Chesapeake Energy gives up New York gas lease fight

Aug. 7, 2013

Oklahoma-based oil and gas explorer Chesapeake Energy is beating a retreat after a protracted legal battle over the extension of natural gas drilling leases in New York.

Oklahoma-based oil and gas explorer Chesapeake Energy is beating a retreat after a protracted legal battle over the extension of natural gas drilling leases in New York, Reuters reported.

The news agency received information about the decision from landowners in the state, who had in turn been notified of it by their legal representatives in the court battle. In a letter dated July 26, attorneys from Levene Gouldin & Thompson informed some of their clients in Broome and Tioga counties that Chesapeake was prepared to withdraw its appeal. The contents of the letter were revealed to Reuters over the phone by one of the landowners.

As the attorneys wrote, Chesapeake had got in touch with Levene Gouldin & Thompson, offering to put an end to the litigation and let go of the leases. This was described as "excellent news" by the lawyers, who expect the decision to be finalized next week. Scott Kurkoski, a partner at the legal services firm, confirmed the talks with Chesapeake but declined to provide any details. Reuters was unable to extract a comment from Chesapeake.

The oil and gas company has been fighting against the November ruling of the U.S. District Court for the Northern District of New York. The court pronounced then that Chesapeake could not declare force majeure and retain the leases because of the fracking ban in the state: a decision the company has been fighting until now.

RELATED: Natural gas drilling companies sued over fracking wastewater

Many of the leases were signed in 2000 and Chesapeake has been looking to extend them on existing terms, using the force majeure argument. If the company is indeed giving up the legal fight, it means that landowners will be able to strike deals at much higher rates. Chesapeake secured many of its New York leases long before the U.S. fracking boom and the subsequent windfall for landowners.

New York is one of the states through which the Marcellus shale runs. Having a stake in one of the biggest U.S. gas deposits made New York very attractive for energy companies but their hopes were quickly dashed when the state imposed a fracking ban in 2008. Meanwhile, neighboring Pennsylvania, Ohio and West Virginia have become hives of drilling activity.

Chesapeake was among the first drillers to bet big on New York, hoping to reap huge benefits from the Marcellus shale. But just as it was about to start fracking, the state introduced its moratorium to conduct an environmental study. Local authorities want to evaluate the impact of the controversial technique, which involves the release of gas and oil trapped in rock by injecting water and chemicals underground at high pressure. The assessment continues under Governor Andrew Cuomo and it seems highly unlikely that New York will permit fracking before 2014 at the earliest, according to the Reuters article. However, not all have lost hope, says a New York lawyer working with energy companies. Jim Pardo, partner at McDermott Will & Emery, told Reuters that many big oil and gas companies remained interested in developing local shale gas resources. New York continues to be a highly attractive market for most drillers, which is no surprise considering the size of its deposits, Pardo added.