ExxonMobil Corp. is declaring force majeure on its leases in New York, citing ongoing permitting delays.
Through its subsidiary XTO Energy Inc., ExxonMobil recently sent letters to landowners in the southern tier of New York explaining that a string of regulatory actions have kept the company from following through on development plans for the area. Because of those delays, XTO said it can't meet its contractual obligations and is extending the terms of its leases.
"Your lease will be extended so long as XTO is prevented from conducting drilling or reworking operations on or from producing oil or gas from the land covered by your oil and gas lease, all pursuant to the terms of your oil and gas lease," the letter read. XTO provided NGI's Shale Daily with a copy of the letter it sent to landowners but declined further comment.
Force majeure is a legal concept excusing a party from contractual obligations due to an act of God or government.
The Deposit Coalition of landowners of Windsor, NY, signed leases with XTO in May and June 2008 for a five-year initial term. That time line is now uncertain, according to Dewey Decker, who organized the coalition and negotiated the leases.
"At this point, it's quite confusing," Decker told NGI's Shale Daily. "It sounds like XTO wants to go back to the time when [former Gov. David] Paterson started the moratorium... It's probably going to end up in some kind of legal situation."
Because the leases in question -- more than 50,000 acres -- are in the New York portion of the Delaware River Basin, XTO needs approval not only from the New York Department of Environmental Conservation (DEC) but also from the Delaware River Basin Commission (DRBC), two agencies that currently have moratoria on natural gas development activities.
The DEC ban dates to an executive order that Paterson signed in July 2008, halting permitting for hydraulic fracturing (hydrofracking) while the state prepared a supplemental generic environmental impact statement. The DEC released a draft of that document in September 2009 and a preliminary revision earlier this month, but the final version, and the permitting guidelines associated with it, isn't expected until later this year at the very earliest (see Shale Daily, July 5).
Decker acknowledged that the process brought about improvements to permitting and development, but he said he believes it's now time for the government to begin issuing permits so landowners can start to get some resolution on their leases.
The DRBC also halted certain drilling activities while it drafted regulations. The DRBC announced those regulations last last year and now must review thousands of comments before it can adopt final rules (see Shale Daily, April 18). "The DRBC seems to be more complicated than the state," Decker said.
In its letter to leaseholders, XTO said it had identified five potential Marcellus Shale drilling locations in the Delaware River Basin and was moving ahead on permitting efforts as best it could, despite the concurrent moratoria.
Concern among landowners about force majeure began late last year as New York state lawmakers sent Paterson a bill that would have temporarily banned hydrofracking in the state (see Shale Daily, Dec. 10, 2010). Paterson vetoed the bill, but those concerns proved well founded.
In short order, Chesapeake Energy Corp and Norse Energy Corp. ASA separately sent thousands of letters to landowners declaring force majeure until the DEC ended its de facto moratorium and began issuing permits for high-volume hydrofracking (see Shale Daily, March 3; Jan. 18). But in April a district court judge ruled that producers may not declare a force majeure because of a moratorium and must still pay property owners to hold leases (see Shale Daily, April 11).