Waste, Correlative Rights, Greater Ultimate Recovery: A Strikeout

CEDC filed an amicus [friend of the court] brief in the Norse Energy v. Town of Dryden case - and debunked yet another series of bogus arguments made by the frackers in their attempt to frack here, there and everywhere, without any regard for whether or not the people in these communities want to be fracked.

Here in New York, the frackers brought (and ultimately lost) the Dryden case against a town that said "No Fracking." The frackers claimed that the state's Oil, Gas & Solution Mining Law (the "OGSML") gave them the right to go ahead and frack even if a community has said no. Put another way, the Dryden case raised a single but fundamental question: Does the OGSML (state regulation of the oil and gas industry) preempt municipalities from using local municipal authority to enact land use laws prohibiting gas drilling activities within their municipal boundaries (local regulation of land use).

Norse Energy, the fracking plaintiff asserted that the OGSML operated to prevent towns from saying no to fracking because of three public policies that apply to gas drilling operations: waste, greater ultimate recovery and correlative rights. These policies are in the words of their attorney, "the driving force” behind the OGSML, and as such, consideration of these "preeminent" policies is fundamental to the preemption analysis.

“The bottom line is that local [drilling bans] make it impossible for the NYSDEC to comply with, and for New York State to achieve, the objectives of the OGSML and the Interstate Compact of preventing waste, providing for greater ultimate recovery, and protecting correlative rights." Norse's Brief, p. 57-58

While the terms waste, correlative rights, and greater ultimate recovery might sound intimidating, impressive, or at the very least, important, these three concepts (or policies) did not actually provide any support or basis for industry's argument that the drilling industry, particularly in the absence of ongoing drilling operations, should be exempt from complying with the local land use laws that apply to everyone else.

CEDC's amicus brief set forth why the frackers were just wrong about what these policies mean and what they intend to protect in great detail, but for those of you without the time or inclination to read a legal brief, this post will hit the highlights of the contortions industry is willing to go to contort the meaning of a law to advance its 'fracking is so good we should do it everywhere' argument.

The first question we asked was: If these three policies are so important and provide such foundational support for Norse Energy's argument, what sources does Norse cite to support these claims?

Funny you should ask. Because in the combined 132 pages of legal arguments set forth in Norse's Brief and their Reply Brief, there is not even one citation to a judicial decision from any jurisdiction in support of Norse's position that not drilling a well in an oil or gas field that has not been previously developed constitutes ‘waste'; not even one judicial decision from any jurisdiction in support of the meaning of the term ‘greater ultimate recovery' advanced by Norse; and their brief cited only to a single footnote in one judicial decision to support Norse's interpretation of the meaning of the term ‘correlative rights.’

That's right. Industry says waste, correlative rights, and greater ultimate recovery are the three 'preeminent' considerations in the Dryden case, but does little more than cite to a single footnote in a single case to support its reading of one out of the three policies.

Since Norse's brief doesn't go much beyond invoking these purported 'magic words' in its attempt to cast an illusory spell, the next logical step would be to take a look at what these three phrases actually mean.

'Waste' - A Swing and a Miss: Strike One.

Where should we look to find the true meaning of 'waste' in the context of oil and gas production? Attorney West points the way -- we should check out the Interstate Compact to Conserve Oil and Gas, which West describes as “the foundation from which the OGSML arose."

The Interstate Compact to Conserve Oil and Gas (the “IOG Compact”) was formed by oil and gas producing states in 1935 in reaction to a profound crisis in the oil and gas industry caused by overproduction. That's right. The IOG Compact was developed to limit, not increase, oil and gas production.

Overproduction of oil and gas in the 1930's led to a bust so deep and so damaging that the governors of both Oklahoma and Texas called out their state militias to close down production.It soon became apparent that this problem of overproduction was an interstate one which could not be solved by each state acting individually. So in 1935 the oil producing states settled on the idea of using an interstate compact (agreement) to curtail production.

The IOG Compact has one and only one purpose, "to conserve oil and gas by prevention of physical waste thereof from any cause." That's it. There is simply no aspect of the history or purpose of the IOG Compact that supports Norse's contention that not drilling a well in an oil or gas field that has not been previously developed constitutes 'waste.' While drilling too many wells can constitute 'waste,' not drilling a well in an undeveloped field is not 'waste.' Waste is about overproduction, not refraining from producing. Norse has this one backwards.
And that's Strike One. Waste is about restricting production, not about forcing towns to allow fracking.

'Correlative Rights': Foul Ball - Strike Two

Next, let's turn to 'correlative rights.' Norse was apparently of the opinion that the concept of 'correlative rights' somehow involves or perhaps even requires the drilling of as many wells as possible in as many New York communities as is possible.

Yet 'correlative rights' are a rule of limitation - a restriction - on production that imposes upon each landowner a duty - an obligation - to restrict production and drilling operations on her land so as to not injure the common supply in the oil and gas reservoir or to take an undue proportion of the oil and gas obtainable therefrom. Correlative rights are the rights which one owner of a common supply of oil or gas possess in relation to those rights possessed by all the other owners in the same common source of supply.

The term correlative rights "does not conceal some mysterious and bewildering concept. It is a simply doctrine that the owners of rights in a common source of supply may not inflict loss upon one another by conduct which is considered to be socially unacceptable."
Kuntz, The Law of Oil & Gas.

Correlative rights do not create a right to drill - and do not create an obligation to drill - in an oil or gas field that has never been developed. The concept of correlative rights does not in any manner require the drilling of as many wells as possible in as many communities as possible within as many New York municipalities as possible, nor may it accurately be said that correlative rights are somehow not 'protected' unless the industry is allowed to frack anywhere and everywhere.

Correlative rights are often relied upon by regulatory agencies and courts as a justification to limit the number of legal wells and to limit production from a producing well, but correlative rights do not create an obligation or right to drill a well in a field that has never been developed.

Strike Two - Correlative Rights are about your obligation and duty to be fair to others. Correlative Rights are about not about forcing your neighbor to frack.

'Greater Ultimate Recovery': Just Looking - Strike Three

That leaves 'greater ultimate recovery' - are the frackers any more on base with their argument that this policy mandates that communities must allow fracking anywhere and everywhere? Nope.

Turns out that just like 'waste' and 'correlative rights,' 'greater ultimate recovery' also has no place or application in a gas or oil field that is not presently in production. 'Greater ultimate recovery' refers to the concept of avoiding wasteful dissipation of reservoir energy or pressure with respect to a well that is in production. If reservoir energy is not maintained, gas and oil will be stranded in the formation without any "lift" to bring the hydrocarbons to the surface.

Reservoir energy can be wasted or inefficiently dissipated by drilling too many wells within the same pool, overproduction of a particular well or pool, or allowing production to occur too rapidly. There are no cases that require – in the name of promoting greater ultimate recovery, or otherwise – that a well, once drilled, must continue to be operated until every last molecule of oil or gas has been wrung from the ground. The policy of 'greater ultimate recovery' is invoked to limit or restrict production, not to require fracking in unfracked communities.

The frackers struck out trying to use these policies to support their argument that they should be able to frack anywhere and everywhere they'd like. These are all concepts and policies of limitation, not expansion, of drilling operations, and offer no support for the frackers.