On January 20, 2011 New York State Governor Cuomo continued Executive Order No. 41 which required the New York Department of Environmental Conservation (DEC) to publish a Revised Draft Supplemental Generic Environmental Impact Statement (SGEIS) on or about June 1, 2011 and to accept public comments for at least 30 days. The Executive Order (which was placed into effect by former Governor Paterson) resulted in a moratorium in New York State on the hydraulic fracturing of shale, a technique used by the oil and gas industry to extract natural gas from the Marcellus Shale formation underlying New York as well as Pennsylvania, Ohio, and West Virginia.

On July 1, 2011, the Cuomo Administration decided to lift the moratorium on high-volume hydraulic fracturing with the issuance of the Preliminary Revised 2011 SGEIS which incorporates environmental requirements and recommendations that the oil and gas industry must follow in connection with shale development. The SGEIS has been deemed "preliminary" because the document omits several areas of analysis that are undergoing agency review and which will be incorporated into the revised draft. The purpose of the SGEIS is to mitigate potential and actual environmental impacts associated with hydraulic fracturing. According to DEC Commissioner Joseph Martens, "This report strikes the right balance between protecting our environment, watersheds and drinking water and promoting economic development." There will be a 60-day public comment period beginning in August and there will be no permits issued until the public comments are evaluated and the final SGEIS is issued.

The Revised SGEIS incorporates the following changes, among others, to the 2009 draft SGEIS:

  • high-volume fracturing will be prohibited in the New York City and Syracuse watersheds;
  • drilling will be prohibited within primary aquifers;
  • surface drilling will be prohibited on State-owned land including parks, forest areas, and wildlife management areas;
  • high-volume fracturing will be permitted on privately held lands under strict controls; and
  • DEC will issue regulations to codify these recommendations into State law.

Contrary to DEC's determination, the oil and gas industry believes drilling in the watersheds and state-owned lands should be authorized especially given the environmental requirements that will be incorporated into regulations following issuance of the final SGEIS.

The DEC Commissioner also announced on July 1 the members of the "High-Volume Hydraulic Fracturing Advisory Panel" that will be responsible for developing recommendations to:

  1. insure that DEC and other agencies are able to monitor shale development;
  2. mitigate impacts to local communities; and
  3. evaluate the current fee structure and other revenue streams to fund Government oversight and to pay for the infrastructure required for shale gas development.

In June 2011 the DEC Commissioner and several DEC staff members toured Bradford County, Pennsylvania in an effort to determine the cause of a Marcellus Shale blowout which resulted in a release of drilling fluids. The DEC group also conducted a study of other environmental considerations associated with shale gas development in Pennsylvania in an effort to understand what mitigating actions should be undertaken in New York State to protect the environment. As a result of this DEC insight into Pennsylvania's experience with Marcellus Shale development, various recommendations were included in the 2011 SGEIS related to well pad construction, well casing design, blowout prevention equipment and the treatment of wastewater from shale operations.

Despite New York's decision to move forward with shale development, there is an outstanding lawsuit filed by New York Attorney General Eric T. Schneiderman against several federal agencies affiliated with the Delaware River Basin Commission (DRBC) based upon his contention that a federal environmental impact statement must be prepared under the National Environmental Policy Act before the DRBC can issue its final regulations on hydraulic fracturing. It remains unclear as to what impact, if any, the lawsuit will have on the industry's ability to proceed with shale development once the DEC regulations are issued in 2012.

Governor Cuomo's decision to allow development to proceed is extremely important to the oil and gas industry given that there is a significant potential for shale gas in New York State and the fact that the development opportunities have been effectively banned for several years. Notwithstanding the Governor's decision, however, there is a question as to whether New York can legally prohibit development in certain areas through the auspices of the State Environmental Quality Review Act, a procedural statute designed to evaluate environmental impacts associated with state actions which may have a significant effect on the environment, without enacting legislation or without proposing a rule subject to public review and comment. Also, subject to question is whether the state prohibitions in certain privately owned areas are, in fact, a "taking" of mineral rights without just compensation.

As is apparent, the Revised SGEIS will face additional public scrutiny during the public comment period, and perhaps, a legal challenge from environmental groups opposed to shale development or landowners concerned about the limitations imposed on their mineral rights. Whatever the results may be-the decision to allow shale development in New York State-is a significant development for the industry and for the economically depressed Southern Tier.