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February 15, 2011

Update on the Status of Marcellus Shale Development in New York

In 2010, the State of New York made few strides towards the future development of the Marcellus Shale gas formation in the lower tier of the State. As discussed below, the New York State Department of Environmental Conservation ("DEC") must issue its final Supplemental Generic Environmental Impact Statement ("SGEIS") before permits can be issued to develop gas wells in the Marcellus Shale formation. Although the DEC issued several documents in 2009 towards this goal, the process largely came to a halt in 2010, with no documents being issued that year. In 2010, the New York State Legislature sought to enact legislation establishing a moratorium on hydraulic fracturing until May 15, 2011; the bill, however, was vetoed by former-Governor Paterson. Instead, former-Governor Paterson decided to proceed with an Executive Order to direct further review by the DEC, establishing deadlines and requiring public comment on the SGEIS.

Generally, in New York, actions that require a permit from the DEC must comply with the State Environmental Quality Review Act ("SEQRA"). Such compliance typically requires the filing of information on specific environmental impacts from the action and, in some situations, SEQRA requires an environmental impact statement, or EIS, to be completed by a project sponsor. In certain instances, however, the DEC has issued Generic Environmental Impact Statements ("GEIS") that cover similar actions that will have a generic or common impact. In such instances, no further SEQRA compliance is required if the proposed action fits within the scope of the applicable GEIS.

In 1992, the DEC issued a GEIS for oil and gas drilling in New York State, finding that such actions do not have a significant environmental impact. Applicants for a drilling permit that satisfy the terms of the GEIS are not required to undergo individual environmental review. The oil and gas drilling GEIS, however, has been declared by the DEC to not apply to hydraulic fracturing of the Marcellus Shale, a practice used by developers to extract gas that generally involves large volumes of water and fracking fluid. Instead, since 2008, the DEC has been in the process of drafting a SGEIS to specifically cover hydraulic fracturing.

In October 2008, the DEC issued a public scoping document, requesting public comments on the issues that should be addressed in the SGEIS. The request received more than 3,000 public comments. On February 6, 2009, the DEC issued its Final Scope, which outlined the issues to be addressed in the SGEIS, including water withdrawal, water quality impacts, composition of hydraulic fracturing fluids, and waste disposal. Thereafter, on September 20, 2009, after a delay of several months, the DEC released the draft SGEIS. Public comments on the draft SGEIS ended on December 31, 2009. It was anticipated that a final SGEIS would be issued in 2010, but no such document was released, and the DEC has not yet provided an anticipated date for its issuance.

Although there was a void of regulatory action in 2010, in August and November 2010, the New York State Senate and Assembly, respectively, overwhelmingly approved a moratorium on horizontal fracturing drilling permits in the Marcellus Shale until May 15, 2011. See S.B. 08129B. On December 11, 2010, however, former-Governor Paterson vetoed the moratorium that would have halted all natural gas drilling in New York State. Instead, he issued Executive Order No. 41 that requires a more comprehensive review by the DEC of the public comments previously received on the Draft SGEIS in 2009. The Executive Order requires that "on or about June 1, 2011" the DEC must publish a Revised Draft SGEIS, accept public comments on the revisions, and may schedule public hearings on the draft. The Executive Order further requires the DEC, prior to the completion of the Final SGEIS, to report to the Governor on the status of the Final SGEIS and "the regulatory conditions that are necessary to include in oil and gas well permits to protect public health and the environment." Thus, although former-Governor Paterson vetoed the bill that would have created a moratorium on drilling, his Executive Order created a de facto moratorium because permits for drilling cannot be issued until the DEC issues its final SGEIS.

The current administration under Governor Cuomo has not yet taken a hard line on the development of gas reserves in the Marcellus Shale. Governor Cuomo has publicly stated that, although he wants the economic development associated with gas drilling, he wants it done safely and with "all of the facts." It remains to be seen whether Governor Cuomo will enforce Executive Order 41. If he does, a Final SGEIS is not likely to be issued until at least the second half of 2011. In either event, the SGEIS process will continue with the DEC. On February 8, 2011, the acting DEC Commissioner, Joe Martens, announced publicly that he expects the DEC to issue its Revised Draft SGEIS in June, 2011. The Revised Draft SGEIS will then be subject to another 30-day comment period before a Final SGEIS is issued.

We will continue to provide updates on the status of the legislative and regulatory developments in the gas drilling industry in New York State as they occur.

If you have any questions or require our assistance in reviewing your policies or conducting management training, please contact the Hiscock & Barclay lawyer with whom you normally work or any attorney in our Environmental practice area.


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