By Dan Wiessner
NEW YORK, Feb 21 (Reuters) - In a blow to the oil and gas industry, a judge has ruled small towns in New York have the authority to ban drilling - including the controversial method known as fracking - within their borders.
In a ruling released late Tuesday, state Supreme Court Justice Phillip Rumsey held that the Ithaca suburb of Dryden's recent ban on gas drilling falls within the authority of local governments to regulate local land use.
Anschutz Exploration Corporation, which owns leases on more than 22,000 acres (8,900 hectares) in the town and has invested $5.1 million in drilling operations there, argued the ban violated a state law designed to create uniform regulations for oil and gas drilling and encourage the extraction of those resources.
Rumsey disagreed, holding the law was not written to favor the industry, but to regulate it in such a way that "prevents waste ... and protects the rights of all persons."
"Nowhere in the legislative history (of the state oil and gas law) is there any suggestion that the legislature intended - as argued by Anschutz - to encourage the maximum ultimate recovery of oil and gas ... or to preempt local zoning authority," Rumsey wrote.
Fracking is a process in which chemical-laced water and sand are blasted deep below ground to release oil and natural gas trapped within rock formations. It has allowed companies to tap a wealth of new natural gas reserves but critics say the procedure has polluted water and air.
Municipal control is a top issue in the heated debate over whether to allow fracking in the Marcellus Shale, a massive rock formation believed by some industry officials to contain enough natural gas to power New York for more than 400 years.
Whether the state will allow fracking is ultimately a decision for Governor Andrew Cuomo, who has said he will only approve the method if it can be done safely.
The state Department of Environmental Conservation last year issued a 1,500-page report and set of draft regulations that prompted more than 45,000 public comments. Once the agency has finished sifting through them, it will release a final report for Cuomo's consideration.
Mahlon Perkins, the town attorney for Dryden, argued courts have recognized local authority in cases related to the state's mining law, which is similar to the oil and gas law.
Anschutz' attorney, Tom West, said in an interview last month that a ruling in favor of local government control would be "the kiss of death" for drilling in New York. But on Tuesday, he said he was optimistic about the appellate process if Anschutz decides to appeal Rumsey's decision.
"For the 'fracktivists' it's a significant ruling, but it's only the first step in the court process," West said, referring to the large number of vocal opponents to fracking, particularly in some upstate communities.
Perkins was not available for comment. Anschutz has 30 days to appeal the ruling.
Environmental groups applauded Rumsey's ruling.
"The communities targeted for drilling need the power to determine for themselves when, where, and if fracking is permitted," Katherine Nadeau, a program director at Environmental Advocates of New York said in a statement.
The case is Anschutz Exploration Corp. v. Town of Dryden, New York State Supreme Court, Tompkins County No. 2011-0902.