Whose fault was Norse Energy's bankruptcy?

Nov 4, 2013

New York’s hold on high-volume hydrofracking has entered its sixth year. Norse Energy first tried to stay afloat until fracking was approved, but then gave up and converted to Chapter 7, a complete shutdown of operations. The company and fracking supporters cited the state’s de facto moratorium as the obvious culprit.

Norse’s former chief legal officer Dennis Holbrook says drillers just can’t compete anymore using the drilling methods still allowed in New York.

“The easiest analogy I could give you, if you had a Model T and you were racing other Model T’s and you were doing fine and the next generation of vehicles comes out and you were still being told that all you can do is use your Model T,” Holbrook said.

But the company was still drilling vertical wells in New York. In 2010, Norse approached Buffalo-based Bradford Drilling Associates about a 30-well project in the Herkimer sandstone formation.

The two companies agreed that Bradford would contribute $9 million for a share of the gas produced. A lawsuit filed the next year by Bradford paints a picture of an incompetent company.

Bradford accuses Norse of close to 100 percent cost overruns, using unskilled crews and installing the wrong kinds of equipment. Norse stopped after drilling six of the promised 30 wells. Bradford’s complaint asks for a refund of $7.65 million of its investment plus $10 million in damages.

Ithaca lawyer Helen Slottje is a founder of the anti-fracking legal group Community Environmental Defense Council. She says Norse seems like a company that wouldn’t have profited even if fracking was legal in New York.

“So you didn’t drill these other wells, you haven’t done anything and the money’s all gone," Slottje said. "So there’s really, there’s no reason that we can see or fundamental truth to the matter that if only Marcellus Shale drilling had been allowed, Norse would have been able to continue happily along in business.”

A judge has ordered Norse to put the disputed money into an escrow account. The company’s former lawyer Dennis Holbrook says these are all unproven allegations and Norse’s financial problems started because the industry’s view of New York had soured.

“Clearly when we went out and tried to enlist interest on the part of the oil and gas industry, their comment was we like the geology, we do not like the political geography," Holbrook said. "We do not like the fact that these assets are in New York.”

Norse had controlled 130,000 acres of leasing rights, those leases are now under the control of a bankruptcy trustee. Holbrook said if the company had known six years ago how long it would take for fracking to be allowed in New York, they’d have pulled up stakes and left the state back then.