On August 19, 2015, the U.S. Court of Appeals for the Second Circuit issued a ruling discussing the impact of New York State’s “Fracking Moratorium” on some existing oil and gas leases. The case is Beardslee, et al., v. Inflection Energy, LLC, et al. The Court of Appeals affirmed the district court’s decision to grant a motion for summary judgment filed by a group of landowners located in Tioga County, New York. The district court had concluded that the parties’ five-year oil and gas leases had expired by their terms and that the leases’ force majeure clauses did not extend the leases’ primary terms. It did so despite the energy companies’ arguments that New York Fracking Moratorium amounted to a force majeure automatically extending the term of these leases.
The “habendum clause” of these leases provided for a 5-year primary term and a secondary term lasting as long as the energy companies were producing oil and gas from these leases. Separate and apart from the habendum clause was a force majeure provision stating that if drilling is delayed or interrupted as the result of some government order, the time of such delay “shall not be counted against Lessee, anything in this lease to the contrary notwithstanding.”
Acknowledging that its resolution of the issue required an application of New York law applicable to the interpretation of oil and gas leases, two questions were certified to the new York Court of Appeals: “(1) whether New York’s moratorium on high-volume hydraulic fracturing (commonly known as “fracking”) was a force majeure event under the leases; and (2) whether the force majeure clause modified the leases’ habendum clause and extended their primary terms.” The Court of Appeals responded, and concluded that the force majeure clause does not have the effect the energy companies argued that it did. The Second Circuit was loath to reject or take issue with the New York Court of Appeals’ interpretation of state law: “[W]e will not second-guess the court’s interpretation and application of New York law”.