Northeast Natural Energy (NNE) has filed suit in circuit court against the City of Morgantown, WV, to prevent the city from enforcing its new ordinance banning hydraulic fracturing (fracking).
The Charleston, WV-based company filed paperwork in Monongalia County Circuit Court on Thursday, two days after the Morgantown City Council passed a fracking ban within the city and an adjacent one-mile buffer zone. NNE is drilling two Marcellus Shale natural gas wells in the Morgantown Industrial Park, which is in the buffer zone.
"It's very unfortunate that it came to this, where we had to go to court," NNE spokesman Brett Loflin told NGI's Shale Daily on Monday. "But the regulatory agencies that deal with oil and gas drilling and development is the West Virginia Department of Environmental Protection [DEP], [its] Office of Oil and Gas, and several other state and federal agencies. The City of Morgantown has stepped outside their authority."
According to the complaint, NNE is seeking a temporary restraining order that would forbid the city from enforcing the ordinance, and a declaration that the ordinance preempts state law. The company has retained attorneys from the Morgantown office of Spilman, Thomas & Battle PLLC.
Asked if the latter was designed to prevent other West Virginia municipalities from enacting similar ordinances, Loflin said, "I could only assume that if we were successful in getting the ordinance overturned in Morgantown, it certainly would set type of precedent to make it easier for other companies if they had been affected."
Morgantown officials contend that the West Virginia Code -- specifically Section 8:12:19, also known as "Extraterritorial Exercise of Powers and Authority" -- gives them the power to enact legislation covering a one-mile buffer zone around the city. NNE disputes this.
"Simply put, Morgantown is impermissibly reaching out beyond its borders to regulate oil and gas activities that are exclusively regulated by the state," the complaint said. "In so doing it is unlawfully 'taking' the property rights of everyone with an interest in Marcellus Shale natural gas in the area without any compensation whatsoever."
The complaint also seeks "tens of millions of dollars in compensation," but Loflin emphasized the company was not seeking punitive damages at this time.
"If the ordinance is upheld, if we lose our challenge to the constitutionality of the ordinance, in our view the city is going to have to pay us tens of millions of dollars for an unjust takings claim," James Walls, one of the attorneys representing NNE, told NGI's Shale Daily on Monday. He added that Enrout Properties LLC -- which owns the surface and mineral rights at the industrial park where NNE is drilling the wells -- has joined the lawsuit.
"I've heard a lot of rumblings about other royalty owners in the area suing the city," Walls said. "But I'm not aware of anybody that has the immediate harm to face [like NNE]. I don't think there any other permitted wells out there that are in the position we're in."
In an affidavit, NNE President Michael John said the company had already spent more than $7 million developing the two wells at about $85,000 a day. John said the project had a net present value of about $42 million.
"Despite the fact that the ordinance will totally deprive [NNE] of its property rights, Morgantown has no intention of compensating [NNE]," the complaint said. "The ordinance is unconstitutional and unlawful."
Loflin added "tens of millions of dollars could conceivably be lost if we cannot frack the two wells that we already have permitted," but he added that the company had not discussed the idea of seeking punitive damages.
John said the company planned to begin fracking the wells in August. DEP granted permits for the wells in March 2011.
City and company officials both hinted that a legal battle between the two was coming (see Shale Daily, June 21; June 10). Meanwhile, West Virginia Gov. Earl Ray Tomblin urged city officials to confine its governance within city limits, and DEP Secretary Randy Huffman said it was unlikely that the state would issue a stop work order against NNE (see Shale Daily, June 23; June 6).