On February 21, 2012, a New York state court issued an order upholding a local ordinance banning all activities related to the exploration for, and production or storage of, natural gas and petroleum in the Town of Dryden, New York.

In a case of first impression, the court in Anschutz Exploration Corp. v. Town of Dryden held that New York State’s Oil, Gas and Solution Mining Law (“OGSML”) did not preempt local zoning authority.

The petitioner-plaintiff, Anschutz Exploration (“Anschutz”), owns gas leases covering approximately 22,200 acres in the town of Dryden in upstate New York.

On August 2, 2011, the town of Dryden amended its Zoning Ordinance to “ban all activities related to the exploration for, and production or storage of, natural gas and petroleum,” which effectively banned all hydraulic fracturing in the area.

Anschutz then filed a declaratory judgment action seeking invalidation of the zoning amendment on the ground that it was preempted by the OGSML.

The court ruled in favor of the town, holding that the legislative intent of OGSML was not to preempt local zoning authority.  Instead, the purpose of OGSML is to “regulate any development or production of such resources which may occur in a manner that prevents waste, permits greater ultimate recovery of oil and gas, and protects the correlative rights of all persons.”

On February 24, 2012, a second New York state court upheld a local ban on natural gas drilling.  In Cooperstown Holstein Corp. v. Town of Middlefield, Judge Donald F. Cerio, Jr. upheld the New York Town of Middlefield’s local zoning law, implemented on June 14, 2011, which “effectively banned oil and gas drilling within the geographical borders of the township.” Cooperstown Holstein Corp. v. Town of Middlefield, No. 2011-0930 (N.Y. Sup. Ct. Feb. 24, 2012).

The Plaintiff, Cooperstown Holstein, claimed that the New York State Environmental Conservation Law (“ECL”) preempts local authorities from enforcing regulations relating to the regulation of gas, oil and solution drilling or mining due to its plain language, which states:

the provisions of this article shall supercede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supercede local government jurisdiction over local roads or the rights of local governments under the real property law.”

The court looked to the legislative intent and history of the clause to determine that it “does not serve to preempt a local municipality such as defendant from enacting land use regulation within the confines of its geographical jurisdiction and, as such, local municipalities are permitted to permit or prohibit oil, gas and solution mining or drilling on conformity with such constitutional and statutory authority.”

Both decisions are expected to be appealed.

New York’s Department ofEnvironmental Conservation, which recently issued a 1,500-page report and set of draft regulations, is currently reviewing comments on those proposed new regulations, and the final rule on hydraulic fracturing could be released as soon as the end of the year.

New York has had a moratorium on hydraulic fracturing and horizontal gas drilling permits since 2008.

This article was prepared by Heather M. Corken (hcorken@fulbright.com or 713 651 8386) and Kristen Roche (kroche@fulbright.comor 713 651 5303) from Fulbright’s Environmental Law Practice Group.