New York's Regulatory Review of Shale Development – Is the End in Sight?

New York State's environmental review of high-volume hydraulic fracturing combined with horizontal drilling – the technology necessary to develop deep shale formations – commenced on July 23, 2008. What followed thereafter has been a more than four year environmental review marked by significant public comment and controversy, a myriad of regulatory documents and a complete halt on shale development in New York. While this process has been inconceivably lengthy and frustrating, the end may actually be in sight.

The New York State Department of Environmental Conservation's ("Department") proposed regulations for high-volume hydraulic fracturing, initially released last fall and published in the State Register on September 28, 2011, were set to expire on November 29, 2012. Expiration would have required the Department to restart the rulemaking process, a prospect that would be lengthy and likely trigger significant public comment, including public hearings. Rather than allowing its proposed regulations to expire, the Department elected to seek a 90-day extension. As part of this continuation of the rulemaking process, on November 29, 2012, the Department released revisions to its draft regulations for high-volume hydraulic fracturing. These revised regulations will be published in the State Register on December 12, 2012, which will commence the required thirty day public comment period that is set to expire on January 11, 2013. Under the Department's rulemaking extension, the proposed regulations must be finalized by the end of February 2013.

A review of the recent regulatory revisions reveals that the Department failed to take much of industry's prior comments and recommended changes into consideration. In addition, the revised regulations are actually more onerous in certain respects and not necessarily with any correlative environmental benefit. Examples include a provision allowing the Department to assess fees to recover its costs associated with preparing the Supplemental Generic Environmental Impact Statement ("SGEIS") as well as additional setbacks and removal of a cap on blanket bonding for operators with multiple wells.

Contemporaneous to the ongoing rulemaking process, the Department is still in the midst of its SGEIS environmental review process being conducted under the State Environmental Quality Review Act. All reports signal that this process is almost complete and currently awaiting to be finalized subject to the New York State Department of Health's review of the Department's public health impact study, a review that is being conducted with the assistance of an independent panel of health consultants. Optimistically, it has been reported that this independent public health review will end the first week of December, enabling the Department to finalize and release the SGEIS shortly thereafter. Issuance of the final SGEIS will commence one final public comment period that must be no less than ten days under state law. It is expected that the standards proposed in the revised regulations will be repeated in the final SGEIS and that the comment period for the final SGEIS may coincide with the already established comment period on the revised regulations.

All of this is positive news as it appears that New York State has finally signaled an end to this four plus year environmental review. Indeed, the process appears close to concluding and it is estimated that the Department will be in a position to start processing and issuing permits for the Marcellus and Utica shales in the Spring of 2013. The only potential hurdle is the expected litigation from the environmental community. And while the legal standards generally favor the State and suggest that the Department will be successful in Court, it is our full expectation that the environmental community will seek a stay of permitting from the Court during the course of the litigation. Delay has always been part of their strategy.

In conclusion, all signs indicate that New York State is finally ready to proceed with shale development. Current timelines based on statutory requirements suggest that the final SGEIS and associated regulations may be finalized as early as the Spring, 2013. And while development is expected to be slow in the beginning as the Department processes permit applications under permitting requirements and standards that far exceed anything we have seen in New York to date, one outstanding question as to timing will be the impact of the anticipated litigation.