By: Brendan O’Regan, Associate

On October 10, 2013, Norse Energy Corp. ASA, and its parent, Norse Energy Holdings, Inc., announced their conversions to Chapter 7 bankruptcy liquidations.[1] Norse Energy’s operations were concentrated on hydraulic fracturing of the Utica Shale (i.e., “fracking” of natural gas resources).[2] Though Norse Energy’s bankruptcy statement was limited to a few lines, its impetus for pulling out of the New York shale gas market was summed up by the Independent Oil & Gas Association of New York’s Executive Director Brad Gill: “The shuttering of Norse’s New York operations is another deeply troubling result of New York’s political indecision regarding the future of natural gas exploration – now in its sixth year.”[3] Norse Energy, among other prospective drilling companies, had run into legal difficulty in beginning its operations—chiefly, in Norse Energy Corporation USA v. Town of Dryden.[4] The company unsuccessfully sought to challenge the Town of Dryden’s local moratorium on fracking (part of New York’s larger 6-year moratorium on fracking), arguing that a state mining law amended in 1981 preempted the local ban.[5] The Supreme Court (New York’s appellate level court) affirmed the Town’s ban.[6] Though the Court of Appeals of New York (the state’s court of last resort) granted review of the Supreme Court’s decision, it has yet to rule on the case.[7] Such inaction and the resulting doubt as to the local ban’s legality underpins Norse Energy’s decision to convert to Chapter 7.

A parallel result for fracking enterprises could be lurking in Pennsylvania. Back in 2012, the Commonwealth Court (an appellate court) in Robinson Township v. Commonwealth held that provisions of Act 13 concentrating local zoning power in the state government (in order to avoid local bans on drilling) were unconstitutional.[8] That decision also included an order enjoining the state’s Public Utility Commission from reviewing municipal zoning ordinances;[9] the PUC then appealed to the state’s Supreme Court. That appeal was quashed.[10] The Supreme Court then heard oral arguments in the Commonwealth’s general appeal of the Commonwealth Court’s July 26, 2012 decision on October 17, 2012.[11] As of November 2, 2013, the Supreme Court had not yet reached a decision.

Moreover, the Commonwealth has petitioned the Supreme Court to rehear its appeal.[12] The basis for this rehearing request is political in nature.[13] The Court normally sits seven judges, consisting of three democrats and three republicans, with a chair appointed by the governor—typically from the same party as the governor.[14] The oral arguments were heard by only 6 justices, which could result in a 3-3 split along party lines.[15] Thus, the state is wary of a tie—a result which would automatically uphold the Commonwealth Court’s ruling on the partial unconstitutionality of Act 13.

This inaction by the Supreme Court is “creating angst for stakeholders in Pennsylvania.”[16] That angst, no doubt, is the uncertainty as to whether localities may ultimately retain control of the zoning process, thereby potentially restricting the ability of fracking enterprises from conducting their drilling operations.

It is, however, unlikely that localities in Pennsylvania—even if they retain their zoning prerogatives—will place bans on natural gas drilling. The reason? Money. Unlike New York, where a moratorium has suffocated any economic potential from the Utica Shale, Pennsylvania has experienced an economic boom from the Marcellus Shale. Public leases for natural gas resources alone were expected to top $600 million by 2020, and the number of new jobs by 2020 was expected to exceed 75,000.[17] Moreover, the impact fees collected through the constitutional portions of Act 13 have resulted in at least $204 million as of 2012, with $108 million going to towns and counties where gas operations are ongoing, and $72 million being shared with the remainder of the state.[18]

Accordingly, regardless of any Supreme Court decision one way or the other on the constitutionality of Act 13’s zoning concentration provision, the decision will likely have little practical effect on the state’s natural gas industry. The more likely outcome—an outcome not considered by other commenators up to this point[19]—is that localities with a significant financial stake in drilling activities will continue to permit those activities, while others who object to drilling will sit on the sidelines, yelling at the rain.