In a possible sign that New York State won't be allowing fracking anytime soon, drilling giant Chesapeake Energy reportedly has abandoned its fight to retain land leases in portions of the state sitting atop vast natural gas reserves.
The move, first reported by Reuters, may indicate that the oil and gas industry slowly is giving up hope that Gov. Andrew Cuomo, a Democrat, will greenlight fracking in parts of upstate New York, even though residents there have watched their neighbors to the south in Pennsylvania reap enormous economic benefits as a result of the drilling technique.
Some analysts say the Chesapeake's decision underscores the uncertainty surrounding New York's current energy policy, with a five-year moratorium on fracking dragging on even though Mr. Cuomo continues to promise that a permanent decision will be made soon.
"We can't speak to what drove Chesapeake's decision. However, it's fundamental that organizations prioritize their resources and make decisions based on the known business climate. They do not embrace uncertainty," said Jim Smith, spokesman for the Independent Oil and Gas Association of New York.
Chesapeake, the Oklahoma City-based energy behemoth and one of the biggest players in the natural gas market, wouldn't comment on the Reuters report, which cited a letter sent to upstate New York landowners last month.
In it, the landowners — who had leased property in the Marcellus Shale region to Chesapeake years ago with the expectation that gas exploration would have begun by now — were told by their attorneys that their agreements with the energy company would be allowed to expire.
Chesapeake had been appealing a federal court decision that the leases must be terminated at the end of their agreed-to term, even though no drilling had actually taken place. The company had maintained that the leases, many of which had been signed in 2000 at rates much lower than what landowners are paid today, could be extended under a legal concept known as force majeure, according to Reuters.
The doctrine typically suspends contracts or agreements in the event of circumstances beyond the parties' control — in this case, the continued inaction by Mr. Cuomo and New York State officials.
The decision could carry a major price tag for Chesapeake. When most of the leases were signed 13 years ago, the current U.S. natural gas boom had yet to begin, and landowners were reportedly paid as little as $3 an acre.
Property holders in the Marcellus Shale region — including much of Pennsylvania and upstate New York and one of the largest natural gas deposits in the world — now are routinely paid hundreds of dollars an acre or more; one landowner in Broome County, N.Y., told Reuters he'd renegotiate with Chesapeake or another company and hoped for up to $3,000 an acre, assuming drilling actually begins.
While it looks as if Chesapeake is abandoning New York, some analysts say they're simply taking a step back and regrouping.
"It's not clear to me that they're pulling out of all of their assets in New York. I think they probably decided it wasn't worth fighting over. It's possible they may go re-bid" for the same property, said James Pardo, a New York City attorney who has represented oil and gas companies and frequently deals with energy issues in the state.
Meanwhile, Mr. Cuomo continues to push off a permanent decision on fracking, citing the need for more scientific analysis and studies of the potential health impacts of the practice.
Both sides of the fracking debate, including the environmentalists who deeply oppose the practice, are looking for clarity, Mr. Pardo said.
"No one is happy with the delay. They'd like to see a final thumbs up or thumbs down. ... Just when it looks like we're close, nothing happens," he said.
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