Shale Gas Politics and Consequences
Our friend John Holko, President of Lenape Resources, has had enough. The Town of Avon, which is home to many of his employees and landowners, and benefits tremendously from the taxes and free natural gas he provides, decided they could take all that for granted and still play games with the anti-energy contingent by fashioning a moratorium that would grandfather John’s existing operations. Local officials naively believe that all John has to do is to keep pumping his existing wells, keep paying his landowners, keep paying them taxes and keep providing them free gas – all with no new sources of income while they twiddle their thumbs entertaining a ban on something they have no right to regulate in the first place!
The Town Board demonstrated an appalling lack of knowledge about natural gas development in the process, precisely the kind of ignorance that fully explains, without need of further amplification, the reason for state pre-emption of local regulation in this field. Local officials have neither the experience, nor the knowledge to regulate such an industry. Yet, they would if they could. Holko, though, has just told them they’re not going to starve out his business while pretending to protect it; that he’s going to fight back. He’s told his attorney, Michael Joy, who has guest blogged on these pages, to protect his rights. It’s a powerful lesson for all local officials considering moratoriums. He’s just told them “be careful what you wish for,” especially when you’re trying to do zoning by applause. The news release says it all.
Here’s what Joy’s firm, Reed Smith LLP had to say:
Town of Avon Enacts Moratorium on Oil and Gas Development; Lenape Resources Shuts-In Wells, Declares Force Majeure
(NEW YORK, July 9, 2012)— Lenape Resources, Inc., an historic developer and producer of natural gas in the Appalachian Basin, has retained Reed Smith LLP to advise the company in response to a moratorium enacted by the Town of Avon, Livingston County, New York banning natural gas development.
In response to the moratorium, John Holko, President of Lenape Resources, which owns and operates wells and a gas gathering pipeline in Avon, said: “We do not know what this law will mean, and until we can get advice from our counsel, the Department of Environmental Conservation, the Public Service Commission and possibly the Attorney General, we have to ‘shut-in’ our wells and stop flowing gas through the Avon gathering system.”
After the wells are ‘shut-in,’ they will stop producing gas. Landowner production royalties will stop, there will be no free gas flowing from Lenape’s wells and the people connected to Lenape’s Avon wells, which include the Town of Avon, will have to find alternative sources of energy.
“It’s the landowners that suffer, landowners leased their mineral rights to Lenape so that we can develop those mineral rights, and the Town of Avon just took those rights away,” said Holko.
“Domestic natural gas production enhanced by horizontal drilling and high-volume hydraulic fracture stimulation technology has become an emotionally charged social issue,” says Reed Smith shale gas expert Michael P. Joy, who is representing Lenape in a surge of matters before townships of Upstate New York. “However, towns need to understand that the regulation of natural gas operations in New York State is entirely outside the jurisdiction of local governments.”
New York State Environmental Conservation Law pertaining to natural gas drilling are codified in the Oil, Gas and Solution Mining Law as set forth in Article 23, Section 23-0303(2) of the clearly and unequivocally states that:
[t]he provisions of this article [Article 23] 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. (Emphasis Added).
The New York State Court of Appeals has addressed the issue of local municipal regulation and the preemption doctrine on several occasions, with the same results each time. Where the subject matter of regulation is addressed by the State, local governments are without the power to enact laws, rules, regulations or ordinances to the contrary.
“Many small towns in upstate New York are struggling in today’s economy, and by supporting an ill-advised natural gas moratorium, they are taking untold economic losses, in terms of lost jobs, royalties and resources,” warns Joy. “Furthermore, they are being burdened with legal risks and potential expenses that they may not have the resources to cover.”
The NYS DEC has been studying the impact of natural gas development for the past four years. Extensive mitigation measures are being proposed and Governor Cuomo is expected to release those extensive rules before the end of the year. “New York State will have the most stringent drilling regulations in the Country” said Joy.
As for Lenape’s future, Holko said that “I’ve had a great relationship with Avon for more than 20 years, but right now, I do not know what the future holds.”
Michael Joy is the spokesperson for Lenape Resources, Inc. He can be reached during business hours at 412-288-3851, or by cell phone at 716-697-0719.
Mr. Joy is a member of Reed Smith’s 120-attorney global Energy and Natural Resources and one of 16 Pittsburgh-based lawyers devoted solely to matters regarding oil and natural gas exploration and production.
About Reed Smith
Reed Smith is a global relationship law firm with nearly 1,700 lawyers in 23 offices throughout the United States, Europe, Asia and the Middle East. Founded in 1877, the firm represents leading international businesses, from Fortune 100 corporations to mid-market and emerging enterprises. Its lawyers provide litigation and other dispute resolution services in multi-jurisdictional and other high-stakes matters; deliver regulatory counsel; and execute the full range of strategic domestic and cross-border transactions. Reed Smith is a preeminent advisor to industries including financial services, life sciences, health care, advertising, technology and media, shipping, energy and natural resources, real estate, manufacturing, and education. For more information, visit reedsmith.com.
Pretty much says it all, doesn’t it? Those local officials thinking home rule is a license to chase cheap votes and appease special interests need to reconsider. And, if they thought moratoriums were a painless way to straddle the fence, well … guess again.
A couple of quotes come to mind that sum up the Town of Avon’s situation. My favorite is “The man who straddles the fence deserves to land on his groin.” But, then again, perhaps the best advice I can give Avon officials is “Don’t straddle a barbed wire fence.” There are consequences!