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Moratorium on Fracking Did Not Extend Oil and Gas Leases Beyond the Primary Five-Year Term

The Court of Appeals, in a full-fledged opinion by Judge Pigott, determined that a “force majeur” clause in oil and gas leases was not triggered by the moratorium on fracking in New York and, therefore, the five-year primary term of the leases was not extended by the moratorium:

Each of the leases contains an identical term clause, also known as a habendum clause, which establishes the primary and definite period during which the energy companies may exercise the drilling rights granted by the leases. Specifically, the leases’ habendum clause provides:

“It is agreed that this lease shall remain in force for a primary term of FIVE (5) years from the date hereof and as long thereafter as the said land is operated by Lessee in the production of oil or gas.”

Under this provision, the interests conveyed by the leases exist for a five-year “primary term,” followed by an open secondary term so long as the land is operated by the lessee in the production of oil or gas.

Each lease also contains what the parties refer to as a “force majeure clause.” Generally, a force majeure event is an event beyond the control of the parties that prevents performance under a contract and may excuse nonperformance … . The force majeure clause here provides:

“If and when drilling or other operations hereunder are delayed or interrupted by lack of water, labor or material, or by fire, storm, flood, war, rebellion, riot, strike, differences with workmen, or failure of carriers to transport or furnish facilities for transportation, or as a result of some order, rule, regulation, requisition or necessity of the government, or as a 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. All express or implied covenants of this lease shall be subject to all Federal and State laws, Executive Orders, Rules or Regulations, and this lease shall not be terminated, in whole or in part, nor Lessee held liable in damages for failure to comply therewith, if compliance is prevented by, or if such failure is the result of any such Law, Order, Rule or Regulation.” * * *

…[W]e hold that the force majeure clause does not modify the primary term of the habendum clause and, therefore, does not extend the leases. The habendum clause in the leases does not incorporate the force majeure clause by reference or contain any language expressly subjecting it to other lease terms … . Moreover, the language in the force majeure clause stating that “the time of such delay or interruption shall not be counted against Lessee” does not refer to the habendum clause with specificity. Thus, the habendum clause is not expressly modified or enlarged by the force majeure clause. Beardslee v Inflection Energy, LLC, 2015 NY Slip Op 02677, CtApp 3-31-15

 

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