Recent Events in New York That Will Affect the National Fracking Debate

Much like other states with vast natural resource deposits, New York has faced tensions regarding the practice of unconventional horizontal hydraulic fracturing (fracking). Two recent events have changed the landscape of natural resource exploration in New York: the ruling in Anschutz Exploration Corp. v. Town of Dryden (and its subsequent affirmation in Matter of Norse Energy Corp. USA v Town of Dryden) and the state’s continued moratorium on the practice of hydraulic fracturing.

While other towns across the nation are cashing in on the United States’ energy boom, over fifty towns in New York have banned gas drilling activities, and over 100 towns enacted moratoriums on all drilling.[1] The town of Dryden, New York passed such a ban on oil and gas drilling-related activities with the use of a local zoning ordinance. They were taken to court by the Anschutz Exploration Corporation upon the insistence that the zoning ordinance violated state law, claiming that the state legislature wanted oil and gas drilling operations to expressly fall under state regulations.

The Supreme Court of the State of New York (the state’s lower court) initially ruled that “local governments may exercise their powers to regulate land use to determine where within their borders gas drilling may or may not take place.”[2] Recently, the New York State Court of Appeals (the State’s highest court) affirmed this ruling in Matter of Norse Energy Corp. USA v Town of Dryden, upholding the zoning bans on hydraulic fracturing in the town of Dryden, New York. [3]

The issue in Anschutz Exploration Corp. v. Town of Dryden was whether or not the town of Dryden could use its land use ordinances to prohibit the exploration of oil and natural gas, and more specifically, the practice of horizontal hydraulic fracturing.[4] Plaintiff Anschutz Exploration Corporation, who owned about 22,000 acres worth of gas leases, argued that the state’s Oil, Gas, and Solution Mining Law (OGSML) preempts the town’s ban on drilling related activities (which also includes use of local lands for storage purposes).[5] The Supreme Court of New York found otherwise, stating that, “[w]hile the OGSML contains provisions which directly affect where operations may be conducted….[they] are intended to further the stated statutory purposes of avoiding waste,” and that “zoning regulations do not directly conflict with the provisions of the OGSML that relate to well location.”[6]

In support of their claims, Anschutz argued that the preemption clause of the OGSML—which reads, “[t]he provisions of this article shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries”—specifically singles out ordinances.[7] According to Anschutz, because the Zoning Amendment which Dryden was using to ban hydraulic fracturing was a zoning ordinance, it was necessarily preempted.[8] The court rejected this argument as trivial at best, as “[t]owns are empowered to enact zoning regulations through….ordinance….and by local law.”[9] The court saw the difference between the two as insignificant and that “it would be illogical to conclude that the matter of preemption turns on whether a zoning regulation is enacted as a local law or as an ordinance.”[10]

The court reasoned that while the OGSML does preempt local laws, it only applies to the technical aspects of drilling regulation and was meant to supersede local regulations only for the purposes of creating a unified system of drilling regulations statewide. The court based their findings upon the reading of the “supersedure” clause of the OGSML, “[i]nasmuch as [the OGSML] preempts only local regulations ‘relating’ to the applicable industry, [it] must be afforded the same plain meaning — that [it] does not expressly preempt local regulation of land use,  but only regulations dealing with operations.”[11] Also, the court reasoned that the legislature’s intent was not to supersede local ordinances, as the OGSML supersedure clause does not contain “a clear expression of legislative intent to preempt local control over land use and zoning,”[12] and furthermore, the OGSML is devoid “of a clear expression of legislative intent to preempt local zoning control over land use concerning oil and gas production.”[13]

Because the town of Dryden was not attempting to specify how drilling was to take place, but rather, that it could not take place at all within the town’s boundaries, they were not superseded by the OGSML.[14] The Court of Appeals’ affirmation of Dryden’s stance may prove to be an example for other towns in the United States. Though the high court’s ruling only affects the State of New York, it is not hard to imagine that similar zoning bans on fracking will be used in other areas of the country as well. Similarly, as state regulations on the practice of hydraulic fracturing continue to take shape, legislators will be sure to clearly articulate preemption clauses in order to avoid disputes similar to the Dryden cases.

Well before the Dryden case was decided, hydraulic fracturing in New York caused much frustration in the energy industry. In 2008, a moratorium was placed on the industry amid growing concerns for public health and safety.[15] Recently, the environmental commissioner of New York announced that the moratorium would not be lifted until at least 2015.[16] New York Governor Andrew Cuomo has been reluctant to lift the moratorium, which was enacted prior to his election, as he awaits final results from the [New York State] Health Commissioner’s ongoing study into the possible effects of hydraulic fracturing.[17]

While the moratorium has been declared a victory by opponents of unconventional horizontal hydraulic fracturing, it may serve as a cautionary tale to other states about the economic repercussions of interfering with industry. Apparently tired of waiting for a decision, one of the state’s first big-scale energy investors is pulling out of the fight.[18] After stockpiling leases for natural resource exploration, Chesapeake Energy relinquished the land leases—some purchased for dollars on the acre—after failing in federal court to extend the duration of the leases in the New York counties of Boone and Tioga.[19] They argued that the New York moratorium on hydraulic fracturing created a force majeure (act of God) exception which would allow Chesapeake to retain the leasing rights beyond the originally specified dates.[20]

This Court’s ruling in the Dryden case, as well as Chesapeake’s actions are milestones in the ongoing, nationwide debate over hydraulic fracturing. The Dryden decision will serve as a warning to oil and gas companies that even if a state’s regulations are pro-industry, the wishes of local municipalities may derail operations. Similarly, Chesapeake’s departure from New York demonstrates that while the potential gains from shale gas exploration are certainly worth the investment—British Petroleum paid more than $3 billion for fracking rights in 2008[21]—companies will eventually move on to greener pastures when faced with enough resistance.

Preferred citation: Michael Neuner,  Recent Events in New York That Will Affect the National Fracking Debate, LSU J. Energy L. & Res. Currents (September. 24, 2014), http://sites.law.lsu.edu/jelrblog/?p=482.

[1] Michael Virtanin, N.Y.’s highest court to hear anti-fracking case, USA Today, Aug. 29, 2013, http://www.usatoday.com/story/money/business/2013/08/29/ny-highest-court-agrees-to-hear-anti-fracking-laws-case/2727259/.

[2] Anschutz Exploration Corp. v. Town of Dryden, 940 N.Y.S.2d 467 (Sup 2012).

[3] Matter of Norse Energy Corp. USA v Town of Dryden,108 A.D.3d 25(N.Y. App. Div. 3d Dep’t2013).

[4] See Anschutz Exploration Corp. v. Town of Dryden, 940 N.Y.S.2d 452, 53 (Sup 2012).

[5] See id at 453.

[6] See id at 465-66.

[7] See id at 461.

[8] See id.

[9] Id at 461-62. (citing NY CLS Mun H R § 10).

[10] Id at 462.

[11] Id at 461.

[12] Id.

[13] Id.

[14] Virtanin supra, note 1.

[15] Freeman Klopott, New York Decision on Fracking Regulations Delayed, Bloomberg, Jan. 29, 2014, 2:41 PM, http://www.bloomberg.com/news/2014-01-29/new-york-decision-on-fracking-regulations-delayed.html.

[16] See id.

[17] Michael Gormley, Governor Cuomo Avoiding Fracking Sites In New York During Obama’s Tour, Huffington Post, Aug. 20, 2013, 3:38 EDT, http://www.huffingtonpost.com/2013/08/19/governor-cuomo-fracking-ny_n_3781509.html.

[18] Edward McAllister, Chesapeake drops energy leases in fracking-shy New York, Reuters, Aug. 6, 2013, http://www.reuters.com/article/2013/08/06/us-chesapeake-newyork-idUSBRE97517V20130806.

[19] Id.

[20] Id.

[21] Sebastian Doggart, Frack and Ruin: The Rise of Hydraulic Fracturing, The Telegraph, May 6, 2013, 9:14 BST, http://www.telegraph.co.uk/finance/personalfinance/expat-money/8488166/Frack-and-ruin-the-rise-of-hydraulic-fracturing.html.