THE LAST CHAPTER (or BLOG): What’s the Use?

As New York Gov. Andrew Cuomo’s decision to ban hydraulic fracturing statewide reverberates across the nation, it seems appropriate to reflect on the state of natural gas drilling in New York and elsewhere. What’s next for energy exploration here? Does New York’s stance mirror the national picture?

Although the answers may vary depending upon your perspective, one thing is clear: hydraulic fracturing is dead in New York State. And it will remain so for at least the near future.

Readers should not be surprised at the Governor’s decision. Let’s consider the political and legal context within which it was made:

  • Vocal anti-fracking protesters met Gov. Cuomo at nearly every public appearance in 2014.
  • New York City, the hub of Gov. Cuomo’s political and financial support, mounted a strong and well-funded anti-fracking campaign focused on the protection of the City’s watershed.
  • Since 2011, over 120 communities across New York State have voted to ban, limit, or delay hydrofracking within town limits.
  • Legal challenges to those restrictions proved expensive and unsuccessful. For example, a gas driller sued the Town of Dryden and lost on the grounds that the Town’s Home Rule authority permitted it to regulate land use within town limits.
  • The New York Court of Appeals affirmed the Dryden decision, drawing a (very) fine distinction between the regulation of land use versus the regulation of the oil and gas industries to uphold Dryden’s ban.
  • New York Attorney General Eric Schneiderman recently used the Martin Act (securities-related legislation) to pressure out-of-state natural gas drillers to agree to disclose to investors the risks arising from their respective hydraulic fracturing operations. The agreement signaled to the energy industry that New York would firmly regulate drilling activities within its borders.

New York State wasn’t having any part of it. Hydrofracking didn’t stand a chance. The picture looks a bit different, however, on the national front.

The United States is now the largest natural-gas producer in the world. America’s so-called “shale boom” has had far-reaching implications for energy markets worldwide. The US, along with other oil and gas producers in the Western Hemisphere, is largely responsible for the supply increase that led to the worldwide price drop in oil. The price drop has stimulated many sectors of the economy, especially since higher oil prices had already been factored into private, public, and military budget forecasts.

As a further result of the shale boom, the US has strengthened her position on the world stage. Our energy supply is no longer subject to the political instability that plagues the Mideast. We’ve leveled the playing field with OPEC. Our non-oil producing allies have also benefited economically from the drop in prices, which ultimately works to our benefit, too. Unlike Gov. Cuomo, President Obama supports hydraulic fracturing, and I anticipate that we’ll see the adoption of national regulatory standards modeled (ironically) after New York’s stringent regulations. Hydraulic fracturing has a future on the national front.

The focus of this blog has always been gas leasing in New York. Without the political will to support hydraulic fracturing in New York, there remains little to say (or write). So, for now, this will be our last blog. I am grateful for your support and feedback, and look forward to serving you in the future.

 

 

DECISION DAY: Citing Health Risks, Cuomo Bans Hydraulic Fracturing In New York State

New York Governor Andrew Cuomo has banned hydraulic fracturing, or hydrofracking, statewide. The administration announced today that this method of extracting natural gas from shale beds underlying much of upstate New York could potentially contaminate the state’s air and water resources, and pose unacceptable risks to people.

Gov. Cuomo said that he deferred to his commissioners in reaching the decision.

“I cannot support high volume hydraulic fracturing in the great state of New York,” said Howard Zucker, the acting commissioner of health. Zucker added that he wouldn’t allow his own children to live near a fracking site. “Cumulative concerns” about fracking “give me reason to pause,” he noted at a year-end cabinet meeting held today in Albany.

Department of Environmental Conservation commissioner Joe Martens said that bans or restrictions already in place in the New York City watershed, or in local towns mean that “the prospects for [hydrofracking] development in New York State are uncertain at best.”

The decision ends years of speculation over whether New York would lift a moratorium on hydraulic fracturing. Before today’s announcement, Gov. Cuomo had been waiting on the Department of Health’s long-awaited study on the health impacts of hydraulic fracturing. The health review, which was one component of the State’s environmental impact analysis (known as a Supplemental Environmental Impact Statement, or SGEIS), is a health analysis of shale development and hydrofracking in New York State. Zucker said the health review involved 4,500 staff hours reviewing anecdotal reports and a stack of existing studies.

For further reading, see: http://www.nytimes.com/2014/12/18/nyregion/cuomo-to-ban-fracking-in-new-york-state-citing-health-risks.html?_r=0

Or: http://www.capitalnewyork.com/article/albany/2014/12/8558732/cuomo-concludes-fracking-too-risky-new-york

Or: http://www.health.ny.gov/press/releases/2014/2014-12-17_fracking_report.htm

Or to listen to today’s cabinet meeting: https://soundcloud.com/nygovcuomo/governor-cuomo-holds-cabinet-meeting

COMING SOON: Cuomo Says Fracking Health Study Results to Be Delivered By Year’s End; Possible Moratorium Decision Expected.

New York Governor Andrew Cuomo revealed in a radio interview on Monday that the Department of Health’s long-awaited study on the impacts of hydraulic fracturing for natural gas will be delivered by the end of this year. The health review, which is one component of the State’s environmental impact analysis (known as a Supplemental Environmental Impact Statement, or SGEIS), is a health analysis of shale development and hydrofracking in New York State. New York State has had a moratorium on hydrofracking since the SGEIS review was initiated in 2008. In 2012, New York’s Department of Environmental Conservation Commissioner Joseph Martens asked the Department of Health to assess the potential health impacts of hydraulic fracturing. In 2013, the Department of Health requested additional time for its review. Those study results are expected to be released in the next two weeks.

Gov. Cuomo added that his administration will decide whether hydraulic fracturing should be permitted in New York.Gov. According to reports, Cuomo’s top commissioners and advisers are set to meet today at the state Capitol. The subject of the meeting is unclear, but there is speculation that advisors are meeting to discuss his administration’s decision on whether to lift New York’s ban on hydraulic fracturing. According to one article, key players in the state’s hydrofracking review are expected to attend, including state Environmental Conservation Commissioner Martens and Acting Health Commissioner Howard Zucker.

For more reading see: http://www.13wham.com/news/features/top-stories/stories/cuomo-fracking-study-results-coming-soon-18498.shtml or http://www.democratandchronicle.com/story/news/local/2014/12/17/new-york-andrew-cuomo-fracking-casinos/20527181/

STANDING FIRM: US Energy Industry Well-Positioned to Ward Off OPEC Squeeze Play

OPEC’s recent decision not to curb oil production is widely seen as an attempt to dampen the US shale boom. Last week, the oil cartel announced that, despite rapidly falling oil prices worldwide, it would keep oil production at current levels. OPEC likely hopes that the low oil prices will eventually force U.S. producers—especially those engaged in expensive hydraulic fracturing or horizontal drilling—to throw in the towel. Some commentators speculate that those operators, particularly ones heavily leveraged or already teetering on the edge of bankruptcy, could cut production and jobs, and possibly spark worry in the financial markets.

OPEC has reason to be concerned about the competition. Oil producers in the Western Hemisphere are largely responsible for the supply increase that led to the price drop. According to one recent article, “the U.S. is producing the most crude oil in 30 years, and prices would need to get much worse before the shale boom dies off.” See  http://money.cnn.com/2014/12/02/investing/oil-fight-opec-us-shale-boom/

The larger drilling operators seem well positioned for now. The article cites a recent report by the International Energy Agency that shows that most producers in North Dakota’s Bakken shale formation, an area central to the shale boom, can remain profitable even if oil falls to $42 per barrel. Other industry insiders point to the resiliency of the US energy market. Per Magnus Nysveen of Rystad Energy is quoted as saying “[U.S. Shale producers] will drill as long as they have cash flow from their operations.”

DEAL STRUCK: Texas Gas Drillers Agree With New York to Disclose Financial and Environmental Risks

Two Texas-based natural gas drillers have signed agreements with New York Attorney General Eric Schneiderman to publicly disclose to investors the risks arising from their respective hydraulic fracturing operations. EOG Resources Inc. (EOG) and Anadarko Petroleum Corp. (APC) have agreed to post detailed information and analyses on the financial risks associated with their operations, including:

  • financial risks posed by the environmental impacts associated with fracking — such as effects on drinking water aquifers, as well as those arising from chemical use and handling, water use and wastewater handling and disposal, and air emissions – and detailed discussions of the companies’ efforts to minimize these environmental impacts;
  • financial risks posed by present and probable future regulation and legislation related to fracking, such as state or federal moratoriums, local bans or restrictive ordinances, or requirements for disclosure of chemicals used in fracking fluids; and
  • company strategies and actions for reducing, offsetting, limiting, or otherwise managing the financial effects of regulation, litigation, or environmental impacts related to fracking.

The disclosures, according to the AOG, will aid investors and the public in making better financial decisions about the matters that most impact the financial health of drilling companies. “By joining with my office to commit to greater public disclosure of the environmental and financial risks associated with their actions, these companies are setting a strong example for the rest of their industry,” Schneiderman said.

Although both companies operate in multiple states, including in Pennsylvania where the Marcellus Shale formation reaches well into New York State, neither company currently has operations in New York. This State has imposed a moratorium on hydraulic fracturing pending the completion of its ongoing environmental impact analysis (known as a Supplemental Environmental Impact Statement, or SGEIS).  Governor Cuomo will decide whether to lift the moratorium once the NYS Department of Health completes a health study and the SGEIS is published.

EOG and APC stated that, through online sources and SEC filings, they had already been providing information about drilling practices and risks. The agreements, however, go a step further in terms of the content offered and also aggregates the information in one online location.

The Agreement arises out of formal probe initiated by New York State under the Martin Act, a tool used by the State for the investigation and enforcement of securities laws. The Act authorizes the Attorney General’s office to access a business’ financial records. In 2011, the Attorney General’s office had issued subpoenas to both EOG and APC.

Further reading on the agreements can be found here: http://www.bloomberg.com/news/2014-10-03/anadarko-eog-strike-deal-with-new-york-ag-on-fracking.html

Or here: http://www.ag.ny.gov/press-release/ag-schneiderman-reaches-agreement-natural-gas-developers-increase-disclosure-fracking

 

STRIKING A BALANCE: Oil Prices Low Enough to Slow Drilling, but Still High Enough to Spur Research

The conventional wisdom that lower oil prices are bad for the environment may not necessarily be the case. Although plummeting oil prices have contributed to a recent slowdown in fracking operations and drilling activities, research dollars continue to flow into the development of alternative energy sources. At the current $75 a barrel, some experts believe we may have struck the perfect balance between environmental and economic interests in the energy field.  http://www.foxbusiness.com/markets/2014/11/14/in-shift-environmentalists-welcome-low-oil-prices-dirty-stuff-stays-in-ground/?

The sweet spot appears to be within the $60-$80 range. Lower than that, environmentalists argue, consumption increases and there’s less of an incentive to develop cleaner alternatives to fossil fuels. Prices higher than $80 per barrel, on the other hand, drive research into the development of cleaner alternatives to fossil fuels. Higher profits per barrel also give oil companies less of a reason to explore environmentally sensitive oil fields. For example, in light of the global price slide, Norwegian oil giant Statoil shelved plans to develop a Canadian drilling project that would have produced 40,000 barrels of day of oil for years. The energy-intensive project would have been too expensive in light of current oil prices and construction costs.

The price of oil has fallen, in part, due to increased energy production in the US and elsewhere. Improved hydraulic fracturing and horizontal drilling techniques enabled US producers to access supplies trapped in shale-oil fields. These advances have unlocked large resources previously thought to be inaccessible. The world is no longer on the verge of running out of oil.

According to a report issued by the United States Energy Information Administration last week, US production reached 8.9 million barrels a day in October, the highest monthly level since March 1986. Domestic production will likely average 9 million barrels a day in December. The Energy Department predicted that the average price of gasoline would fall 13 percent next year, as would overall demand for gasoline, which is another trend that seems to defy conventional wisdom.

Rehearing Denied: Dryden Hydrofracking Ban Remains in Place

Recently, New York’s highest court declined to reconsider a prior decision that upheld a town’s authority to ban activities associated with hydrofracking.

The underlying case attracted widespread attention. ​In 2011, the Town of Dryden amended its zoning ordinances to ban all activities related to the exploration, production or storage of natural gas and petroleum. The zoning amendment essentially prevented hydrofracking activities within town limits. A drilling company challenged the zoning amendment. It owned leases covering over 22,000 acres of land within Dryden’s borders. It argued that the zoning amendment is preempted by the Oil, Gas and Solution Mining Law (ECL 23-23-0301 et seq. (OGSML)).

In response, Dryden argued that the OGSML does not preempt the zoning ordinance amendment because the regulation of land use falls within it’s home rule authority. The lower court agreed. The Third Department held that the OGSML does not preempt, either expressly or impliedly, a municipality’s power to enact a local zoning ordinance “banning all activities related to the exploration for, and the production or storage of, natural gas and petroleum within its borders.” The supersession clause within the OGSML provides that it shall supersede all local laws or ordinances “relating to the regulation of the oil, gas and solution mining industries … [emphasis added].” Regulation, the court wrote, can be defined as “authoritative rules dealing with details or procedure.” The court found that the OGSML does not preempt Dryden’s amended zoning ordinance because it has nothing to do with the technical operational activities of the oil, gas and mining industries. Rather, it falls within the area of traditional land uses that are the subject of a local municipality’s home rule authority.

This past June, the Court of Appeals affirmed the decision, which also affects a companion case arising out of the town of Middlefield, New York. That denial means that the Court of Appeals’ June ruling stands.

According to reports, approximately 150 New York municipalities have enacted local bans or moratoriums on hydrofracking activities.

 

JAW-DROPPING FIGURE: Hydraulic Fracturing Market for North America Set to Reach $51.93 Billion Mark by 2020

According to a report detailed on PR Newswire (Oct. 8, 2014 /PRNewswire/London), North America’s hydraulic fracturing market is forecasted to reach the $51.93 billion mark by 2020, up from $41.96 billion in 2013, with nearly 4 per cent compound annual growth rate. The report analyzes different world market segments, and includes matters affecting the hydraulic fracturing industry and its key players.

 

North America appears to lead the forecasted hydraulic fracturing markets. Its dominance is likely attributable to the increase in shale and exploration activity within the United States.

New York State, however, has instituted a moratorium on hydrofracking until the New York Department of Environmental Conservation completes its environmental impact analysis (known as a Supplemental Environmental Impact Statement, or SGEIS), which was started in 2008. Governor Cuomo is expected to decide whether to lift the moratorium once the SGEIS is published. To date, he hasn’t “made a decision either way” on fracking.

NO PRESSURE: Gov. Cuomo Won’t Rush Publication of Department of Health’s Hydrofracking Health Study

During an interview with the Buffalo News on Tuesday, September 23, 2014, Governor Andrew Cuomo said that he’s not going to hurry the publication of a long-awaited hydrofracking health study by the New York Department of Health (NYSDOH). “When it’s ready, it’s ready,” Cuomo said. “I’m not going to rush them.”

The health review, which is one component of the State’s environmental impact analysis (known as a Supplemental Environmental Impact Statement, or SGEIS), is a health analysis of shale development and hydrofracking in New York State. New York State has had a moratorium on hydrofracking since the SGEIS review was initiated in 2008. In September of 2012, New York’s Department of Environmental Conservation Commissioner Joseph Martens asked NYSDOH to assess the potential health impacts of hydraulic fracturing. In February of 2013, NYSDOH requested additional time for its review.

Cuomo will decide whether to lift the moratorium once the NYSDOH completes its study and the SGEIS is published. He insists that, to date, he hasn’t “made a decision either way” on fracking.

 

Northern Access Pipeline 2016 Project

Although a horizontal drilling ban is in effect in New York State, shipments of natural gas across New York by pipeline have not been banned.  In fact, New York is laced with pipelines transporting natural gas from across the state, as well as from Pennsylvania, Ohio and even Ontario, Canada.

The number of natural gas pipelines across New York is about to grow.  National Fuel Gas Supply Corporation and Empire Pipeline, Inc., both owned by National Fuel Gas Company, plan to construct a new 24-inch high pressure pipeline running from Sergeant Township, Mckean County, Pennsylvania, where various hydrofracking supply pipelines meet, to the Porterville Compression Station in the Town of Elma, Erie County, New York.

This new pipeline will affect over a hundred landowners.  Because this pipeline comes under FERC jurisdiction, the natural gas companies have a statutory right under Section 7H of the Natural Gas Act to use eminent domain to acquire a right-of-way or easement on a landowner’s property for facilities to transport gas.  Eminent domain, which is also called condemnation, is governed by New York State statutory law.  The gas company must compensate the landowner for the economic value of the easement rights claimed for the pipeline.  If a negotiated price cannot be reached between the landowner and the natural gas company, the natural gas company can bring the eminent domain procedure to force the landowner to give up its rights to the easement area.

Landowners affected by this pipeline should be represented by qualified and experienced counsel.  An attorney can guide the landowner through the negotiation process, and work to prevent unnecessary delays through the court system.  Know your rights!