N.Y. Dairy Farm With Gas Leases Urges End to Drill Ban

By Chris Dolmetsch - Mar 21, 2013 12:00 AM ET

As a five-year moratorium on hydraulic fracturing in New York nears an end, a dairy farm and a Norwegian energy company will try to persuade an appeals court to overturn drilling bans in two upstate towns.

Attorneys for the dairy farm, Cooperstown Holstein Corp., and Norse Energy Corp. (NEC) are scheduled to make their arguments today challenging rulings from last year that upheld bans in the towns of Dryden and Middlefield. The case is before the New York State Supreme Court’s Appellate Division in Albany.

Governor Andrew Cuomo, a Democrat, is poised to decide whether to allow the practice, known as fracking, in the next few weeks as the moratorium draws to an end. Fracking already has been banned in more than 50 New York towns, while dozens more have moratoriums in place or are considering bans, according to Karen Edelstein, a geographic information-systems consultant in Ithaca.

“This case and others like it arise at what is really an intersection of traditional state authority and traditional local concern,” Shaun Goho, a staff attorney and clinical instructor at the Emmett Environmental Law and Policy Clinic at Harvard Law School, said on a March 19 conference call. “On the one hand, states have an interest in how their natural resources including oil and gas are developed. But on the other, local governments usually take the lead on land use and zoning issues. They obviously have a strong interest in things that will significantly affect the character of their communities.”

Two Leases

The dairy farm, which executed two oil and gas leases in 2007 with Elexco Land Services Inc. to explore and develop natural gas resources under the property, said in a September 2011 lawsuit that Middlefield, a town of about 2,000 people about 50 miles west of Albany, had no authority to enact a ban because the issue is governed by state law. Denver-based Anschutz Exploration Corp., an affiliate of billionaire Philip Anschutz’s closely held company, sued Dryden, a town of 14,000 people about 75 miles west of Middlefield, the same month.

Justice Phillip Rumsey in Cortland upheld Dryden’s ban on Feb. 21, 2012, and Justice Donald Cerio Jr. in Wampsville four days later ruled that Middlefield’s was also legal. The cases have been consolidated for appeal, and Norse Energy, an Oslo- based explorer whose U.S. unit filed for Chapter 11 bankruptcy protection in December, replaced Anschutz Exploration in the Dryden appeal.

Third Ban

Last week, a third New York town, Avon, won a court challenge to its natural gas drilling ban, according to the Associated Press.

The bans are aimed at stopping hydraulic fracturing, a process that involves forcing millions of gallons of chemically treated water underground to break up rock and free trapped natural gas. The practice has sparked environmental concerns and lawsuits across the U.S.

Parts of New York sit atop the gas-rich Marcellus Shale formation, and the governor must balance prospects for the booming economic development seen in Ohio and Pennsylvaniaagainst environmentalists’ warnings that fracking may damage water supplies and make farmland unusable.

The Marcellus Shale beneath parts of New York, Ohio, West Virginia, Pennsylvania, Marylandand Virginia has an estimated 400 trillion cubic feet of natural gas, one of the largest such formations in the world, according to trade groups that represent companies with natural gas-leases in New York state.

Fracking Permits

Last month, Cuomo’s appointed environmental commissioner, Joseph Martens, threw out a lengthy regulation-making process, saying the state will start issuing fracking permits if Health Commissioner Nirav Shah gives his approval. Shah said March 11 that he’s a few weeks from a decision. In the interim, environmentalists and lawmakers who oppose fracking have joined together to press for bills banning the drilling practice.

Cuomo has appeared close to a decision before. In June, administration officials floated a plan that would have allowed fracking to move forward in five gas-rich counties in the Southern Tier, a mostly rural region along the Pennsylvania border. Instead, Cuomo asked Shah in September to conduct the health review. The governor said March 11 he’s sticking by the decision to allow Shah’s determination to dictate the outcome.

U.S. District Judge Nicholas G. Garaufis in Brooklyn in September threw out a lawsuit by New York Attorney General Eric Schneiderman seeking a full environmental review of hydraulic fracturing. Garaufis granted a motion by the U.S. Environmental Protection Agency to dismiss the case, finding that the development plans are in the early stages and the threat of harm is speculative.

Schneiderman sued the Delaware River Basin Commission, the EPA and other federal agencies in May 2011 to force a fuller assessment of the environmental impact that gas development could have on the state’s water supply.

Water Quality

The river commission, created in 1961, is a compact among New York, Delaware, New Jersey, Pennsylvania and the federal government. It is responsible for water quality in the Delaware River Basin, which supplies drinking water to the four states.

Schneiderman said in the lawsuit that the commission’s proposed regulations would allow fracking at 15,000 to 18,000 gas wells without a full environmental review. If the regulations are issued, New York’s moratorium will be lifted.

New York said it has shown that fracking generates millions of gallons of wastewater contaminated with toxic metals and radioactive substances, and that companies using the process in Pennsylvania have violated the law 1,600 times, harming the state’s water.

Local ordinances related to oil and gas drilling have existed throughout the U.S. for more than a century, yet they are getting more attention as fracking brings gas drilling into places that haven’t had to deal with it before, Goho said.

Industry Attacks

Such ordinances are facing attacks from the industry in court and in state legislatures, Goho said. In Pennsylvania, the state has appealed a court ruling invalidating parts of a law easing energy development of the Marcellus Shale, and in Colorado, where the city of Longmont was sued over its fracking ban, there are plans to introduce a state bill to limit local control, he said.

“The ultimate legal question in this case is what the state legislature intended in New York,” Goho said. “Because of that the outcome of this case will not be binding in a strictly legal sense on other states but in a broader sense this case can throw down a marker. There are real local concerns at stake here. Not just regarding the local impact of fracking but also about local governments’ interests in protecting their traditional zoning powers. And in that sense cities and towns all across the country will be watching the outcome of this case.”

Opponents of the bans argue that local land use and zoning laws are superseded by New York state laws and that the Legislature intended to stop municipalities from banning exploration in the state.

Albany Lawyer

While the towns are likely to go to the state’s highest court if the appellate panel overturns the bans, the industry may not pursue a challenge if the lower-court rulings are upheld, said Thomas West, an Albany lawyer who specializes in oil and gas issues.

“It may be the end of oil and gas drilling in New York state,” West said. “We’ve taken this appeal on very limited funding because there’s very little interest in New York state right now by the industry. So we’d have to give it a hard thought whether or not to take it up unless we got some industry funding.”

The bans are “just one of many nails in the coffin” for fracking in New York state, West said.

Board Vote

“If you’re looking to invest hundreds of millions in New York and you’re at the mercy of a 3-2 town board vote, why would you do so?” West said. “How can you justify that to your shareholders and investors? Some of these communities have one or two members who are against fracking, while the other three are in favor of it. What happens if that changes in the next town board election?”

Dryden and Middlefield are exercising their “constitutionally protected local power to regulateland use through zoning,” not trying to regulate the industry, Deborah Goldberg, an attorney withEarthjustice, a San Francisco-based nonprofit group representing Dryden in the appeal, said during a conference call with reporters March 19.

“The industry claims that the Legislature is letting the drillers dictate where the wells go — next to day care centers or hospitals or courthouses whatever they say, with no protections for interests of the local property owners or the residents of the town,” Goldberg said. “I will admit that some states have handed over their localities to industry in this way. We have one right next door it’s called Pennsylvania. New York has not done that.”

Appeals Court

The appeals court in Albany typically issues decisions within four to six weeks, Goldberg said. West said he expects a ruling within six to eight weeks.

“This case comes down to this: Who should make the decisions affecting the use of our land, the people who live here who identify with a particular bend in the road or a hay field or a sensitive wetland or a bog?” Dryden’s town supervisor, Mary Ann Sumner, said on the March 19 conference call. “Do we have that choice or will we leave it to people in corporate offices thousands of miles away who know nothing about our lifestyle?”

The cases are Anschutz Exploration Corp. v. Dryden, 902/2011, New York Civil Supreme Court, Tompkins County (Ithaca); and Cooperstown Holstein Corp. v. Town of Middlefield, 1700930/2011, New York Civil Supreme Court, Otsego County (Cooperstown).

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at

cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net