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What Western States Can Learn From Regulatory Chaos: New York and the Oil and Gas Industry

This year New York’s highest court issued a troubling decision that serves to promote a fractured and inefficient regulatory scheme for oil and gas regulation, management and production. In Wallach v. Town of Dryden, the Court of Appeals ruled that the Oil, Gas and Solution Mining Law (OGSML) of New York—a law designed to create a uniform regulatory statewide framework for the oil and gas industry—did not preempt local laws that prohibit oil and gas production within municipal boundaries. The court made this ruling despite the OGSML’s “supersession clause”, the roots of which date back to a 1935 multi-state agreement. In 1981, the New York State Legislature adopted the supersession clause.

 

Since 1981, New York’s OGSML state statute is intended to supersede “all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries.” But not so, said the Court. The Court reasoned that local zoning regulations, which may outright prohibit “oil, gas, and solution mining” within a local government’s borders, do not fit under the wide umbrella the supersession clause casts. The Court held that local zoning laws do not regulate oil, gas and solution mining industries per se—these local laws only regulate how land can be used. The Court opined that if the New York legislature wanted to prohibit local governments from zoning out the oil and gas industry, the legislature should have ‘stated’ it in the supersession clause.

 

So why is this decision “troubling”? Two reasons: (1) the Court essentially upheld the right of municipalities to circumvent a uniform, statewide law under the principle of zoning; and (2) instead of having a uniform state standard, the result creates a regulatory checker-boarded nightmare for an interested party, requiring the navigation of particular “zoning” laws among New York’s 932 towns.

 

The Oil, Gas and Solution Mining Law comprises a body of laws the State of New York enacted to regulate the oil and gas industry. These laws were intended to supersede “all laws . . . relating to” oil and gas regulation. A municipality creating an ordinance preventing oil, gas and solution mining is at odds with the supersession clause. A zoning ordinance or regulation fits within the all-encompassing classification of “all laws”, and zoning-out oil and gas production possibilities within a municipality certainly “relate[s] to” the regulation of the industry. Yet, the Court excludes zoning laws from those laws covered by the supersession clause. Local Governments in New York used this argument to successfully overcome the supersession clause, although it was originally designed to employ a uniform approach to oil and gas regulation in the state. What other unintended exceptions to the rules lie ahead?

 

The result of the ruling frustrates the uniform regulatory purpose of OGSML and creates an unnecessary patchwork of municipal “zoning” regulations pertaining the oil and gas regulations. Predictability in oil and gas development regulations is not obtained by multiple and overlapping oil and gas laws created by the state as well as local governments. The state’s Department of Environmental Conservation mineral resources staff was created to deal with oil and gas regulatory issues. Instead of looking to one regulating body, those in New York’s environmental, business, and oil and gas industries must now arguably look to 932 different sets of laws. Oil and gas is not found perfectly boundaried beneath certain legally established plots of town, city, and municipal land. Pools sprawl through different veins in a labyrinth beneath the surface. To what end do these different municipal zoning laws regulate one portion of a particular oil or gas reserve that falls within a particular municipal boundary while the other portion of the pool falls into a different boundary? It may be one contiguous oil and gas reserve, but its regulation is split among multiple municipal and state regulated boundaries. Why allow this result when a uniform standard applied by OGSML exists?

 

The Court left one possible solution to this regulatory nightmare. Since the Court’s reasoning is based on the fact that the supersession clause did not explicitly prohibit municipal zoning laws from excluding oil and gas production within municipal borders, the New York State Legislature could clear up the confusion by adopting language “including land use laws such as zoning” within the supersession clause. This language may bring back order to this complicated regulatory scheme. Until then, let the chaos ensue.

 

 

David Ganje of Ganje Law Offices practices natural resources, environmental and commercial law in North Dakota and South Dakota.