Aukema v. Chesapeake Appalachia, LLC

904 F. Supp. 2d 199, 179 Oil & Gas Rep. 182, 2012 WL 5522832, 2012 U.S. Dist. LEXIS 163175
District Court, N.D. New York·Decided November 15, 2012·No. No. 3:11-CV-00489·Published·Cited by 9 cases

Opinion

MEMORANDUM-DECISION and ORDER

DAVID N. HURD, District Judge.

I. INTRODUCTION

Plaintiffs Douglas and Patricia A. Aukema and other landowners1 (collectively “plaintiffs”) brought this declaratory judgment action against Chesapeake Appalachia, LLC (“Chesapeake”) and Statoilhydro USA Onshore Properties, Inc. (“Statoil”) (collectively “defendants”) seeking a declaration that certain oil and gas leases entered into between the parties expired at the conclusion of the primary terms of those leases and that the terms have not been extended by payment or force majeure.2 See Am. Compl. Plaintiffs also charge defendants with violating New York General Business Law section 349. Id. Defendants assert counterclaims seeking a declaration that the leases were extended due to force majeure events and the tender of payments.

Plaintiffs moved for partial summary judgment declaring that the leases have expired and directing defendants to file a release of the leases in accordance with New York General Obligations Law section 15-304. Defendants opposed plaintiffs’ motion and cross-moved for summary judgment declaring that the leases were extended and are in full force and effect, and dismissing plaintiffs’ amended complaint. Plaintiffs opposed defendants’ motion and replied in support of their motion. Defendants replied in support of their motion.

[202]*202Defendants also moved to strike the reply affidavit of plaintiffs’ expert David W. Keefe, dated August 16, 2012. Plaintiffs opposed.

Oral argument was heard on August 30, 2012, in Utica, New York. Decision was reserved.

II. BACKGROUND

A. Oil and Gas Industry in New York State

Gas drilling in New York State is governed by the Environmental Conservation Law. Under the authority of that statute, the State Environmental Quality Review Act (“SEQRA”), N.Y. Envtl. Conserv. Law section 8-0101, was passed “to inject environmental considerations directly into governmental decision making.” City Council of Watervliet v. Town Bd. of Colonie, 3 N.Y.3d 508, 515, 789 N.Y.S.2d 88, 822 N.E.2d 339, 341 (2004) (internal quotations omitted).

SEQRA requires all New York State agencies, including the New York State Department of Environmental Conservation (“DEC”), to prepare or cause to be prepared an Environmental Impact Statement (“EIS”) for “any action ... which may have a significant effect on the environment.” N.Y. Envtl. Conserv. Law § 8-0109(2).3 Where the impacts from separate actions are common and predictable, a generic EIS (“GEIS”) may be prepared to analyze the impact of all such actions generally and cumulatively instead of preparing an individual (or site-specific) EIS for each action. See N.Y. Comp.Codes R. & Regs tit. 6, § 617.10(a). The purpose of a GEIS is to provide a comprehensive review of the potential environmental impacts of an activity and how those impacts could be mitigated. Subsequent proposed actions which may significantly affect the environment, but which are not adequately addressed by a GEIS, require either a supplemental GEIS (“SGEIS”) or a site-specific EIS. See id. § 617.10(d)(4); N.Y. Envtl. Conserv. Law § 8-0109(2).

In 1992, the DEC issued a GEIS addressing the environmental impacts associated with oil and gas exploration. N.Y.S. Dep’t of Envtl. Conservation, Generic Envtl. Impact Statement on Oil, Gas, and Solution Mining Regulatory Program (1992), available at http://www.dec.ny.gov/ energy/45912.html. The 1992 GEIS contemplated conventional well fracturing using 20,000 to 80,000 gallons of fluid.

During 2008 there was an increased interest in the issuance of permits for horizontal drilling4 and high volume hydraulic fracturing (“HVHF” or “hydro fracking”)5 [203]*203to develop the Marcellus Shale and other low-permeability gas reservoirs.6 According to the DEC, the Marcellus Shale is a shale formation extending deep underground from Ohio and West Virginia northeast into Pennsylvania and southern New York. It is as deep as 7,000 feet or more below ground in some areas. See N.Y.S. Dep’t of Envtl. Conservation, Marcellus Shale (2012), available at http://www. dec.ny.gov/energy/46288.html. Geologists estimate that it may contain up to 489 trillion cubic feet of natural gas.7 Id. Although the gas potential in the Marcellus Shale is not a new discovery, drilling companies abstained from exploration and extraction because of the difficulty and expense associated with drilling such a deep formation. However, recent advancements in technology and the use of HVHF prompted drilling companies to reconsider opportunities in the Marcellus Shale.

As a result of the interest in horizontal drilling combined with HVHF, and the unknown environmental impact caused by it, on July 23, 2008, Governor David Paterson directed the DEC to update its 1992 GEIS covering oil and gas drilling. See N.Y. Envtl. Conserv. Law — Oil and Gas Wells, L. 2008 ch. 376, 2008 N.Y. Sess. Laws 1658-59 (McKinney) (“Directive”). He directed the DEC’s update “to address potential new environmental impacts from drilling, including horizontal drilling in Marcellus shale formations.” Id. Important concerns included “potential impacts on groundwater resources, procedures for the treatment and transport of process water contaminated during drilling operations, potential impacts on local infrastructure from increased heavy truck traffic, the safety of fluids used in the hydraulic fracturing of geologic formations and potential cumulative impacts of wide-scale drilling.” Id.

Accordingly, the DEC commenced the development of a SGEIS. That process is still ongoing. The most recent revised draft SGEIS was released on September 7, 2011, with the period for public comment ending on January 11, 2012. According to the DEC, no permit applications to drill horizontal wells utilizing HVHF in the Marcellus Shale are being processed pending completion of the SGEIS or preparation of a site-specific EIS. Any site-specific review must take into account the same issues being considered in the SGEIS and must be consistent with the requirements of SEQRA and the Environmental Conservation Law.

According to defendants, the Directive constitutes a moratorium which has effectively brought natural gas development in New York State to a screeching halt. According to plaintiffs, defendants may, and have acquired permits to drill utilizing the conventional drilling methods contemplated by the 1992 GEIS. For example, in 2009 there were sixteen vertical Marcellus wells producing in New York State. See 2009 DEC Annual Report at 5.

B. The Instant Leases

Plaintiffs are a group of landowners who reside in New York State throughout [204]*204Broome and Tioga counties. Between 2000 and 2006, the plaintiffs each8

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Aukema v. Chesapeake Appalachia, LLC, 904 F. Supp. 2d 199, 179 Oil & Gas Rep. 182, 2012 WL 5522832, 2012 U.S. Dist. LEXIS 163175 (N.D.N.Y. 2012).

904 F. Supp. 2d 199 (Aukema v. Chesapeake Appalachia, LLC) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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