On August 19, 2015, the
U.S. Court of Appeals for the Second Circuit affirmed
a lower court ruling that the force majeure clause contained in different oil
and gas leases at issue in Tioga County, New York, did not modify the habendum
clauses under New York law.
Plaintiffs entered into
different oil and gas leases with three energy companies in 2001. Each of the
leases contained a five-year primary term with a secondary term lasting as long
as the leases were maintained by production. Each lease also contained an
identical force majeure clause providing that “if and when drilling . . . [is]
delayed or interrupted . . . as a result of some order, rule, regulation . . .
or necessity of the government, or as the result of some order, rule,
regulation . . . or necessity of the government, or as the result of any other
cause whatsoever beyond the control of Lessee, the time of such delay or
interruption shall not be counted against Lessee, anything in this lease to the
contrary notwithstanding.”
Former New York
Governor David Patterson, in 2010, instructed the Department of Environmental
Conservation to revise the Supplemental Generic Environmental Impact Statement
while suspending the issuance of any high-volume hydraulic fracturing (HVHF)
permits. As a consequence, the energy companies were required to suspend their
drilling operations. Plaintiffs filed a lawsuit before the U.S. District Court
for the Northern District of New York against the energy companies seeking a
declaration that the leases had terminated by their own terms.
Defendants contended
that the force majeure clause, triggered by New York State’s de facto moratorium on hydraulic
fracturing extended the leases’ primary term. The U.S. District Court concluded
that the oil and gas leases at issue had expired by their own terms and that
the force majeure clause did not extend the leases’ primary term. Defendant
appealed the District Court’s decision before the U.S. Court of Appeals for the
Second Circuit.
To determine if the
force majeure clause could extend the leases, the Court of Appeals considered
whether the force majeure clause modified the leases’ habendum clauses and
extended their primary terms.
The Court concluded
that the force majeure clause “does not conflict with the provisions of the
primary term of the habendum clause” and so has no bearing on that term.” Thus,
the leases expired on their own terms regardless of whether New York moratorium
on HVHF was considered to be a force majeure event under the lease.
Written by Chloe Marie - Research Fellow
08/20/2015
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