NEXT IN LINE FOR HYDRAULIC FRACTURING RULES: ILLINOIS

Illinois is the latest US state to issue a comprehensive set of draft regulatory rules governing hydraulic fracturing. On Friday, the state Department of Natural Resources (DNR) released a 150-page report containing the proposed rules, which will be reviewed by an oversight committee. Committee members have 45 days to block, change, or approve the rules as written. The rules will not go into effect until the committee completes its review.

 

The proposed regulations are meant to address numerous concerns about Illinois’ existing hydraulic fracturing regulatory structure. Roughly 30,000 comments were submitted to the DNR in response to the existing regulations. DNR director Marc Miller is quoted as saying that his staff had done “a thorough and thoughtful job” in sifting through those comments and preparing the report for committee approval.

 

The proposed rules contain stricter disclosure requirements with respect to the chemicals contained in fracking fluid. They also address regulations concerning open-pit wastewater storage. Public permit hearings must be held within a certain number of miles of a proposed well site. Permits, under the proposed rules, must be approved or denied within 60 days.

 

Once the rules are approved, drillers could begin applying for permits later this fall. It is believed that southern Illinois contains rich deposits of natural gas. While some anticipate a surge in jobs and a boon to the economy, it’s likely that land prices and environmental opposition will spike, too.

NO STANDING TO SUE: Lawsuits Seeking to Force New York to Complete Impact Review Dismissed

A New York State Supreme Court Justice has dismissed two lawsuits that were filed over the State’s delay in finishing its environmental analysis of shale development and hydrofracking. The lawsuits were led by the Joint Landowners Coalition of New York (JLCNY), a pro-oil and gas leasing group with 70,000 members, and the trustee of bankrupt Norse Energy. Defendants included Governor Andrew Cuomo, the New York State Department of Environmental Conservation (NYSDEC) and the New York State Health Department (NYSDOH).

The litigation sought to: (1) compel the State to finalize its environmental impact assessment, or Supplemental Environmental Impact Statement (SGEIS”), of high-volume hydraulic fracturing combined with horizontal drilling (and also issue a Findings Statement pursuant to the State Environmental Quality Review Act (SEQRA)); (2) find that the NYDOH and its commissioner were proceeding with a health review in excess of their jurisdiction; and (3) find that Governor Cuomo is an “interested agency” for purposes of a SEQRA review. Plaintiffs argued that, absent intervention from the court, they would suffer injury from their inability to develop oil and gas estates.

Plaintiffs pointed to the series of delays in the SGEIS process:

  • The SGEIS was initiated in 2008, when then-Governor Paterson ordered NYSDEC to undertake a supplemental review of hydraulic fracturing combined with horizontal drilling.
  • In 2010, Paterson ordered NYSDEC to conduct a further environmental review, and a draft SGEIS was expected in 2011.
  • In January of 2011, however, Governor Cuomo extended Paterson’s executive order.
  • In July of 2011, a first revised draft SGEIS was released.
  • In September 2011, a second revised draft was issued.
  • A period of public comment and a series of public hearings followed.
  • In September of 2012, NYSDEC 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.

Plaintiffs demanded that Commissioner Marten finalize the report. These lawsuits were filed after no response was issued.

Defendants argue that Plaintiffs all lack a cognizable legal interest and injury-in-fact with the zone of interests governed by the statutes and regulations at issue. Their injuries are economic, not environmental as required by the SEQRA. The court agreed. Judge Roger McDonough held that, because Plaintiffs assert only an economic injury and not an environmental one, the plaintiffs lacked standing to sue to compel completion of the report pursuant to SEQRA. A copy of the decision can be found at: http://www.jlcny.org/site/attachments/article/2073/2014%2007%2014%20Joint%20Landowners%20Coalition%20v%20DEC.pdf

Norse Energy made news earlier this summer. Its predecessor in interest, Anschutz Exploration Corporation, in separate litigation had challenged the Town of Dryden’s zoning amendments prohibiting hydrofracking and other oil and gas exploration activities within the town’s borders. A full discussion of the matter and a companion case can be found here and here. In that case, Norse Energy argued that the zoning amendment was preempted by the Oil, Gas and Solution Mining Law (ECL 23-23-0301 et seq. (OGSML)). The New York Court of Appeals ruled against Norse Energy in July and affirmed the two lower courts that had upheld local zoning ordinances effectively banning hydrofracking.

Plaintiffs may choose to appeal the dismissals. We’ll be sure the revisit the issue in the future.

DENTON, TEXAS: COMPLEX ISSUES SURFACE IN FRACKING DEBATE

Residents of Denton, Texas, will vote this November on a proposed ban to partially prohibit hydraulic fracturing within city limits. Earlier this week, the Denton City Council declined to vote on the initiative, which came about after citizens petitioned the Council by gathering two thousand signatures in support, instead pushing it to a public vote this fall. Denton sits atop the Barnett Shale formation, one of the largest natural gas reserves in the country.

The upcoming vote is significant on many levels. Texas is the nation’s largest oil and gas producer. Texans traditionally hold a more favorable view on drilling and oil-related matters. Indeed, 275 wells in Denton have already undergone fracking — and the proposed ban would allow operators to continue extracting oil and natural gas from those wells. If the initiative passes, however, Denton would be the first Texas municipality to partially ban hydrofracking. Many people see the Texas situation as a litmus test for towns and cities across America.

Moreover, the initiative interjects a new legal wrinkle into the fracking debate. Texas law divides land ownership into two components: surface ownership and the mineral rights below. In Denton, mineral rights are mostly held by trusts or entities, and some of them are located outside of Denton. Future legal battles could conceivably pit owner against owner for the same land. The optics for any such battle wouldn’t be good: people versus entities; locals versus outsiders, and so on.

The Denton vote may also include a constitutional element. Former Texas Supreme Court Judge Tom Phillips, who represents the powerful Texas Oil and Gas Association, has gone on record as saying the Association’s thousands of members would “undoubtedly sue” if the fracking ban passes. He’s likely referring to the argument that any ban would nullify lease and ownership rights, which could constitute a “taking” under the Constitution or other applicable law. Association members would therefore be entitled to just compensation. Phillips contends further that Texas state regulation preempts any city’s right to ban “economically viable drilling.”

As we’ve seen from the recent Dryden decision in New York State, the specific language used in fracking bans, as well as the manner in which they are implemented, have considerable legal import. In Dryden, discussed at length [here], the New York Court of Appeals considered whether the Town of Dryden may ban oil and gas production activities, including hydrofracking, within municipal boundaries through the adoption of local zoning laws. The Dryden court answered in the affirmative. It found that the Town of Dryden could take such action because the supersession clause in New York’s oil and gas statutory framework does not preempt the home rule authority vested in municipalities to regulate land use. The court drew a distinction between regulating “land use,” which is permissible, and the “regulation of the details or procedure of the oil, gas and solution mining industries,” which would have been preempted.

Although we expect the arguments to crystalize as November draws closer, a few things are clear now: The legal issues are complex. The interests are hard to reconcile. And in Denton, Texas at least, the voters will have to sort these matters out until the legislature acts.

COURT: TOWNS CAN EFFECTIVELY BAN HYDROFRACKING

New York State’s highest court recently issued a significant ruling in Mark S. Wallach, as Chapter 7 Trustee for Norse Energy Corp. USA v. Town of Dryden, et al., an important case involving zoning laws and hydrofracking. In a 5-2 decision, the New York Court of Appeals affirmed the two lower courts that had upheld local zoning ordinances that effectively ban hydrofracking in the Town of Dryden (and, in a companion case, the town of Middlefield). The decision can be accessed here: https://www.nycourts.gov/ctapps/Decisions/2014/Jun14/130-131opn14-Decision.pdf  Click [here] for an earlier post on the lower court decisions.

These cases have generated considerable debate. In August 2011, Dryden amended its zoning ordinances to ban all activities related to the exploration for, and the production or storage of, natural gas and petroleum. The zoning amendment essentially banned hydrofracking activities within Town limits. Norse Energy (Norse has since initiated bankruptcy proceedings and Mark S. Wallach, as bankruptcy trustee, has been substituted as the petitioner) challenged the zoning amendment. It argued that the zoning amendment is preempted by the Oil, Gas and Solution Mining Law (ECL 23-23-0301 et seq. (OGSML)). Two lower courts disagreed with Norse, and upheld the ban.

The Court of Appeals framed the issue this way: “We are asked in these two appeals whether towns may ban oil and gas production activities, including hydrofracking, within municipal boundaries through the adoption of local zoning laws.” It answered in the affirmative, and found that the towns may take such action because the supersession clause in the statewide OGSML does not preempt the home rule authority vested in municipalities to regulate land use.

The Court began its analysis with an examination of “home rule,” the source of a town’s municipal authority to regulate land use, and the limits the State may impose on this power. Pursuant to Article IX of the New York Constitution:

…every local government shall have power to adopt and amend local laws not     inconsistent with the provisions of this constitution or any general law . . .except to the extent that the legislature shall restrict the adoption of such a local law…

NY Const, art IX, § 2 [c] [ii]

In order for the constitutional mandate to be given effect, the legislature enacted the Municipal Home Rule Law, which empowers local governments to pass laws both for the “protection and enhancement of [their] physical and visual environment” and “for the “government, protection, order, conduct, safety, health and well-being of persons or

property therein.” Towns may also enact zoning laws to further “the health, safety, morals, or the general welfare of the community.” The Court reiterated that the local regulation of land use is “[a]mong the most significant powers and duties granted . . . to a town government.”

Although the Court recognized the scope of the fundamental powers granted to a municipality, it also noted that a town may not enact ordinances that conflict with the State Constitution or any general law. The “supersession clause” of the OGSML reads as follows:

The provisions of this article [i.e., the OGSML] shall supersede all local laws or

ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights

of local governments under the real property tax law” (ECL 23-0303 [2])

The Court examined the plain language of the supersession clause, the statutory scheme as a whole, and the relevant legislative history, and concluded that the towns’ zoning ordinances did not conflict with the OGSML.

In a previous post, I raised the concern that there are other aspects to Dryden that could shift the hydrofracking debate in a new direction. The amended zoning ordinance, as written, bans traditional vertical drilling and other oil or gas exploration activities, some of which may have been ongoing for years within the Town’s borders before the amendment was passed.

I also raised a constitutional concern. Norse Energy, through its predecessor in interest, owns lease rights covering thousands of acres of land. To the extent that the amended ordinance severely restricts or interferes with those lease rights, it may constitute a “taking” under the Fifth Amendment, such that it violates due process rights under the Fourteenth amendment, or other applicable law. If so, Norse Energy would be entitled to just compensation.

It appears that Norse advanced some variation of this argument. It contended that the OGSML’s policy of protecting correlative rights, or those under which “each landowner is entitled to be compensated for the production of the oil or gas located in the pool beneath his or her property regardless of the location of the well that effects its removal,” militates in favor of a broader reading of the supersession clause. But the court disagreed, stating rather cryptically that the concept of correlative rights is not synonymous with the right to drill, and that the statute’s stated purpose is to ensure the rights of the “general public.”

For now, at least, the Dryden decision means that New York towns appropriately act within their home rule authority when they adopt zoning laws that ban oil and gas exploration, production, and storage activities—even when those ordinances effectively prevent hydrofracking.

ALL IN THE FAMILY: When Family Members Disagree Over Land Use

Conflict in family relationships is inevitable.

It happens in strong families and broken ones. It happens over something as simple as where to vacation, or circumstances as complicated as deciding upon the best use of real property. As speculation grows over the future of hydrofracking in New York State, we’re seeing more and more situations where joint landowners are at odds over property matters. Here’s some guidance on how to keep the peace, even when you disagree.

First, be sure all family members understand the issue. The “issue” is the problem or topic that leads to a conflict. Issues form the basis for the agenda of negotiations. They may be emotional issues, substantive issues, or even procedural issues. For example, are the disputing family members concerned about whether to lease the property, or is the disagreement really about clarifying ownership? Is the family member against leasing property for oil exploration, or does he simply want more information about safety practices? He might just want to slow down the process of deciding what to do with the property. Conflicts sometimes get so heated that no one remembers what drove the participants apart in the first place. It’s always a good idea to identify the issue before the conflict takes on a life of its own.

Second, get a clear understanding of each family member’s position. A position is a specific proposal or solution that a person adopts to meet interests or needs. It’s usually a pre-selected outcome that someone arrives at after considering what’s important to him or her. For example, a position might be that John will consider leasing property if the family is paid $500 per acre. Or, Susan refuses to negotiate with a gas company unless the family is part of a landowner coalition. Both John and Susan have identified a specific desired outcome, even if no one is sure about the reasons underlying that proposal.

Third, dig down to the root of the matter and seek to understand the interests that may be at play. For example, Uncle Joe may say he’s against a proposed lease offer, but in reality he wanted a say-so over the terms. He might feel as though he’s losing control over his interest in the property. Another family member may be considering a divorce, and is worried about the impact of future lease royalties on her financial picture. A more experienced family member may believe that he or she should be consulted on every decision—large or small—simply by virtue of his or her age. There are situations where an adult child stops a deal from going forward because it’s the first time this person has been able to manipulate a smarter or stronger sibling. Emotional and psychological interests always impact people’s decisions. Sometimes people aren’t even aware of these deeper interests. And often people have conflicting interests. We encourage clients to think like the other family member – to put themselves in the other’s shoes. What might be driving the other person’s position? Is there a health concern? An ego issue? A conflict stemming from childhood?

Resolving a family dispute is easier after the issue is accurately stated, the positions are known, and the interests are explored.  If co-owners can reach consensus, great.  If not, consult an attorney on what rights you have vis-à-vis your co-owners, even if they are all in the family.

NORSE ENERGY v. DRYDEN et al.: Important Decision Affecting Hydrofracking in New York State Argued Before the State’s Highest Court

The highest court in New York State recently heard oral argument in Norse Energy Corporation USA v. Town of Dryden, et al., an important case involving zoning laws and hydrofracking. The lower court, the Third Department, upheld local zoning ordinances that effectively ban hydrofracking in the town of Dryden. A decision is expected this summer.

Factual Background

In August 2011, the Town of Dryden amended its zoning ordinances to ban all activities related to the exploration for, and the production or storage of, natural gas and petroleum. The zoning amendment, made against a backdrop of growing local concern about the proposed use of high volume hydraulic fracturing to recover natural gas from underground shale deposits, essentially prevented hydrofracking activities within Town limits.

Anschutz Exploration Corporation challenged the zoning amendment. Anschutz is a driller and developer of oil and gas wells that owned leases covering over 22,000 acres of land within Dryden’s borders. It sued Dryden in an effort to have the amendment declared invalid. During the pendency of the litigation, Anschutz assigned its interest in certain oil and gas leases to Norse Energy Corporation. Norse argued that the zoning amendment is preempted by the Oil, Gas and Solution Mining Law (ECL 23-23-0301 et seq. (OGSML)). Essentially, the OGSML regulates

Legal Issues

Dryden and the other Defendants moved for summary judgment declaring that the OGSML does not preempt the zoning ordinance amendment. Norse opposed the motion, and moved for summary judgment in its favor.

In a Decision and Order dated May 2, 2013, 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 Third Department began its analysis with the statute itself, noting that the OGSML contains an express preemption provision. The provision 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 nowhere does it seek to regulate the details or procedure of the oil, gas and solution mining industries. In other words, the zoning law 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 zoning authority. The court did acknowledge, however, the inevitable “incidental effect” that the zoning ordinance will have upon these industries.

Future Impact

There are other aspects to Dryden that could shift the hydrofracking debate in a new direction. The amended zoning ordinance, as written, bans traditional vertical drilling and other oil or gas exploration activities, some of which may have been ongoing for years within the Town’s borders before the amendment was passed. The Court of Appeals may choose to address the overbreadth issue, and potentially strike the amended ordinance on that ground alone.

There is also a constitutional element. Norse Energy owns lease rights covering thousands of acres of land. To the extent that the amended ordinance severely restricts or interferes with those lease rights, it may constitute a “taking” under the Fifth Amendment, such that it violates due process rights under the Fourteenth amendment, or other applicable law. Norse Energy would be entitled to just compensation.

No one can predict with certainty whether or how the Court of Appeals will address these issues. But one thing is clear. The scope of the impending decision will be of utmost importance to industry stakeholders, local businesses, landowner coalitions, residents, and interest groups on all sides of the hydrofracking debate as they navigate murky legal waters.

 

Landowner Coalitions: The Good, The Bad, and The Ugly

As the fracking industry gains traction in New York State, landowners are increasingly banding together to maximize their negotiating power with gas companies. Some groups are a loosely organized network of neighbors. Others are formally organized entities, complete with scientific advisors and an experienced legal team. Here’s a breakdown of the Good, the Bad, and the Ugly about landowner coalitions of any stripe:

The Good

  • Greater numbers generally translate into a stronger negotiating position, particularly when the members are landowners with contiguous tracts of property. The effect is to level the playing field—a distinct benefit when dealing with corporate negotiators who’ve been at the bargaining table a lot longer than the landowner.
  • Coalition members can pool their financial resources and hire skilled and experienced representatives, attorneys, or scientific advisors to walk them through the gas leasing process.
  • Members can bank on the collective wisdom that comes with having another set of eyes—or two, or a thousand—examine a multifaceted issue.
  • Landowners of small tracts of land, or of property with less value to the gas companies, can benefit from the overall value of the property represented by the coalition. There is truth to the saying “the whole is greater than the sum of its parts.”
  • Coalition members can help each other keep expectations reasonable, which minimizes disappointment and keeps the negotiation process on track.
  • The coalition can efficiently disseminate relevant information to its members.
  • The coalition can quickly mobilize its members when it’s important for their views be heard.
  • The coalition is able to speak with a unified voice to corporate representatives, governmental agencies, lobbyists, and members of the media, with respect to the preservation of natural resources, related mineral rights, hunting or recreation concerns, or the latest drilling technology.
  • From a practical standpoint, members have a stronger political voice, and can offer thoughtful input into the legislative process.
  • The coalition can partner with like-minded citizen groups, lobbyists, or organizations, and share, vet, or receive up-to-the minute information.
  • The coalition can help a geographical region forge a positive identity. This identity could be beneficial in attracting new business or growing the local economy.
  • Shared information tends keeps everyone honest, including those on the opposite side of the negotiation table.

The Bad

  • Some of the positive attributes of coalitions can also be a potential drawback; large numbers of members can become unwieldy or unorganized in the absence of solid leadership.
  • Inevitably, differing interests emerge; without skilled leadership, a vocal majority can potentially squelch a minority viewpoint.
  • Compensation systems vary; if royalties from production are retained as some or all of the compensation for coalition members should ensure that it is for a fair exchange of value of services rendered.
  • The existence of mega-coalitions is relatively new. Some of the kinks still need to be worked out, particularly as coalition members learn from new experiences and as technology advances.
  • Mature and experienced leadership is a must for any coalition, and is sometimes in short supply. Coalition leaders represent landowners both at the bargaining table and in the public eye, and it’s essential that they have the integrity and ability to evaluate matters appropriately.
  • Mistakes at the bargaining table matter. Artificially high per-acre prices can have a dampening effect on negotiations, particularly as more and more gas reserves are found in the Northeast.

The Ugly

  • Not all coalitions are equal. A hundred thousand Facebook members does not necessarily mean a hundred thousand landowning, fully subscribed, committed coalition members. Nor does it mean that the members’ property is contiguous. Some subscribers are along solely for the scientific or legislative information the coalition might disseminate. Others are still kicking the tires on the idea of land leases. These large numbers can convey a false sense of unity.
  • Some believe that coalitions have the potential to turn members into one-issue voters. People, however, are at different ends of the social or political spectrum, and a strong coalition should be respectful of this divergence in opinion when it comes to political issues.
  • Some believe that coalitions are so entrenched in a pro-fracking position that they’ve lost the capacity for the fair assessment of science, technology, or safety matters. Strong coalition advisors should retain the ability to objectively evaluate the facts and provide solid advice.

Anti-Fracking Fever Lowering

New stories out of Dimock, Pennsylvania have indicated that former anti-fracking activists from that town are now supporting a candidate for Governor for Pennsylvania who is in favor of oil and gas exploration and hydraulic fracturing.  These critics are now doing what was once unthinkable: working with the industry.  Some are even signing lucrative gas leases and speaking about the environmental benefits of gas.  See the link below to read the article telling the story of the conversion of former anti-fracking activists:

http://abcnews.go.com/m/story?id=20486719&sid=81

Industry and Environmentalists Reach Consensus on “Fracking” Standards

It was recently announced that a voluntary program to regulate fracking has been agreed to by some of the nation’s biggest energy companies and environmental groups who have agreed on a voluntary set of standards for Gas and Oil “fracking” in the Northeast.  These new standards are expected to go further than existing State and Federal pollution regulations now on the books in some states.  The unlikely partnership includes huge energy corporations like Shell Oil and Chevron and environmentalists such as the Environmental Defense Fund, The Clear Air Task Force, and interested community members such as HEINZ Endowments, EQT Corp., Consol Energy, and the Pennsylvania Environmental Counsel. The new standards include limits on emission of methane; the flaring of unwanted gas; reduction of engine emissions; groundwater monitoring and protection; improved well designs; stricter waste water disposal; the use of less toxic fracking fluid; and seismic monitoring before drilling begins.

The geography covered will include the states of Pennsylvania, West Virginia, and Ohio, all neighbors of New York State sharing both the Marcellus and Utica Shale formations, which means New York is within the geographic footprint.

These new standards could easily be adopted here in New York.  However, with the moratorium on hydraulic fracturing in horizontal wells still in existence, New York continues to lag behind other states in finding acceptable solutions to the competing interests involved in hydraulic fracturing.  While New York’s eventual regulations may be stricter than what has been agreed to by both industries and environmentalists, nevertheless the minimum standards set by this new agreement will bring the other states much closer to what New York professes to be striving for: a responsible approach to hydraulic fracturing given the environmental concerns involved.

 

Related article published in The Buffalo News on March 21, 2013:

February 14, 2013

Tuesday February 12, 2013 DEC Commissioner Joseph Martens issued a statement that the Department of Health’s (DOH) Public Health Review of hydraulic fracking was not completed by the scheduled completion date of February 11, 2013 and that “a few more weeks” will be required to complete the studies of high volume hydraulic fracturing. Commissioner Martens further states that once the report is done if the health study finds that the SEGIS has adequately addressed health concerns and the DEC adopts it that hydraulic fracturing permit applications can be processed within ten days of issuance of SGEIS. Currently the extended deadline for issuing regulations is supposed to expire on February 27, 2013. It remains to be seen whether that deadline will be further extended by the time it takes for the Health Department to complete its studies. We will keep you posted of all developments

For more informaton, please see the following documents:

Statement from Commissioner Joseph Martens

Statement from Commissoner Nirav Shah