Shale Gas Politics and Consequences

Our friend John Holko, President of Lenape Resources, has had enough.  The Town of Avon, which is home to many of his employees and landowners, and benefits tremendously from the taxes and free natural gas he provides, decided they could take all that for granted and still play games with the anti-energy contingent by fashioning a moratorium that would grandfather John’s existing operations.  Local officials naively believe that all John has to do is to keep pumping his existing wells, keep paying his landowners, keep paying them taxes and keep providing them free gas – all with no new sources of income while they twiddle their thumbs entertaining a ban on something they have no right to regulate in the first place!

The Town Board demonstrated an appalling lack of knowledge about natural gas development in the process, precisely the kind of ignorance that fully explains, without need of further amplification, the reason for state pre-emption of local regulation in this field.  Local officials have neither the experience, nor the knowledge to regulate such an industry.  Yet, they would if they could.  Holko, though, has just told them they’re not going to starve out his business while pretending to protect it; that he’s going to fight back.  He’s told his attorney, Michael Joy, who has guest blogged on these pages, to protect his rights. It’s a powerful lesson for all local officials considering moratoriums.  He’s just told them “be careful what you wish for,” especially when you’re trying to do zoning by applause.  The news release says it all.

Here’s what Joy’s firm, Reed Smith LLP had to say:

Town of Avon Enacts Moratorium on Oil and Gas Development; Lenape Resources Shuts-In Wells, Declares Force Majeure

(NEW YORK, July 9, 2012)— Lenape Resources, Inc., an historic developer and producer of natural gas in the Appalachian Basin, has retained Reed Smith LLP to advise the company in response to a moratorium enacted by the Town of Avon, Livingston County, New York banning natural gas development.

In response to the moratorium, John Holko, President of Lenape Resources, which owns and operates wells and a gas gathering pipeline in Avon, said: “We do not know what this law will mean, and until we can get advice from our counsel, the Department of Environmental Conservation, the Public Service Commission and possibly the Attorney General, we have to ‘shut-in’ our wells and stop flowing gas through the Avon gathering system.”

After the wells are ‘shut-in,’ they will stop producing gas. Landowner production royalties will stop, there will be no free gas flowing from Lenape’s wells and the people connected to Lenape’s Avon wells, which include the Town of Avon, will have to find alternative sources of energy.

“It’s the landowners that suffer, landowners leased their mineral rights to Lenape so that we can develop those mineral rights, and the Town of Avon just took those rights away,” said Holko.

“Domestic natural gas production enhanced by horizontal drilling and high-volume hydraulic fracture stimulation technology has become an emotionally charged social issue,” says Reed Smith shale gas expert Michael P. Joy, who is representing Lenape in a surge of matters before townships of Upstate New York. “However, towns need to understand that the regulation of natural gas operations in New York State is entirely outside the jurisdiction of local governments.”

New York State Environmental Conservation Law pertaining to natural gas drilling are codified in the Oil, Gas and Solution Mining Law as set forth in Article 23, Section 23-0303(2) of the clearly and unequivocally states that:

[t]he provisions of this article [Article 23] shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law. (Emphasis Added).

The New York State Court of Appeals has addressed the issue of local municipal regulation and the preemption doctrine on several occasions, with the same results each time. Where the subject matter of regulation is addressed by the State, local governments are without the power to enact laws, rules, regulations or ordinances to the contrary.

“Many small towns in upstate New York are struggling in today’s economy, and by supporting an ill-advised natural gas moratorium, they are taking untold economic losses, in terms of lost jobs, royalties and resources,” warns Joy. “Furthermore, they are being burdened with legal risks and potential expenses that they may not have the resources to cover.”

The NYS DEC has been studying the impact of natural gas development for the past four years. Extensive mitigation measures are being proposed and Governor Cuomo is expected to release those extensive rules before the end of the year. “New York State will have the most stringent drilling regulations in the Country” said Joy.

As for Lenape’s future, Holko said that “I’ve had a great relationship with Avon for more than 20 years, but right now, I do not know what the future holds.”

Michael Joy is the spokesperson for Lenape Resources, Inc. He can be reached during business hours at 412-288-3851, or by cell phone at 716-697-0719.

Mr. Joy is a member of Reed Smith’s 120-attorney global Energy and Natural Resources and one of 16 Pittsburgh-based lawyers devoted solely to matters regarding oil and natural gas exploration and production.

About Reed Smith

Reed Smith is a global relationship law firm with nearly 1,700 lawyers in 23 offices throughout the United States, Europe, Asia and the Middle East. Founded in 1877, the firm represents leading international businesses, from Fortune 100 corporations to mid-market and emerging enterprises. Its lawyers provide litigation and other dispute resolution services in multi-jurisdictional and other high-stakes matters; deliver regulatory counsel; and execute the full range of strategic domestic and cross-border transactions. Reed Smith is a preeminent advisor to industries including financial services, life sciences, health care, advertising, technology and media, shipping, energy and natural resources, real estate, manufacturing, and education. For more information, visit reedsmith.com.

Image provided by Domics.com

Pretty much says it all, doesn’t it?  Those local officials thinking home rule is a license to chase cheap votes and appease special interests need to reconsider.  And, if they thought moratoriums were a painless way to straddle the fence, well … guess again.

A couple of quotes come to mind that sum up the Town of Avon’s situation.  My favorite is “The man who straddles the fence deserves to land on his groin.”  But, then again, perhaps the best advice I can give Avon officials is “Don’t straddle a barbed wire fence.”  There are consequences!

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Comments

  1. Victor Furman says:

    Attention Chesapeake – XTO – Range Resources – Cabot – Norse and all other energy companies.

    Please follow suit and shut off the Natural Gas and by products Supplies to NYS towns that have put in Bans or Moratorium’s in place and use the very product(s) they want to keep using as long as they are not inconvenienced in it’s production.

    Then you will see these anti gas folks sing a different tune.

    If you can’t legally shut it down then put in a NYS sur-charge or tax to raise the price by 200 percent

  2. FS Blank says:

    Pretty much says it all? Not really, you conveniently left out the part where the
    Town Supervisor David LeFeber said Lenape’s shutdown wasn’t required by the moratorium.

    “We were very careful to word our moratorium to protect existing gas wells,” LeFeber said Monday. “This is only a moratorium, it’s not a ban. We wanted to take some time to study the issue and put in place any things that would help make sure we protect the health, safety and well-being of our local residents.”

    What could be more responsible that putting the pause button on while studying the issues.
    Of course, you guys (the gas industry) don’t want people to have time to study the issues, you just want to start drilling and making money.

    • Tom Shepstone says:

      You are, yet again, demonstrating your lack of knowledge of how things work. No operator can continue to employ people, renew leases, pay taxes and provide free gas at the same levels without the ability to continue to develop resources. This is a free lunch fantasy land, but I’d expected nothing less.

      • FS Blank says:

        So according to your theory, you con’t have to post the “whole” story if you see flaws in the other side? How is it that this company has been able to provide free gas, employ people and pay taxes in the past? This is move is nothing more than the gas industry’s new bullying technique.

        • Dave says:

          FS,
          You are not taking into to consideration the decline curve of the wells. The production diminishes with every passing day, they have to replace the diminishing production with new wells. That is how they continue supplying us with gas. Moratoriums will hurt or shutter small operators, they cannot absorb this hit and continue. What will replace NG in Avon???

        • Tom Shepstone says:

          We included a link to a story with that quote, which you obviously didn’t check. Also, Holko was able to do all those things because he had assurance he could invest in his leases and the development of them. A hardware store doesn’t succeed by selling off his inventory one time. Rather, he must replace it and continually improve his offerings, his service and his facilities. What in the world don’t you get about that? The same applies to any business. To do otherwise is like burning pieces of the house to keep the home warm. Running a dairy farm where one only milks the cows until they dry up and then does nothing to breed them again or replace them as they get older and produce less is a recipe for financial failure. Holko is not there for the convenience of taxpayers – he has to make a living and so do the landowners and his employees. You are the bully, FS Blank, because you are determined to prevent that, for the sake of your own selfish interests. You are trying to own everyone else’s land without the responsibilities that go along with ownership – the responsibilities to make it productive and pay taxes. You don’t give a damn because you’ve made it. That’s the ultimate bullying technique.

    • Dave says:

      FS,
      Four years is plenty of time for review (NYS SGEIS). Time and time again the industry has to defend the “potential problem”. It is not reality that there are any problems. The EPA, Pennsylvania DEP & Ohio DNR have all stated that high volume hydraulic fracturing has never contaminated an aquifer. But the industry still has to fight “potential” problems. The real problem is that the anti crowd is simply anti-fossil fuel, not that the industry is ruining our landscape. Look at the other post on EID site(Cornell study), if the anti crowd would open there eyes they would see that we can continue to lower our CO2 omissions by replacing coal and oil with NG. What is the problem??? I dont see it.

  3. Dave says:

    Hats off to Holko, you have to stand for something.
    The town of Avon is trying to retrofit their backup, natural gas generators with nothing other than propane. They dont even understand that they banned propane when the banned drillilng. In the words of Larry the Cable Guy “thats funny I dont care who you are”.

  4. J Howard says:

    Tom thanks for taking then time to highlight the situation in Avon. The anti’s are selling the economic future of up state New York down the drain. We should be more concerned with the drug problems that plague our rural areas. Heroin at $10 a packet poses the greatest risk to our community not fracking.
    It is as if the world has been turned upside down. Keep up the good reporting

    • VICTOR FURMAN says:

      J Howard

      well stated but have you noticed the anti’s are left over hippies from the sixties and probably the best customer of the 10 dollar bag

  5. Roving Reporter says:
  6. John, best of luck to you, I understand the transition to communism is tough on everyone. I hope your employees and all of the people that rely on you for energy can survive while the new age board members like playing Stalin or Tito.

  7. ILoveFarming says:

    Thank – you Mr. Holko! Finally someone with the “intestinal fortitude” to make a stand. The environmental fanatisism is beginning to find itself a cause that no-one is listening to. You sir, on the other hand, did it so smoothly. Good work – don’t back down.

  8. J. Falzoi says:

    Mr. Holko shut down gas to prove a point. The Avon moratorium allows him to continue as has been in the past and present. He can continue to do what NYS presently permits. He can frack vertical bores. What the moratorium creates is a one-year pause so Avon can make sure the consequences of deep well, horizontal drilling are known and where possible, under local rule, lessened. Mr. Holko said many of his wells are not producing and he needs to use new technology to extract gas deeper and wider. This can happen if Governor Cuomo issues permits.

    When the interests of the people conflict with industry all parties need to listen to each other. I will not pretend to know the ins and outs of gas exploration but I do know that my homeowners insurance doesn’t cover any damages from gas activity. My mortgage says I may not lease or allow gas activities or I am at risk of my mortgage being recalled. Lending institutions are hesitant to underwrite new mortgages because it is difficult for them to be sold to third parties because the value of the property is likely to decline. The Compulsory Integration law allows gas operations to “take” my land for its operation without my agreeing through a lease agreement. Eminent Domain allows the industry access to my land. The nature of deep extraction and the wide areas covered by horizontal lines makes it likely I will have gas on my property. Noise, traffic, disruption of life in a small town are going to happen. Air, water pollution and long term consequences are a risk. Mistakes happen and natural processes erode substances over time. I will become part of the gas industry like it or not.

    I think the gas industry needs to listen to why local people are worried and work with local people during the moratorium period to solve these issues. The gas industry has no legal responsibility to clean up toxic spills, fix roads or put the land back after drilling. In NYS that burden falls directly on town and county government and even on individual homeowners. That affects taxes and will take money away from other local projects.

    Mr. Holko established wells in Avon on flat land. His wells are not on hills but are integrated into the life of this township. Vertical wells do not have the same impact on people. Gas is not supplied free to every resident – only those with contracts. Avon is a very small area with limited roads that are one lane each way. We will see, hear, smell everything.

    Instead of using his influence outside of Avon to pressure Albany, Mr. Holko should work with us. It will be difficult for all involved if he fails to do this. He does not live here but north of Avon in an area that will never see the new technology he demands to use in Avon. His boots may be in the ground but his heart is not with the people he affects or he would not have closed gas lines suddenly. He had no fear of breaking a law. Mr. Holko and other independent gas suppliers need to step back and see through the eyes of the people outside the industry.

    Think hard before any other gas people follow Mr. Holko’s path. In doing so, you will show us the true nature of a gas industry that will bully and threaten towns that do not cooperate. Is this what you want for a public image? I am now learning about other communities’s experiences’ and for that I will thank Mr. Holko for my education. I see nothing of benefit for me or my neighbors. Show me otherwise.

  9. ILoveFarming says:

    No Mr. Falzoi – You should learn to work with him. The hysteria is out of control. In the meantime, I know you will turn in your 20 lb propane tank to your gas grill – enjoy the cold hotdogs on Labor Day week-end. Hopefully we will have another mild winter because I know you will be shutting of your natural gas to so he doesn’t have to drill new wells.
    Best

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