Uncommon legal concept may surface in New York after fracking ban

For six years while shale gas extraction in New York was in a state of indefinite hold pending environmental and health reviews, landowners and oil and gas firms talked about “takings.”

It’s a legal concept that, like eminent domain, requires the government to compensate private property owners for assets taken away because of government action.

When New York Gov. Andrew Cuomo last week announced he planned to permanently ban high volume hydraulic fracturing — the practice used to pull gas out of the Marcellus Shale, for example — legal minds and oil and gas hopefuls said the time is right for a takings lawsuit. Or many takings lawsuits.

But it may be an uphill battle for the plaintiffs, if any materialize.

“Takings is probably one of the trickiest and less well-defined areas of the law that we practice in,” said John Meadows, an energy litigator and member of Steptoe & Johnson PLLC in Charleston, W.Va.

The concept has legal backing in both federal and state laws, but is largely circumstantial and based on what assets are being taken away; how they could have been monetized; and what would have been the economic value of doing so.

Landowners eager to try out the strategy in court say by depriving oil and gas companies of the option of fracking shale wells on their property, the state government is taking away the landowners’ ability to make money on their oil and gas rights.

The cases might be tough to prove and there are few successful examples of their success in oil and gas matters. One filed in Dallas after strict restrictions on drilling were imposed there last year is pending, as is another filed the day after Denton, Texas, passed its fracking ban in October.

Still, it would be “unthinkable” if such lawsuits didn’t pop up to challenge the ban in New York, Mr. Meadows said. “When the temporary ban was in place, the argument wasn’t ripe.” Now, it is.

As Brad Gill, executive director of the Independent Oil & Gas Association of New York, noted, of the five major lawsuits that have challenged the state moratorium or local bans, none have gone in favor of oil and gas interests.

“That was pretty depressing for the industry,” he said.

Mr. Gill also expects takings lawsuits, some from landowners and some from companies. In the days that followed Mr. Cuomo’s announcement, Mr. Gill said his conversations with interested parties have stressed how difficult it might be to claim that something irreparably was taken from landowners when, according to New York law, oil and gas companies can still drill for gas and even frack, albeit with much smaller volumes of water.

In other words, interested landowners and oil and gas firms can legally develop minerals that are not worth the capital needed to bring the fuel out of the ground.

“So it’s like a partial taking,” Mr. Gill said. “You can’t lease and drill for Marcellus and Utica shale, but you still can for stuff that’s uneconomic.”

Few Left to Fight

Criticism of New York’s decision from oil and gas interests on social media last week leaned more toward mocking than anger, partly because the six-year moratorium and the current run of low natural gas prices have all but destroyed whatever appetite may have been there for New York shale exploration.

A handful of shale gas players had invested in Marcellus leases in New York at one point: Chesapeake Energy Corp., Talisman Energy Inc., Royal Dutch Shell, National Fuel Gas Co., Inflection Energy LLC, and XTO Energy Inc.

An accurate count of what leases are still active is not available. But according to people in the industry and to lawsuits filed over the past several years, it’s obvious that many such leases were allowed to expire or that companies sold these assets to small, shallow drillers.

A few years ago, when some of the leases were due to expire, several companies including Chesapeake, Inflection and National Fuel, sent letters to landowners claiming New York’s moratorium constituted a “force majeure” event — an unpredictable condition beyond the control of the company that kept it from exercising its option to drill for oil and gas. The delay imposed by New York’s government should not count against the period of the lease, they argued, and the leases should be considered active until the moratorium is over.

An attorney for Inflection Energy even argued in court that, should a permanent ban be enacted, all those leases should be considered permanently active.

That case is now pending before New York’s highest court.

It’s been so long since companies showed an interest in Marcellus minerals in New York that news of a small potential deal in March lit up message boards used by New York landowners and was highlighted in an article on Marcellus Drilling News, a website devoted to news content from the northeast shale region.

“A little hope is a good thing, a lot of hope is dangerous…” the article concluded, paraphrasing a character from “The Hunger Games.”

The caution was warranted. The deal with a Sugar Plum, Pa.-based company, Mineral Management, which would have made leases from a coalition of landowners in Kirkwood, N.Y., contingent on the moratorium being lifted, never materialized.

Perhaps the most significant chunk of Marcellus leases still left in New York belong to companies with existing deep wells whose continued production holds the lease.

Talisman Energy, for example, has 70 wells producing from the Trenton Black River, a limestone formation below the Marcellus. Because of that, Talisman still holds the rights to 91,000 acres in New York state. But the company isn’t eager to pursue further development and has let other leases expire during the moratorium, according to spokeswoman April Crane.

“We’ve been taking a wait-and-see approach,” she said. The company does not plan to file a lawsuit.

Rob Boulware, a spokesman for National Fuel, which last year signed a deal to sell much of its legacy acreage in New York, said the company still is evaluating legal options and will likely touch base with other producers to see if there’s momentum for a takings lawsuit.

There seems to be general agreement that such a lawsuit would be a natural fit for a landowner coalition, with the obvious candidate being the Joint Landowners Coalition of New York Inc. The group sued the state in February in an attempt to compel a decision on fracking and to end the moratorium. A judge dismissed the claim.

When Gov. Cuomo announced his decision about a permanent ban on Dec. 17, the coalition’s president, Dan Fitzsimmons, posted on the group’s website: “As unbelievable and indefensible as it is for our governor to act in this way, rest assured we'll continue our fight and persevere in the end. Don't give up!!!”

In the earlier action and, likely, in future ones, the coalition was represented by Scott Kurkoski, an attorney with Levene, Gouldin & Thompson, LLP, who said he’s still evaluating the state’s decision.

Mr. Kurkoski acknowledged that takings lawsuits aren’t common but said he drafted a complaint last year and has been working with the Mountain States Legal Foundation, a Colorado-based organization funded by conservative interests whose hold “music” is speeches by Ronald Reagan.

“It’s too soon to say much,” Mr. Kurkoski said. “We didn’t expect what happened.”

Anya Litvak: alitvak@post-gazette.com or 412-263-1455.

Join the conversation:

To report inappropriate comments, abuse and/or repeat offenders, please send an email to socialmedia@post-gazette.com and include a link to the article and a copy of the comment. Your report will be reviewed in a timely manner. Thank you.

<--Google analytics Ends-->