that would allow some oil and gas activity but not all, meaning that Lenape can't drill additional wells or bring on new production as existing production declines. The real reason for the grandfathering clause is that Lenape provides free natural gas for the town's garage and a backup energy resource; some local residents also receive royalties from the production.
"The moratorium issue is very complex in that the moratorium in the towns also impacts pipeline operations; you can't just shut down one part of a system and continue to operate another part," said Joy, noting that the law was poorly written and does not reflect an understanding of the industry. The industry "cannot operate in such a patchwork" of conflicting rules in a densely populated region.
The Lenape story is unique and frustrating in that the company is a good operator with no incident on their record and Lenape President John Holko a guy "who makes Mitt Romney look like a wild child," Joy commented.
Lenape's operations in Avon are small, with between 16 to 20 wells and between 5,000 acres and 6,000 acres. The company has 56 wells on acreage near the town of Caledonia, which enacted the same type of law as Avon, and 50 wells in York, another nearby town that did not enact a moratorium.
The debate over whether to allow hydraulic fracturing in New York has become a divisive issue for the state; in some cases, it's literally dividing communities.
"New York state is ground zero in this battle," said Joy. "I live in Pennsylvania and understand [the opposition oil and gas operators have faced] in Pennsylvania, Ohio, Colorado and Texas. If they think it's bad there, they need to come to New York, because it's the frontline in this war."
"I firmly believe that the Court that will hear the Lenape Resources case against the Town of Avon will follow the precedent established by the Kiantone case, the Court will strike down the local law enacted by the Town of Avon and in doing so will establish clear direction to the many other towns in New York that these ill-conceived local laws are not legal and are not enforceable," Joy said.
The laws are not locally generated laws designed to mitigate or prevent a local problem or concern, but are laws being shopped around the state by "radical anti-natural gas promoters" who are telling community leaders that they can do this, that nothing bad will happen, and that they will save their communities.
The opposition to hydraulic fracturing in the state is mostly based downstate in the New York City. While Sierra Club, EarthJustice and the other usual suspects among environmental groups oppose hydraulic fracturing, the predominant group behind the opposition in New York is the Community Environmental Defense Coalition (CEDC), which consists of two activist lawyers. CEDC receives funding from the Park Foundation.
On the other side, state level industry associations, chambers of commerce and unions favor development of New York's Marcellus and Utica development due to the jobs and economic activity that will be created.
Large landowner coalitions who originally banded together to aggregate their land in anticipation of oil and gas leasing also are speaking out, seeing the moratorium on fracking as a violation of their landowner rights.
"Since no one was doing any drilling or development, these groups have morphed into a community education and activist outlets," Joy noted.
Landowners who live in New York's southern tier can literally see across the border into Pennsylvania and the impact that Marcellus shale activity has had on landowners there.
"They look out the window and see this farmer is buying new equipment or trucks, while I'm struggling to work as hard as I can," Joy commented.
The advent of new technology that has enabled high-volume hydraulic fracturing and horizontal drilling prompted former New York Gov. David A. Paterson to require the New York Department of Environmental Conservation in 2008 to update the generic environmental impact state used to govern low-volume hydraulic fracturing to analyze and regulate new technology and ensure all environmental and public health impacts are mitigated or avoided.
Joy pointed out communities will not be adversely impacted by natural gas development, and that New York State will continue to have to most stringent drilling regulations in the nation, if not the world. If the local bans are upheld, the landowners and companies like Lenape who have invested in developing infrastructure will be liable for the value of the property they have taken.
"In Avon that amount will be at least and probably greater than $50 million; in other towns across the state it could be considerably more," Joy commented. "There will be severe consequences to these ill-conceived local laws and the promoters of these laws seem to be keeping that information from the communities – and that is wrong."
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