Friday, November 16, 2012

Federal Judge Tosses "Force Majeure" Out the Window

Just because you can’t “frack” doesn’t mean you can't drill. That’s what U.S. District Court Judge David Hurd told Chesapeake Appalachia the other day. In a decision posted November 15, Hurd rejects force majeure as a reason to hold onto expired leases. Leases, he explain, terminate at the end of their primary terms. His reasoning:

“… The purpose of the leases is to explore, drill, produce, and otherwise operate for oil and gas and their constituents.” And the fact that New York State is still reviewing regulations for high volume horizontal hydraulic fracturing (HVHF) does not stop oil and gas companies from exploring, drilling, producing and otherwise operating, says Hurd.

Even though the state does not allow fracking, “… drilling permits for conventional drilling methods have, and continue to be, issued in the area of plaintiffs’ lands,” wrote Hurd. He clarified that the leases signed by landowners did not limit Chesapeake’s right to drill to a specific type of drilling or a particular formation.

The whole force majeure argument was based on the illusion that the state was preventing the gas companies from drilling. But, notes Hurd, “While defendants submit evidence demonstrating that horizontal drilling combined with HVHF is the only commercially viable method of production in the Marcellus Shale and drilling using conventional methods is impractical,"[m]ere impracticality . . . is not enough to excuse performance." The gas companies “…contracted for access, exploration, and the right to drill for a set period of time.” Not for a specific technique or formation.

This decision brings a sigh of relief to more than 50 landowners in Broome and Tioga counties who were trapped in leases that should have expired years ago.

You can read Judge Hurd's decision here. Read previous posts about the force majeure cases here.

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