XTO Energy (ExxonMobil) Invokes Force Majeure Clause in Contract with Deposit (NY) Landowner Coalition

In 2008, the Deposit (NY) Landowner Coalition, with some 500 members, signed the first large scale leasing deal in New York’s Southern Tier region. The least was signed with XTO Energy which has subsequently been bought by ExxonMobil. The deal gave landowners $2,411 up front for leasing, and a 15 percent royalty when drilling begins. The lease payments made headlines around the country in a deal worth $110 million. The original lease was for five years.

The problem is, the drilling never began due to a moratorium in New York State and a moratorium from the Delaware River Basin Commission (DRBC) which oversees drilling within the areas it oversees in the Delaware River watershed area. The New York moratorium will finally end later this year, but there’s no signs (yet) that the DRBC will start granting permits to drill in its region any time soon. So XTO (now ExxonMobil) has sent out notices to all of the Deposit Coalition landowners that they are extending the lease for an unspecified amount of time because of the moratoriums, claiming there will not be enough time left in the five year lease to commence drilling.

In the three-page force majeure letter sent to landowners last week, XTO cited the bans as an unpredicted and uncontrollable event that it said provides legal justification for the extension of the leases.

" …These unforeseen events constitute a force majeure event, as executive orders and other governmental regulatory action beyond XTO’s control have delayed the process for obtaining permits required to produce gas from the property under the lease," the letter states.

"Your lease will be extended so long as XTO is prevented from conducting drilling or reworking operations on or from producing oil or gas from the land covered by your oil and gas lease," it adds.*

Dewey Decker led the Deposit Coalition in 2008 when they signed with XTO, and he’s fielding questions now from members about the letters:

Decker noted the letter doesn’t specify a time period for the extension, or indicate when the extension begins. He said he’s seeking more information from the company before landowners decide how to go forward.

"The only thing that’s clear is that they’re going to try to use force majeure," Decker said. "And naturally, I’m getting calls from everybody that everybody’s upset. And I can understand it."*

More on this story as it develops.

*Elmira Star-Gazette (Jul 10, 2011) – Gas firm wants to extend Southern Tier leases