By Jeanine Prezioso and Edward McAllister
NEW YORK (Reuters) - A New York state court on Thursday ruled that two towns should be able to choose whether or not they can ban a controversial oil and gas drilling technique known as "fracking."
In a decision that could set precedent in the state and create a major setback to oil and gas drilling firms, the New York State Supreme Court, Appellate Division, upheld zoning laws that allowed the towns of Dryden and Middlefield to ban oil and gas exploration and production.
A ban on hydraulic fracturing, or fracking, has been in place in New York since 2008, amid concerns that the process, which involves pumping chemical-laced water and sand deep below the surface to extract oil and gas, can contaminate water supplies.
Proponents of oil and gas drilling say it would mean more tax revenue and income for New York residents.
Norse Energy in Dryden and landowner Cooperstown Holstein Corp in Middlefield, sought approval by the court to declare that the zoning laws were preempted by the state Oil, Gas and Solution Mining Law.
The court ruled that the law does not trump municipalities when it comes to deciding zoning rules related to oil and gas drilling activities.
Attorneys representing energy companies and landowners in favor of drilling in the towns plan to appeal the ruling.
Tom West, founder of The West Firm, which represents Norse Energy and is co-counsel for Cooperstown Holstein, said they will appeal the decision.
"Sometime in the next month we will be making an application for leave to appeal," West said.
Norway's Norse Energy Corp had invested $100 million in New York, including leasing on more than 100,000 acres. But its U.S. subsidiary filed for bankruptcy last year after the 2008 ban on fracking meant it was unable to drill on that acreage.
In February New York Governor Andrew Cuomo missed a deadline for completing a report on the environmental impact of fracking that was to form the basis of new drilling rules for the state.
Meanwhile, the state Department of Health has requested more time to complete a parallel health impact study that the state wants completed before any decision on drilling is taken.
(Editing by Xavier Briand)