For the past couple years gas companies holding leases in NY have told landowners that they’re extending leases due to an obscure “force majeure” clause tucked somewhere in the small print. Force majeure is often put into contracts when one party, such as a building contractor, agrees to complete a project by a certain deadline. The clause extends the deadline should the contractor, by reasons beyond his control, be unable to complete the job on time. Those reasons being a hurricane or flood or union strike, said an oil and gas attorney recently.
Force majeure has no place in an oil and gas lease – and even the NY Attorney General’s Office agrees. Back in November 2009 they ruled that gas companies couldn’t declare force majeure just because NY hasn’t approved horizontal drilling in shales yet. Of all the companies, only Fortuna (now Talisman) sat down at the table with the OAG over this matter.
But some companies – in particular Chesapeake and Inflection – have continued to mail “force majeure” letters to landowners, explaining that they are invoking the clause because they can’t drill.
Landowners have had enough and are striking back. Last week two landowner coalitions announced plans to sue oil and gas companies attempting to extend NY leases beyond their expiration dates.
For the past two years the companies have claimed that the “de-facto moratorium” against hydro-fracking, referring to the Department of Environmental Conservation (DEC) review of regulations for high volume hydraulic fracturing – and now the Governor’s executive order halting such fracking until July – prohibits them from drilling.
Hogwash! say the landowners and their attorneys. The energy corporations may continue to drill and indeed are continuing to drill wells, in other formations. As if to underscore this, DEC approved a permit for Norse on the very day the landowner coalitions announced their plans to sue.
Furthermore, the current regulations under the GEIS do not prohibit companies from exploiting Marcellus shale as vertical wells are allowed. The claims of force majeure have no merit, say the landowners.
Chesapeake has gone so far as to send lease extension letters to landowners who signed their original leases with Central Appalachian Petroleum 10 years ago at $3/acre. According to Chesapeake, payment of that modest “delay rental” extends the lease indefinitely, and they can extend these leases at their will. The NY Attorney General’s Office disagrees and has been negotiating with Chesapeake for over a year, with no resolution.
There are a couple errors in this post.
ReplyDeleteFortuna settled with the NY AG because it turned out afterwards its leases mistakenly *lacked* a force majeure clause.
Reading between the lines, therefore, the NY AG has never followed through with all its huff and puff against the other companies because their leases included standard boileplate protection against getting held up by superior force -- which is pretty basic in most contracts.
So your premise that there should never be such a lease force majeure clause is impractical and naive.
On the other hand, like you, I do root for the landowners who choose to legally defend themselves in this situation -- which is not, in fact, a complete regulatory shutdown.
Unfortunately, there are some errors in Andy's comment. Having read both the Fortuna leases AND the letters they sent, I can definitely say that (at lease some) leases had that clause. I know the one they tried to sell me on had such a clause... maybe it wasn't labeled as such, but the language was there.
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