Feb 28 2013

Compulsory Integration Not Applicable to Shale

Legal Showdown Coming on Compulsory Integration;

Investigative Work by William Fischer;

Attorneys to File Suit if New York Government Issues Permits for Horizontal Hydraulic Fracturing

New York State’s compulsory integration law – written by the gas industry and passed with no public hearing – is fast approaching a serious legal challenge.

Under it, landowners who prefer not to sign gas leases can be forced into drilling units. Further, the law treats property owners who willingly sign shale gas drilling leases differently from landowners who are forced into drilling units.

This unequal treatment ranges from lower royalty rates, denial of a signing bonus, potentially high financial risk penalties including paying a percentage of actual well costs, and other liabilities.

If, as some expect, New York Governor Andrew Cuomo’s Department of Environmental Conservation (DEC) issues permits for horizontal hydraulic fracturing, a legal challenge will follow to have the compulsory integration law struck down as unconstitutional.

The law as written does not apply to gas-bearing shale deposits, according to William C. Fischer, described as a “forensic” investigator, by Attorney Helen Slottje.

Compulsory Integration Not Applicable to Shale

Slottje is Managing Attorney at the Community Environmental Defense Council (CEDC) in Ithaca, NY.  CEDC is a public interest law firm founded by Helen and David Slottje.  Link: http://www.cedclaw.org/

Fischer’s detailed research involves a close reading of Title 9 of Article 23 of the Environmental Conservation Law “to provide for the compulsory integration of private property.”

His assessment is available in an 11-page, sourced white paper titled, A Critical Review of the Compulsory Integration Requirement. 1  

Among Fischer’s key points (emphasis added):

  • “The Environmental Conservation Law (ECL) statute does not authorize the compulsory integration of gas bearing shale deposits.”
  • “Compulsory integration of gas bearing shale deposits constitutes an unauthorized taking.”

Fischer points out that the 2005 amendment failed to update the technology definitions of New York State’s 1963 law.

As it turns out, Fischer writes:  “The 1963 provisions were written prior to the development of high volume, slick water, hydraulic fracturing … and were based on the technology of the time; i.e., vertical drilling into oil and/or gas fields and pools.”  (p. 3)

As a result, “Title 9 does not authorize the compulsory integration of gas bearing shale formations.  Bill #S5553-B seems to have left unchanged the definitions section of the 1963 version,” Fischer writes.

Attorney Slottje agrees:  “There are statutory definitions of a pool and a field.” “There are no pools in the Marcellus Shale, it is just a rock.”

Preparing Legal Challenge

Slottje told an audience in Kirkland, NY, last year that the Community Environmental Defense Council (CEDC) in Ithaca, NY, is readying a legal challenge seeking to have the compulsory integration statute declared unconstitutional and struck down.  Video of that 91-minute presentation and Q&A are available at this link: http://www.youtube.com/watch?v=W71xDr5Zz4k

In that presentation, she elaborates on the legal issues raised by Fischer:

  • “Compulsory Integration – forcing people to lease … – makes no sense and has no legal support in shale formations.”
  • You don’t have a pool and it is not migratory gas.  So the legal arguments that were used to make this acceptable… don’t exist in this instance.”

High-volume, slickwater hydraulic fracturing technology emerged in 1997, when Mitchell Energy developed it in the Barnett Shale of Texas.

NYS Stuck with Law It Passed

According to Fischer (emphasis added), “nothing in Title 9 makes reference to or includes anything which could be construed as a gas bearing shale formation.  And no agency of the State may promulgate rules and regulations which exceed that authorized and intended by statute.”

“Compulsory Integration has not gotten enough attention,” says Lou Allstadt, a former Mobil Oil Corporation executive with 31 years in the industry.  “I think it is vulnerable legally and politically when people understand it.”

Attorney Chris Denton, who practices oil and gas law in New York State, told me that Fischer “is at his best when he is issue spotting.  He [Fischer] highlights the apparent incomprehensibleness of oil and gas law.”

Denton notes (emphasis added) “that if the Final Order of Integration includes a grant to the driller of the right to drill horizontally beneath an unleased property that entry of the well bore into such parcel would be a trespass or a ‘taking’ under the fifth amendment to the US Constitution.  I know of no court who has ruled on this issue in New York.” 

As Attorney Helen Slottje told the audience in Kirkland, NY, “We’re focused on a court challenge [to compulsory integration].”

Slottje said the lawsuit would likely take the form of a “hybrid Article 78 declaratory judgment.”  She described this as an “expedited, specialized legal procedure in New York where you can challenge an administrative agency’s decision” (i.e., the DEC).

Legal Challenge = Article 78 Declaratory Judgment

The advantage of this approach is that it can be accomplished in a relatively short time.  As Slottje notes:  “The court just looks at the record from the administrative [DEC] decision and decides if it was legal or not.”

She elaborates:

“So our claim would be that this process, this [compulsory integration] hearing, violated people’s due process – substantive and procedural due process rights – that it’s a taking, because”

  • There is physical trespass;
  • There’s no compensation – that’s violative of the 5th and 14th amendments of the United States constitution, it is violative of the corollaries to that in the New York State constitution

“We will seek a declaration from the court that the compulsory integration statute itself is unconstitutional and needs to be struck down.”

To date, the DEC has not issued horizontal hydrofracking permits.  Launching such a lawsuit requires a current compulsory integration case and a current plaintiff (the injured party).

Cuomo’s DEC Refuses to Release Health Studies

Meanwhile, Governor Cuomo and the DEC appear to edge closer to issuing drilling permits.  This despite challenges to the process and lack of transparency surrounding Cuomo’s Public Health Review of the Supplemental Generic Environmental Impact Statement (SGEIS) for high-volume hydraulic fracturing.

As recently as February 12, DEC Commissioner Joseph Martens stated (emphasis added):  “If the DOH Public Health Review finds that the SGEIS has adequately addressed health concerns, and I adopt the SGEIS on that basis, DEC can accept and process high-volume hydraulic fracturing permit applications 10 days after issuance of the SGEIS. The regulations simply codify the program requirements.”  Link to DEC statement: http://www.dec.ny.gov/press/89195.html

But the Community Environmental Defense Council (CEDC) is challenging DEC’s refusal so far “to release the scientific reports that the proposed high volume horizontal fracking regulations are required to be premised upon.”

In a public statement, the CEDC states:  “Under New York law, the DEC must release within thirty days after being asked all scientific studies that are used as the basis for a proposed rule.”  Refer to the CEDC statement: http://www.cedclaw.org/news/2013/02/dec-shuts-the-public-out-again/

Attorneys Helen and David Slottje, of the CEDC have notified the DEC “that if it fails to respond they will bring a suit to compel production of the reports and to stop the proposed regulations from being enacted.”

Compulsory Integration’s Domino Effect

This is only the beginning of the coming problem faced by industry and government proponents of compulsory integration laws, also known as forced pooling or unitization.

In addition to challenging the industry-written law in New York State, the domino effect could extend to other states.

When the legal challenge is raised over compulsory integration in New York State, it will highlight the vulnerability of similar laws in nearly 40 other states. These laws are largely written by the energy industry; and are often punitive toward property owners forced into a drilling unit.2

Links & Resources

1 A Critical Review of the Compulsory Integration Requirement, Title 9 of Article 23, New York State Environmental Conservation Law – A White Paper (as amended) by William C. Fischer, November 12, 2011 – pdf file:  Expanded CI White Paper by WCF 5th draft

2 State Laws Can Compel Landowners to Accept Gas and Oil Drilling, by Marie C. Baca, ProPublica, May 19, 2011 – List of states with forced pooling/compulsory integration/unitization laws: http://projects.propublica.org/tables/forced-pooling

NOTE:  This article is cross-posted on the Accountability Central website at this link:   http://www.accountability-central.com/nc/single-view-default/article/compulsory-integration-legal-challenge-coming-investigative-work-by-william-fischer-attorneys/   Accountability Central is part of the Governance & Accountability Institute, Inc.

One Response

  1. Nick Says:

    I’m not surprised to hear another story about Cuomo and his cronies trying to move outside the law. It’s like having a modern-day Cassander in power. Glad someone is shining a light at this guy to release the legally-required documents.

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