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