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.