On February 21, 2012, in Anshutz Exploration Corp. v. Town of Dryden, a New York court upheld a municipality’s effort to restrict production of oil and natural gas within city limits. The case arose from the Town of Dryden’s effort to ban horizontal-well fracking by amending a zoning ordinance to prohibit all activities related to exploration for, production and storage of oil and natural gas. Anshutz challenged Dryden’s ordinance, arguing that it was preempted by state law. The court rejected Anshutz’s argument and upheld Dryden’s prohibition on drilling activity, concluding the state “statute governing oil and gas production does not preempt the power of a local government to exercise its zoning power to regulate the districts where gas wells are a permitted use.”

A few days later, on February 24, 2012, a separate New York court upheld a second municipal zoning ordinance prohibiting oil and gas drilling in Cooperstown Holstein Corp. v. Town of Middlefield. Together, the Dryden and Middlefield decisions reinforce the perception of an anti-drilling sentiment resulting from New York’s fracking moratorium in 2010.

Given the persistently low-price environment that natural gas could experience for the next several years, municipal zoning actions like those of Dryden and Middlefield will curtail the flow of capex funds and impede economic growth in those regions. Instead, producers are likely to continue to focus investment in Pennsylvania and West Virginia, which, through legislative and court action, have taken a more reasonable approach to regulation of horizontal drilling.

Read more about Anshutz Exploration Corp. v. Town of Dryden.

Read more about Cooperstown Holstein Corp. v. Town of Middlefield.