For the past year, the natural gas industry was hopeful that 2012 could be the year that Marcellus Shale natural gas production in New York could finally begin in earnest. Governor Paterson’s Executive Order No. 41, which effectively banned the use of high volume hydraulic fracturing and horizontal drilling necessary to extract natural gas from the Marcellus Shale, expired in 2011. During the moratorium the state moved forward with its efforts to establish a regulatory and permitting framework that would allow for Marcellus Shale development in New York. New York’s Department of Environmental Conservation (“DEC”) issued for public comment preliminary and revised draft Generic Environmental Impact Statements that recommended lifting the moratorium on Marcellus Shale development. In addition, DEC issued a set of proposed regulations applicable to high-volume hydraulic fracturing in 2011. With the comment period on the regulations closing on January 11, 2012, industry hoped that the administrative and regulatory hurdles holding back Marcellus Shale development in New York would soon be gone.
While this review and regulatory process has been underway, however, approximately 50 local municipalities have been busy enacting their own legislation to effectively ban gas drilling activities within their jurisdictions. The local legislation – which two state courts have already upheld – add another significant impediment to the development of the gas drilling industry even if New York ultimately adopts regulations that permit gas drilling activities in the state. The recent decisions issued in, Anschutz Exploration Corp. v. Dryden and Cooperstown Holstein Corp. v. Town of Middlefield, addressed the validity of two such zoning ordinances enacted to prohibit drilling within their respective townships. The plaintiff in both cases, one a gas drilling company and the other a landowner with gas leases on about 380 acres of property, argued that the respective zoning ordinances were invalid based on express preemption language contained in New York’s Oil, Gas and Solution Mining Law (“OGSML”). The OGSML provides that its provisions “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 law.” The court in both cases rejected the preemption claim finding that the legislative intent of the OGSML was to provide the State with authority to control the “how” of drilling activity, while municipalities maintain authority over the “where” of such activities. Of course, these findings give little credence to the fact that the OGSML provision at issue specifically carved out certain rights of local governments (e.g. over local roads), which shouldn’t have been necessary under the reasoning of both decisions. Moreover, it has been reported that one or both decisions will be appealed – so uncertainty about the potential extent of Marcellus Shale development clearly remains in New York.
In contrast to the current state of uncertainty in New York, Governor Corbett recently signed into law Act 13 of 2012, which amends Pennsylvania’s Oil and Gas Act (“OGA”) to better define, inter alia, the scope of OGA’s preemption of local zoning ordinances directed to oil and gas development. In this regard, not only does the amendment clarify that the OGA preempts local ordinances that attempt to regulate oil and gas operations, but that reasonable development of oil and gas resources cannot be prohibited through local zoning ordinances. Strong incentives exist for municipalities to refrain from enacting ordinances infringing upon the preempted jurisdiction of the OGA in that any municipality determined to have enacted preempted legislation is immediately ineligible to receive any funds collected pursuant to the impact fee provisions of Act 13. Moreover, Act 13 allows persons who successfully challenge zoning ordinances that violate Act 13 to collect attorney fees from local governments that enact such ordinances with willful or reckless disregard of the preemption. Nevertheless, with a long history of local control in Pennsylvania, local governments opposed to Marcellus Shale development in their jurisdictions will undoubtedly test the extent of Act 13’s preemption, which will likely result in some noteworthy litigation on these issues in the coming months.