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Frackers Face More Scrutiny in New York

Aug 19, 2011 | Parker Waichman LLP

New York Attorney General Eric Schneiderman is taking on the hydraulic fracturing industry again, apparently opening a probe into methods the drillers use to value their natural gas discoveries.  According to a report from The New York Times, Schneiderman subpoenaed Range Resources Corp., Goodrich Petroleum Corp. and Cabot Oil & Gas Corporation, as part of the probe.  He has also expanded an investigation into a fourth, Chesapeake Energy, and has asked it to respond to similar questions.

The subpoenas seek information on formulas used by the firms to determine how long their wells can be expected to produce gas without new fracking.  Schneiderman also wants to know how the companies calculate their natural gas reserves and how they represent their profitability to investors.

Schneiderman is pursing his investigation under a New York State securities law known as the Martin Act, which allows prosecution without proving intent to defraud.  In June, Schneiderman also made use of the Martin Act when he subpoenaed five natural gas drillers as part of a probe into whether disclosures they made to investors regarding the environmental risks from fracking were accurate.

The New York Times is reporting that this latest probe was launched in response to a series  of articles it published that raised questions about the accuracy of information natural gas drilling firms were giving investors regarding the true costs and profitability of natural gas extraction. New York has a lot at stake here, as it has more than $45 million of its pension money invested with the four companies being targeted by Schneiderman.

Schneiderman is also involved in a legal battle over fracking in the Delaware River Basin, having recently filed a lawsuit against 10 federal agencies to stop the adoption of new drilling regulations that would allow the controversial drilling method in the environmentally sensitive watershed.  The Basin supplies New York City with much of its drinking water, and Schneiderman's lawsuit is seeking to force the Delaware River Basin Commission to conduct a full environmental review before any new regulations are adopted.

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