To determine if they are legal zombies or illegal zombies . . . .
Landowners believe time has run out with hydrofracking drillers
By Brian Nearing
Albany, The state’s highest court is being asked to settle a dispute that could determine the fate of an untold number of land leases signed by drilling companies with landowners in the natural gas-rich Marcellus Shale.
Five judges on the state Court of Appeals will decide sometime this year whether dozens of leases expired because drillers never drilled, or whether lease deadlines that trigger such expirations were frozen because the state never issued permits for high-volume hydraulic fracturing, also called fracking.
This thorny legal issue was pitched to the state in July by a federal appeals court, after a lower federal court sided with Tioga County landowners who believe that leases signed with drillers, some dating to 2001, had expired because companies had not started work within the leases’ five-year time limit
“Having such a lease on their property makes it very difficult to sell property, refinance it, or lease it to anyone else,” Peter Bouman, a Binghamton lawyer representing about 30 landowners, said Thursday. “The gas companies are trying to argue the lease stays there forever, and the time limit applies only after the state decides to allow fracking.”
He said his clients control about 1,200 acres, only a fraction of the tens of thousands of acres under lease in the state. But the ruling could determine what gas leases elsewhere are no longer legally binding on landowners, which could leave drilling companies with less land under their control should the state one day decide to allow fracking.
Argued this week before the state Court of Appeals, according to a report in Capital New York, the issues are so unique that, in July, when the U.S. Court of Appeals referred the case to New York’s court, it said the case “turns on significant and novel issues of New York state law concerning the interpretation of oil and gas leases, a legal field that is relatively undeveloped in the state, and of potentially great commercial and environmental concerns to state residents and businesses.”
Some of Bouman’s clients signed gas leases as far back as 2001 — four years after the fracking boom started in Texas, but still years before the issue attracted the attention of state regulators. The landowners sued in federal court in 2012 —when the oldest leases were more than a decade old — arguing they were no longer valid because work never started.
In 2008, the state began working up an environmental road map to allow fracking, a process that drew increasing controversy from drilling opponents. Last December, Gov. Andrew Cuomo announced the state would not allow fracking.
The Tioga County leases were originally signed with Texas-based Victory Energy Corp., which passed the leases in 2010 to Colorado-based Megaenergy Inc.
Bouman said the state court’s ruling will be submitted to the federal appeals court, which will then issue its decision.
Last year in federal court, West argued that five-year deadlines in the leases were suspended because of the state moratorium, under a legal concept called “force majeure,” in which delays caused by government rules, regulations or unforeseen circumstances cannot be counted against such deadlines.
Bouman countered that leases were not specific to what kind of drilling might be done, and that companies were always able to pursue conventional drilling methods to keep leases active, an argument that was accepted by the lower federal court.
The issue of gas leases expiring due to lack of drilling has come up before in the state, with drillers failing both times to force lease extensions on unwilling landowners.
In 2012, Attorney General Eric Schneiderman stopped Chesapeake Energy Corp., the country’s second-largest natural gas producer, from extending the leases because of the ongoing state moratorium. The company agreed to let more than 4,400 landowners choose whether to renegotiate and paid $250,000 to cover the state’s legal costs.
In 2009, then-Attorney General Cuomo reached a $192,500 settlement with Fortuna Energy, after also finding that the company tried to force dozens of landowners to accept lease extensions under the threat of placing liens on property.