FOIL Appeal Determination for 06-11-0A (Thomas S. West)
September 19, 2007
New York State Department of Environmental Conservation
Office of Hearings and Mediation Services, 14th Floor
625 Broadway, Albany, New York 12233-1010
Phone: (518) 402-8537 • FAX: (518) 402-9037
September 19, 2007
RETURN RECEIPT REQUESTED
Thomas S. West, Esq.
The West Firm
677 Broadway, 8th Floor
Albany, New York 12207-2990
Re: Fortuna Energy Inc. (Mayes 1, Stuart 1, Little 1, Frost 1), FOIL Appeal No. 06-11-0A
Fortuna Energy Inc. (Winter G 1, Elliot G 1, Shipman D 1), FOIL Appeal No. 06-18-0A
Fortuna Energy Inc. (Congdon 1), FOIL Appeal No. 06-19-0A, filed June 13, 2006
Fortuna Energy Inc. (Dzybon 1), FOIL Appeal No. 06-21-0A, filed September 12, 2006
Chesapeake Appalachia, LLC (Byrne 4, Richards Farms 11), FOIL Appeal No. 06-28-0A
Fortuna Energy Inc. (DiFasi 1, Pietilla 1), FOIL Appeal No. 06-33-0A
Chesapeake Appalachia, LLC (Duddleston 1, Rumsey 1), FOIL Appeal No. 07-03-0A
Fortuna Energy Inc. (Beach 1, Lucas 1), FOIL Appeal No. 07-06-0A
Fortuna Energy Inc. (Conden M1), FOIL Appeal No. 07-07-0A
Fortuna Energy, Inc. (Winkky R#1), FOIL Appeal No. 07-15-0A
Dear Mr. West:
This is in response to the above-referenced appeals of Fortuna Energy Inc. and Chesapeake Appalachia, LLC, pursuant to the Freedom of Information Law ("FOIL"), from the decisions of Department staff denying requests for confidentiality of ownership and cost tabulations for spacing units for various wells and, accordingly, allowing for the release of that information prior to integration hearings held pursuant to section 23-0901 of the Environmental Conservation Law ("ECL").
All of the above-referenced appeals were assigned to Administrative Law Judge ("ALJ") Richard R. Wissler of the Office of Hearings and Mediation Services of the New York State Department of Environmental Conservation ("Department"). Fortuna Energy Inc. and Cheseapeake Appalachia, LLC asserted that ownership and, in some cases, cost tabulation information should be exempt from disclosure prior to the integration hearing on the following grounds:
(2) pursuant to POL § 87(2)(d), because the information constitutes trade secrets or would cause substantial injury to the competitive position of the well operator if disclosed;
(3) pursuant to the confidentiality mandates of ECL 23-0313(1)(a);
(4) because non-disclosure has been the past practice of the Department; and
(5) because such disclosure is procedurally improper pursuant to the State Administrative Procedure Act ("SAPA").
ALJ Wissler extensively reviewed the applicable legal authorities relevant to the issues raised on appeal and prepared a recommend decision that addressed the various contentions. In the recommended decision, a copy of which is attached, the ALJ recommends affirming Department staff's determination that the ownership and cost tabulations information are not exempt from disclosure and should be released. James T. McClymonds, the Chief Administrative Law Judge of the Office of Hearings and Mediation Services, was also substantially involved in the consideration of these appeals and contributed to the legal analysis.
As you know, article 23 of the ECL with respect to oil and gas well spacing and compulsory integration was amended in 2005. The following year the Department issued a program policy that provided guidance to the law's implementation (see DMN-1: Public Hearing Processes for Oil and Gas Well Spacing and Compulsory Integration issued February 22, 2006). As the ALJ indicated in the recommended decision, the amendments to ECL 23-0901, which allow non-operator owners the right to choose the manner in which they will be integrated in a spacing unit, provided options among which non-operator owners could elect. The intent of the statutory language, as the ALJ discusses, was to facilitate access to information for non-owner operators in order to make informed decisions in selecting the option most suitable to their respective interests. Based on the ALJ's review, the exemptions to disclosure pursuant to FOIL, relating to unwarranted invasions of personal privacy, trade secrets or commercial enterprise information, do not support withholding ownership and cost tabulation information.
The ALJ also considered whether ownership and cost tabulation information should be exempt from disclosure pursuant to the provisions of ECL 23-0313(1)(a) and the State Administrative Procedure Act, in addition to past practice of the Department. He concluded that neither the statutory language nor past practice would serve as a basis for withholding such information.
In addition to considering the recommended decision, I have conducted an independent review of the appeals that have been filed, the arguments presented, and the legal authorities cited. Based on that review and consideration, I hereby adopt ALJ Wissler's recommended decision as my FOIL appeal determination with respect to the above-referenced appeals.2 Accordingly, the ownership and costs tabulations for spacing units for various wells shall be released prior to integration hearings held pursuant to section 23-0901 of the Environmental Conservation Law ("ECL").
On September 7, 2007, Cheseapeake Appalachia LLC ("Cheseapeake") filed an appeal from the determination of Department staff to release ownership and cost tabulations for the Gray 1, Usack 1 and Walters 1A wells (which has been designated as FOIL Appeal No. 07-35-0A). Cheseapeake, in its submission, stated that the issues relating to pre-integration hearing release of the ownership tabulations for the spacing units relative to these wells "raises all of the issues enumerated in the papers already submitted" in Chesapeake (Byrne 4, Richards Farms 1), FOIL Appeal No. 06-28-0A, and Chesapeake (Duddleston 1, Rumsey 1), FOIL Appeal No. 07-03-0A, referenced above. It further requested that its appeal regarding the Gray 1, Walters 1A and Usack 1 Wells be considered in the context of the previous appeals.
In light of Cheseapeake's request, I have considered Cheseapeake's most recent appeal in the context of the previous appeals. Based on the reasoning in the recommended decision and this FOIL appeal determination letter, I have determined that the ownership and cost tabulation information relating to the Gray 1, Usack 1 and Walters 1A wells is also not exempt from disclosure.
The determination in this FOIL appeal letter that the ownership and cost tabulation information is not exempt from disclosure prior to an integration hearing shall serve as precedent for the Division of Mineral Resources in future matters where these issues may be raised.
This letter is the final determination of the New York State Department of Environmental Conservation with respect to the above-referenced appeals. You have the right to seek review of this determination pursuant to Article 78 of the Civil Practice Law and Rules and Public Officers Law § 89(4)(b).
Because these appeals address issues relating to claims of confidential business information, pursuant to POL § 89(5)(d) and section 616.7(d)(2) of title 6 of the Official Compilation of Codes, Rules and Regulations of the State of New York, the Department will hold any information which has not been previously released for a period of fifteen days following the service of this determination letter or the date of the integration hearing, whichever is earlier ("holding period"). Following the holding period, and assuming no restraining order (see id.), the information will be made available.
Louis A. Alexander
cc: Ruth Earl, Records Access Officer
Robert Freeman, Executive Director
Committee on Open Government
Jennifer Hairie, Esq., Office of General Counsel
James T. McClymonds, Chief Administrative Law Judge
Cindy M. Monaco, Esq., The West Firm
Richard R. Wissler, Administrative Law Judge
1 Cheseapeake Appalachia, LLC, in its subsequent submissions, also referred to Richard Farms 2 Well.
2 Technically, Fortuna Energy Inc. and Cheseapake Appalachia, LLC's requests to maintain pre-integration hearing confidentiality of the ownership and cost tabulations have been rendered moot with the conduct of the integration hearings in those matters. However, I conclude that these cases fall within the well-recognized exception to the mootness doctrine (see Matter of Village of Hudson Falls v. New York State Dept. of Envtl. Conservation, 158 AD2d 24, 28-29 [3d Dep't 1990], aff'd for the reasons stated below, 77 NY2d 983 ; Matter of Hearst Corp. v. Clyne, 50 NY2d 707, 714-715 ). The pre-integration confidentiality of owner-ship and cost tabulations is a novel and substantial issue that is likely to recur but would typically evade administrative appellate review, particularly given the short time frame between the notice and the deadline for making an election (see ECL 23-0901 [c]).
New York State Department of Environmental Conservation
Office of Hearings and Mediation Services, 1st Floor
625 Broadway, Albany, New York 12233-1550
Phone: (518) 402-9003 • FAX: (518) 402-9037
To: Louis A. Alexander, Assistant Commissioner for Hearings
From: ALJ Richard R. Wissler
Subject: Response to West FOIL Appeals
Date: March 29, 2007
At present, the following is the list of pending appeals filed by Thomas S. West, Esq., on behalf of certain well operators:
Fortuna Energy Inc. (Mayes 1, Stuart 1, Little 1, Frost 1), FOIL Appeal No. 06-11-0A, filed May 18, 2006, TDS Code 61826
Fortuna Energy Inc. (Winter G 1, Elliot G 1, Shipman D 1), FOIL Appeal No. 06-18-0A, filed August 10, 2006, TDS Code 62016
Fortuna Energy Inc. (Congdon 1), FOIL Appeal No. 06-19-0A, filed June 13, 2006, TDS Code 62017
Fortuna Energy Inc. (Dzybon 1), FOIL Appeal No. 06-21-0A, filed September 12, 2006, TDS Code 62095
Chesapeake Appalachia, LLC (Byrne 4, Richards Farms 2), FOIL Appeal No. 06-28-0A, filed November 1, 2006, TDS Code 62203
Fortuna Energy Inc. (DiFasi 1, Pietilla 1), FOIL Appeal No. 06-33-0A, filed December 18, 2006, TDS Code 62348
Chesapeake Appalachia, LLC (Duddleston 1, Rumsey 1), FOIL Appeal No. 07-03-0A, filed January 17, 2007, TDS Code 62422
Fortuna Energy Inc. (Beach 1, Lucas 1), FOIL Appeal No. 07-06-0A, filed January 29, 2007, TDS Code 62449
Fortuna Energy Inc. (Conden M1), FOIL Appeal No. 07-07-0A, filed February 6, 2007, TDS Code 62475
Fortuna Energy, Inc. (Winkky R#1), FOIL Appeal No. 07-15-0A, filed March 14, 2007, TDS Code 62563
This recommended decision has been prepared in response to the appeals in the above captioned matters of a determination, in each case, by the Division of Mineral Resources denying the well operator's request to exempt from disclosure the ownership and, in some cases, the cost tabulations for the respective gas well for which a permit to drill has been issued, prior to any integration hearing held pursuant to ECL 23-0901. For the reasons set forth herein, I recommend that the determination of Staff in each case be affirmed.
The factual history of each the matters is similar. In each case, the well operator who controlled by agreement or lease at least sixty percent, but not one hundred percent, of the parcels comprising a particular individual spacing unit, required an order of the Department integrating the interests of owners within that spacing unit, pursuant to ECL 23-0901.
In each case, pursuant to ECL 23-0901(3)(b), the Department scheduled an integration hearing, so advising the well operator by letter. The Department's letter scheduling the hearing, pursuant to ECL 23-0901(3)(c) and in accordance with the Department's Program Policy DMN-1, Public Hearing Processes for Oil and Gas Well Spacing and Compulsory Integration, directed the well operator to provide notice of the particular integration hearing to each uncontrolled owner whose parcels were wholly or partially within the spacing unit for that proposed gas well. The Department's letter included the form notice of hearing to be sent to each such uncontrolled owner. The letter also directed the well operator to provide each uncontrolled owner (1) a Compulsory Integration Election Form (Department form 06-1-1), which included the estimated cost for that owner's participation in the respective well, due and payable to the well operator by the date of the integration hearing; (2) an Authorization for Expenditure (AFE) which detailed the estimated costs to drill, complete and plug the well, including a fixed rate charge for supervision of the activities listed in ECL 23-0901(3)(a)(5); (3) a copy of the draft integration order for the particular well, as provided by the Department; (4) a copy of the spacing unit map, which is Exhibit A to the Department's draft integration order; and (5) a copy of the ownership tabulation which formed the basis of the well operator's distribution list for the draft order and which is Exhibit B to the draft integration order. With respect to the aforementioned item (5), although the draft order of integration itself already referenced the tabulation as Exhibit B, Department staff, in May 2006, amended the cover letter sent to well operators to include a specific instruction to operators to provide the tabulation to uncontrolled owners. The well operator, in each case, maintaining that such ownership tabulations were confidential, did not annex them as an exhibit to the proposed order of integration. However, in accordance with ECL 23-0901(3)(c), the well operator provided the Division of Mineral Resources with the ownership as well as the cost tabulations for each of the respective spacing units.
In each case, by letter addressed to the Division of Mineral Resources, the well operator sought to have the ownership tabulations, and in some cases, the cost tabulations kept confidential prior to the respective integration hearing, pursuant to the provisions of Public Officers Law (POL) section 87 and 6 NYCRR 616.7 of the Department's implementing regulations, as well as pursuant to ECL 23-0313(1)(a). These requests were denied by the Division of Mineral Resources.
Points Raised on Appeal
The respective well operators assert that the ownership and, in some cases, the cost tabulations should be exempt from disclosure (1) pursuant to POL 87(2)(b) and POL 89(2)(b)(iii), inasmuch as such disclosure would constitute an unwarranted invasion of personal privacy; (2) pursuant to POL 87(2)(d), because the information constitutes trade secrets or would cause substantial injury to the competitive position of the well operator if disclosed; (3) pursuant to the confidentiality mandates of ECL 23-0313(1)(a); (4) because non-disclosure has been the past practice of the Department; and (5) because such disclosure is procedurally improper pursuant to the State Administrative Procedure Act (SAPA).
At the outset, it should be noted that the tabulations specifically at issue here are the ownership tabulations and not the cost tabulations for the respective subject spacing units. As will become apparent, however, disclosure of the former readily results in the disclosure of the latter. In each matter, the well owner is taking exception to a direction by the Department, contained in its form letter scheduling an integration hearing, that directs the well operator to include a copy of the ownership tabulation for the spacing unit as an exhibit to the draft integration order sent to all uncontrolled owners along with the notice of hearing. The operative language in the Department's form letter provides:
The ownership tabulation is a table titled after the well spacing unit it represents and indicating the town and county in which the spacing unit is located. The table is divided into various vertical columns. From left to right, as to each parcel within the spacing unit, the columns indicate a tract number assigned by the well operator; the date of any lease or leases conveying mineral rights to the parcel; the lease number, if any, and if not, the word "unleased"; recording information as to any lease, including liber, page and instrument number, if applicable; the assessed acreage in the parcel; the tax parcel number; the current lessee of the parcel, if any; the parcel's current lessor or owner; the lessor's or owner's address; the total acreage of the parcel within the spacing unit; and the percentage of the acreage of the entire spacing unit that parcel comprises. At the bottom of the table are certain totals indicating the total acreage controlled by the well operator in the spacing unit and the percentage of the total acreage in the spacing unit this comprises, as well as the total acreage of the entire spacing unit.
Cost tabulations for the individual parcels within a spacing unit can be readily derived by multiplying the percentage of the total spacing unit acreage a parcel comprises by the drilling cost totals provided in the Authorization for Expenditure (AFE). Thus, disclosure of the ownership tabulations along with the AFE, would, effectively, result in disclosure of the cost tabulations as well.
Unwarranted Invasion of Personal Privacy
Under POL 87(2)(b) and POL 89(2)(b)(iii)
With respect to the applicability of POL 87(2)(b) and POL 89(2)(b)(iii), it is important to begin any discussion with an understanding of the purpose and intent of the changes to ECL article 23 occasioned by the enactment of Chapter 386 of the Laws of 2005. This enactment specifically amended (1) ECL 23-0305, defining the Commissioner's duty and authority; (2) ECL 23-0501, changing and streamlining the process to obtain a well permit; (3) ECL 23-0701, providing procedural changes with respect to voluntary integration and unitization agreements; (4) ECL 23-0901, by (a) allowing non-operator owners the right to choose the manner in which they will be integrated in a spacing unit by providing three options among which they can elect, (b) defining the costs recoverable by the well operator from those non-operator owners selecting one of the two options entailing a full working interest in the well, and (c) defining the terms of integration applicable to all owners; and (5) General Obligations Law (GOL) 5-333, allowing a three business day right of rescission for individuals leasing their oil or gas interests.
The State Senate Memorandum in Support (McKinney's 2005 Session Laws of New York, p. 2253) makes clear that the purpose of the amendments "is to eliminate uncertainty in the unitization and integration process relating to the exploration and development of oil and gas reserves, protect investment associated with the development of oil and gas reserves, and protect the correlative rights of all landowners...." Moreover, to achieve its intended purpose, the Memorandum states that "[d]etailed public notice and hearing procedures have been added to ensure that the DEC-administered unitization and integration processes are open and transparent, giving all potentially affected parties the opportunity to participate as they are able, and to obtain revenue from the well commensurate with their risk investment." (Id. at 2254.)
The Legislature's intent is reflected in the Department's Program Policy providing guidance as to the law's implementation. Entitled DMN-1: Public Hearing Processes for Oil and Gas Well Spacing and Compulsory Integration, and issued February 22, 2006. The Program Policy notes that the law "provides a framework for key decisions to be made about participating in the costs and obligations of drilling an oil and/or gas well before the well is drilled," and that agency review must be conducted in a manner which does not prohibit "appropriate consideration of risk by potential well participants." (Id. at 1.) Observing that the law now separates the unit spacing and integration processes, the Policy states:
In order for a non-operator owner to make an informed business decision and select the option under ECL 23-0901 most appropriate to its respective interest, a reasonable amount of information as to the proposed spacing unit is required. At a minimum, this would include information as to the number of parcels within the spacing unit and the ownership of those parcels. Understanding how the risk of exploration is already allocated among the owners controlling sixty percent or more of the proposed spacing unit acreage, and knowing the parcels and uncontrolled owners who have yet to assume any risk in the proposed exploration, is factual information helpful in determining which option is in the best interests of a non-operator owner.
The statute's intent to facilitate access to this information is apparent from the express language of the legislation. For example, pursuant to ECL 23-0501(2)(a), as part of its application for a well permit, the well operator must submit a map of the proposed spacing unit which delineates "the boundaries of each tract wholly or partially within the proposed spacing unit as may be evidenced by tax identification numbers." The Department requires that this same map be furnished to all uncontrolled owners as Exhibit A to the proposed order of integration, which order must be included in the notice of hearing as mandated by ECL 23-0901(3)(c)(1)(ii).
In each of the present matters on appeal, the well operator provided such a map to the uncontrolled owners as part of the respective integration hearing notice, each map indicating the tax identification numbers of the parcels comprising the respective spacing unit. Moreover, the proposed integration order, provided by the Department and to be made available to all uncontrolled owners within thirty days of any integration hearing, also requires that an ownership tabulation of the tracts within the spacing unit be annexed thereto as Exhibit B. In each case, this tabulation was not included as an exhibit to the proposed integration order provided to uncontrolled owners and is the subject of these appeals. However, since the number of tax parcels contained in a spacing unit is finite and is a matter of public record, even if the Department did not require the inclusion of an ownership tabulation of the tracts as an exhibit to the proposed order of integration, the names of the owners of those parcels and their affected acreage within a spacing unit could be readily obtained from public sources, such as a county clerk's or assessor's office. Moreover, recorded leases conveying mineral rights to any parcels would also be readily ascertained. This information, as well as canvassing the owners, if necessary, would reveal which are controlled owners and which are not. But given the short, 21-day period prior to an integration hearing in which an uncontrolled owner must decide upon its best option pursuant to ECL 23-0901, forcing them to cull and canvass the public record is contrary to the efficient, open and transparent process intended by the Legislature and implemented by the Department under the amended law.
A second example of the uncontrolled owner's need for the ownership tabulations, as well as the costs derived from them, for the proposed spacing unit is provided by the language of ECL 23-0901(3)(c)(1)(ii)(C), which articulates one of the obligations of all owners under any order of integration issued by the Commissioner. The section states:
From the foregoing, it is clear that in order to properly assess the magnitude of this risk of ownership, whether as a participating or non-participating owner, and to make an informed business decision as to either of those two options, it is essential to know the number of other owners to whom liability could flow and the size of their ownership interest in the proposed spacing unit and, thus, the amount of the liability which could accrue to each of them.
In each case the well operators argue that disclosure of the ownership tabulations would constitute an unwarranted invasion of personal privacy, pursuant to POL 87(2)(b) and POL 89(2)(b)(iii). At the outset, it should be noted that upon this record it is not apparent that the well operators have standing to raise such privacy claims. In these matters, Department staff has directed the disclosure of the ownership tabulations. These tabulations are derived from the public record. Arguably, such publically available information is not private. But even assuming for the sake of argument that disclosure of the ownership tabulations entails disclosure of some personal information and, to some degree, an invasion of personal privacy, that invasion is not unwarranted within the meaning of POL 87(2)(b) and POL 89(2)(b)(iii). Given the clear intent of the Legislature to provide an open and transparent process conducive to sound decision-making, the public interest in disclosure of the information contained in the ownership tabulations outweighs the privacy interest of owners within a proposed spacing unit. (Cf., Matter of New York Times Co. v. City of N.Y. Fire Dept., 4 N.Y.3d 477 ; Matter of Siegel, Fenchel & Peddy, P.C. v. Central Pine Barrens Joint Planning & Policy Commission, 251 A.D.2d 670 [2d Dept. 1998], lv denied 93 N.Y.2d 804 .)
Favoring such disclosure as directed by the Department in the integration hearing process, is supported by subsequent sections of the Public Officers Law. Article 6-A of the chapter is entitled the "Personal Privacy Protection Law." Section 96(1)(e) of article 6-A provides that an agency may not "disclose any record or personal information unless such disclosure is ... for a routine use, as defined in subdivision ten of section ninety-two of [article 6-A]." Pursuant to POL 92(10),
As noted, the clear intent of the Legislature in amending ECL 23-0901 with respect to the integration of interests within a spacing unit was to provide an open and transparent process conducive to sound decision-making. In this way, uncontrolled owners would have the information they need to make informed decisions regarding their interests, and the policies articulated in ECL 23-0301 seeking the most efficient and equitable development of the State's oil and gas resources would be better realized. The Department's direction to provide ownership tabulations as Exhibit B to a proposed integration order also reflect this openness as well as its obligation to require the disclosure of such information as it deems necessary to implement the new integration hearing process, "a program specifically authorized by law." POL 92(10). The disclosure of the ownership tabulations does not constitute an unwarranted invasion of personal privacy under POL article 6-A.
Trade Secrets Under POL 87(2)(d)
In each case, the well operators have asserted that the ownership tabulations are trade secrets and, thus, exempt from disclosure. Public Officers Law (POL) section 87(2)(d) provides that an agency may exempt from disclosure records that are "trade secrets or are submitted to an agency by a commercial enterprise or derived from information obtained from a commercial enterprise and which if disclosed would cause substantial injury to the competitive position of the subject enterprise." (See, 6 NYCRR 616.7(c)(2)(ii)).
In Matter of Encore Coll. Bookstores, Inc. v. Auxiliary Serv. Corp. of the State Univ. of New York, 87 N.Y.2d 410 (1995), the Court of Appeals considered the issue of "substantial competitive harm" as construed under federal law in the context of a competitor's request for a booklist compiled ultimately for and on behalf of the State University of New York, a State agency. Finding the term "substantial competitive harm" under the federal Freedom of Information Act (FOIA) to be equivalent to the term "substantial injury to the competitive position" under FOIL, the Court, adopting the federal standard as the State standard, articulated the following test for such harm, stating that whether it exists for the purposes of the application of POL 87(2)(d) "turns on the commercial value of the requested information to competitors and the cost of acquiring it through other means." (Id. at 420.) After concluding that such harm does exist and exemption from disclosure is appropriate where FOIL disclosure is the sole means to acquire the requested information, the Court stated, "Where, however, the material is available from other sources at little or no cost, its disclosure is unlikely to cause competitive damage to the submitting commercial enterprise." (Id.)
Applying this analysis to the matter presented here, the issue is whether or not disclosure of the ownership tabulations would cause substantial injury to the well operators' respective competitive positions. From the previous discussion concerning matters of personal privacy, it is apparent that the information contained in the tabulations is readily available from the public record. Accordingly, "its disclosure is unlikely to cause competitive damage" to the well operators. (Encore, supra.) Indeed, disclosure of the tabulations is consistent with the open process contemplated by the amendments to ECL 23-0901. Allowing all participants access to such information will only foster the kind of healthy, free-market, competitive exchange which will ensure that the oil and gas resources of the State are developed in the fairest and most economically efficient manner. Moreover, such an approach comports with the Legislature's declaration of policy, articulated in ECL 23-0301, that these valuable State resources be developed and utilized in a manner which fully protects "the correlative rights of all owners and the rights of all persons including landowners and the general public."
The new law attempts to allocate the risks of oil and gas exploration in a more equitable manner. As noted above, Department Program Policy DMN-1 states that the law "provides a framework for key decisions to be made about participating in the costs and obligations of drilling an oil and/or gas well before the well is drilled." (DMN-1, p. 1.) The well operator is one of the central decision-makers in this process. As noted, amended section ECL 23-0501(2) now requires that the well operator applying for a well permit include with its application a map of the proposed spacing unit for the well. Moreover, the section requires that to obtain a permit the applicant must demonstrate that it controls by fee, agreement or integration order at least sixty percent of the acreage of the proposed spacing unit. Under ECL 23-0503, if the well operator can demonstrate, at the time of application, that it controls all of the acreage within a spacing unit which conforms with the requirements of ECL 23-0501, then no integration hearing and order is required, and the Department will issue the requested well permit after publication of a notice of intent.
What is important to understand at this point, however, is that under the present regulatory scheme it is the well operator applying for a well permit who begins the permitting and hearing process. If the well operator, in the exercise of its business discretion, elects to apply for a well permit when it controls sixty but not one hundred percent of the acreage within a spacing unit, it invokes the integration hearing process. This is a risk the well operator has voluntarily chosen to assume. Moreover, it is not a reason for the Department to restrict the disclosure of information necessary for the effective implementation of the new law.
For the foregoing reasons, and in each case, the ownership tabulations are not exempt from disclosure as trade secrets pursuant to POL 87(2)(d).
Applicability of ECL 23-0313(1)(a)
In each case, the well operators argue that the ownership tabulations should be exempt from disclosure pursuant to the provisions of ECL 23-0313(1)(a). Quoting from the statute, they argue that the six-month period of confidentiality mandated under the section extends to "[a]ny records or reports ... pertaining to the production, sale, purchase, acquisition ... of oil and gas ...." This statutory language, in their view, includes the ownership tabulations. Department staff, however, asserts that ECL 23-0313(1)(a) is intended to extend confidentiality only to operational records, such as the annual reports filed by oil and gas producers and purchasers pursuant to Department regulation. Department staff's interpretation of the section is supported by the plain language of ECL 23-0313(1)(a) and its legislative history, as well as the Department's implementing regulations, in particular, 6 NYCRR 551.2.
The text of ECL 23-0313(1)(a) reads as follows:
The records and reports which are the subject of this statute, are records and reports pertaining to the extraction and storage of the products "oil and gas and associated fluids," as well as the commercial transactions resulting ultimately in the market disposition of those products. These are operational records concerning the development and disposition of a product, not the realty interests and relationships of well operators, lease holders and land owners. That these are understood to be operational records is reflected in the Department's Memorandum filed in support of ECL 23-0313(1)(a), which was enacted as part of Chapter 721 of the Laws of 1989. In enumerating the reasons for its enactment, the Memorandum states, "New provisions are added to this section to (1) prohibit disclosure of information pertaining to the drilling of all oil and gas wells for a minimum of six months following commencement of drilling and extend the six-month disclosure period for an additional six months for wells in which the drilling process exceeds six months ...." (McKinney's 1989 Session Laws of New York, p. 2257.) Moreover, at paragraph "c" in the section entitled "Statement in Support for the Bill", the Department's Memorandum asserts:
Finally, that the records of concern in ECL 23-0313(1)(a) are operational records is clear from the language of the section's enabling regulation, 6 NYCRR 551.2, entitled "Production and purchase reports." The regulation states at sub-section 551.2(a) that, "[e]ach person who first produces, sells, purchases, acquires, stores or transports oil and gas produced in the State must keep and maintain complete and accurate records of the amounts thereof." Pursuant to sub-section 551.2(b), no later than March 31st of each calendar year, "[e]ach person who first produces, sells or purchases oil and gas produced in the State and the operator of each gas storage facility in the State must file with the department on a form the department prescribes a statement of the oil and gas produced, sold, purchased or stored." Pursuant to sub-section 551.2(c), the records obtained by the department under the foregoing two sub-sections will be kept confidential for the periods prescribed in ECL 23-0313(1)(a).
From the foregoing, it is clear that the ownership tabulations are not among the operational records exempt from disclosure pursuant to the provisions of ECL 23-0313(1)(a).
Past Practice of the Department
In each case, the well operators argue that for approximately the previous five years, the Department was willing to stipulate that the subject tabulations would be kept confidential prior to any integration hearing. Department staff asserts that while it was the Department's past practice to allow operators to request such confidentiality, exemption from disclosure was not guaranteed, but made on a case by case basis. Moreover, Department staff points out that such past practice only occurred prior to the current election process. Department staff's position is persuasive. Notwithstanding any past practice, the amendments to ECL 23-0901 now provide certain clear options for participation in the development of a spacing unit among which uncontrolled owners may choose. As noted above, an informed decision among those options can only be made when information reasonable and necessary to that decision is made available. Such information includes the ownership tabulations for the particular spacing unit. Without such information, the open and transparent process envisioned by the Legislature would be thwarted. Understanding this, the Department has, quite properly, declined to agree to the further confidentiality of ownership tabulations and directed that they be made available to uncontrolled owners as Exhibit B to the proposed integration order provided to them by the well operator as part of the integration hearing notice.
Applicability of SAPA and ECL 3-0301(2)(z)
The well operators argue that the Department's mandate that all operators provide each uncontrolled owner with the ownership tabulations as part of the notice of integration hearing constitutes a "rule" under the State Administrative Procedure Act (SAPA), a rule, they argue, not properly promulgated pursuant to SAPA. Moreover, they argue that the requirement to disclose the tabulations is not consistent with Program Policy DMN-1 and violates the notice provisions of ECL 3-0301(2)(z) pursuant to which the policy was promulgated. Program Policy DMN-1, they point out, makes no mention of such mandated disclosure of the tabulations, nor did the Department give any indication that it would interpret the policy to require their disclosure. Had the regulated community been made aware that DMN-1 would be applied in such a manner as to require disclosure of the tabulations, they assert, they would have commented thereon, presumably during the comment period following the promulgation of the draft version of DMN-1. The effective preclusion of their comments has deprived them of their opportunity to be heard in the matter, they argue, in contravention of ECL 3-0301(2)(z). The arguments are not persuasive.
The Department's direction to provide the ownership tabulations and annex them as Exhibit B to the draft integration order, as part of the integration hearing notice, is not a rule within the meaning of that term as defined by SAPA 102(2)(a). Moreover, the Department's direction to annex the tabulations is not the mandate, at law, by which such disclosure is compelled. No rule promulgated pursuant to SAPA is required for the Department to direct such disclosure by the well operator. The requirement of the well operator to disclose the tabulations is already statutorily mandated by ECL 23-0901(3)(c), which provides:
Moreover, as is clear from the previous discussion, the ownership tabulations are not exempt from disclosure under FOIL as an unwarranted invasion of personal privacy pursuant to POL 87(2)(b) and POL 89(2)(b)(iii), or because the information constitutes trade secrets or would cause substantial injury to the competitive position of the well operator if disclosed, pursuant to POL 87(2)(d). In addition, as noted, the tabulations are also not exempt from disclosure pursuant to the confidentiality mandates of ECL 23-0313(1)(a).
Accordingly, in directing that the well operator annex the ownership tabulations as Exhibit B to the proposed integration order provided with the notice of hearing to all uncontrolled owners, the Department is merely directing that the well operator include information already statutorily mandated and readily subject to disclosure under FOIL. Without this information, an uncontrolled owner cannot reasonably understand and interpret the provisions and legal implications of the proposed integration order. While the ownership and cost tabulation information could be culled from the public record and the information contained in the Authorization for Expenditure (AFE), this would be inimical to the open and expedited integration process contemplated by the Legislature in amending ECL 23-0901. Indeed, uncontrolled owners have only 21 days in which to make an election, an election which will be determinative of their rights in a particular spacing unit for all time. Facilitating them in making their elections in a reasonably informed manner is fundamental to ensuring an open and transparent process.
Moreover, as ECL 23-0901(3)(c)(1)(ii)(J) provides: "Other terms may be included in the order of integration if the department determines such terms are reasonably required to further the policy objectives of section 23-0301 of [article 23]." Clearly, such "other terms" would include the ownership tabulations at issue in these matters.
The well operators' argument that they were not aware that the Department would interpret Program Policy DMN-1 as requiring disclosure of the ownership tabulations and that they were thus deprived of the opportunity to comment thereon is not supported by the record.
In accordance with ECL 3-0301(2)(z), on October 26, 2005, the Department published a notice in the Environmental Notice Bulletin (ENB) informing the public of its intention to adopt proposed Program Policy DMN-1. The notice advised the public of the availability of the full text of the document and invited public comment thereon during an ensuing 30-day comment period. Seven entities submitted comments on the proposed program policy, Columbia Natural Resources, LLC; Dorchester Minerals, L.P.; Fortuna Energy, Inc.; G.W. Gunner; Lenape Resources, Inc.; Allan R. Lipman and Michael P. Joy; and the New York Natural Resource Owners Association. A responsiveness summary to the submitted comments was provided by the Department and promulgated on February 22, 2006, upon issuance of DMN-1.
Annexed to draft Program Policy DMN-1 were certain attachments, Attachment 2 being the template for proposed integration orders. The first recital in this document provides:
As previous discussed, "Exhibit B" is the ownership tabulation for the particular spacing unit. In its comments on Section V.B. of proposed DMN-1, entitled "Procedures for Compulsory Integration Hearings," Lenape Resources, Inc. queried:
At page 10 of the responsiveness summary, Department staff answered this query as follows:
From the foregoing it is clear that the Department intended that the ownership tabulations were to be disclosed to uncontrolled owners as Exhibit B to a proposed integration order and provided with the notice of the integration hearing. Moreover, it is clear that from its initial proposal in draft form, the Department intended to interpret and implement Program Policy DMN-1 as requiring the disclosure of the ownership tabulations. Finally, it is clear from the foregoing that affected well operators were apprised of the Department's intentions in interpreting and implementing DMN-1 and were afforded the opportunity to comment thereon.
For the reasons set forth herein, I conclude that the ownership tabulations and the cost tabulations are not exempt from disclosure and the determination of Department staff, in each case, denying their exemption from disclosure should be affirmed.