In a matter of “first impression” dealing with the still-emerging complexities of fracking, the Court of Appeals for the Second Circuit in New York has ruled that a state moratorium on the controversial practice can’t be used to justify lease extensions. It’s a win for landowners and a setback for energy companies trying to foist the risks associated with regulatory uncertainty off on the little guy.

The case deals with a group of oil and natural gas developers that leased property from landowners on the edge of the Marcellus Shale formation, which extends through much of Pennsylvania and into western New York. The companies signed lease agreements in the early 2000s, intending to develop gas deposits there through the technique known as fracking.

The leases stipulated a five year initial term, and included a provision that allowed that term to be extended, after development had begun, for as long as the properties continued to be productive. The companies’ plans under the initial agreement were foiled in 2010, when the state legislature voted to institute a three year moratorium on fracking in New York State.

The moratorium was prompted over environmental fears about relatively new technology, which involves injecting water and chemicals at high pressure into bedrock, fracturing the stone and releasing gas that can then be extracted.

<blockquote>It is agreed that this lease shall remain in force for a primary term of FIVE (5) years from the date hereof and as long thereafter as the said land is operated by Lessee in the production of oil or gas. </blockquote>

The companies, unable to carry out extraction during the temporary ban, informed the landowners that they were invoking an extension clause, arguing that the moratorium constituted a force majeure — an unexpected event that should alter the terms of the agreement.

http://www.propublica.org/article/new-york-state-of-fracking-a-propublica-explainer