Gas companies lose battle to extend leases in Broome, Tioga

Gas companies lose battle to extend leases in Broome, Tioga by Jon Campbell with contributions by Steve Reilly, November 15, 2012, Press Connects
Attempts by energy companies to extend oil-and-gas leases because of New York’s inaction on hydraulic fracturing were invalid, a federal judge ruled Thursday. In separate but similar decisions, U.S. District Court Judge David Hurd ruled against natural-gas giant Chesapeake Energy and Denver-based Inflection Energy, which had claimed that the state’s de facto moratorium on fracking was reason to extend leases with landowners.

The rulings will immediately end the gas leases for at least 65 landowners in Tioga and Broome counties when they file the decision with their county clerks. The companies have 30 days to appeal. The companies had contended that the “force majeure” clause in existing leases was triggered because New York has not allowed high-volume hydrofracking since launching an environmental review in 2008. The clause, including in many standard contracts, generally allows an agreement to be extended in the event of an “act of God” or unforeseen circumstance that doesn’t allow its terms to be upheld. “The leases terminated at the conclusion of their primary terms, and defendants cannot invoke the force majeure clause nor the doctrines of impossibility or frustration of purpose to extend the leases,” Hurd wrote in one of his decisions. Several companies had attempted to extend thousands of gas leases in New York based on “force majeure” since the DEC launched its review. Bob Jones, an attorney for the landowners who sued Inflection Energy, said Thursday’s decision was a “game changer.” “We now have a court ruling — where we didn’t have one before — on whether force majeure extended these leases or not,” said Jones, an attorney for Broome County-based Coughlin & Gerhart. “And the court said unequivocally they do not.”

A spokesman for Chesapeake declined comment.

Most of the leases in the case against Chesapeake were signed between five and 12 years ago, according to Scott Kurkoski, an attorney who represented the landowners. Most were signed for just $3 an acre — well below current market value — and were set to expire before the suit was filed. “This shows that when a group of people get together, there is something they can do, even against a company the size of Chesapeake,” said Kurkoski, of Broome County-based Levene Gouldin and Thompson LLP. Both Kurkoski and Jones said the case now sets a legal precedent for other landowners facing force majeure claims. “This has implications for many, many people in the Southern Tier,” Jones said. “And it’s good news, because now they’re not held to these onerous leases with very unfavorable business terms.” [Emphasis added]

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