Contributed Graphic THIS STATE-GENERATED GRAPHIC shows the general location of gas wells in New York in 2006. Gas companies now seem to be trending eastward – towards Sullivan County – in their quest for new sources of natural gas.

County is Next Frontier for Gas Exploration

By Dan Hust
SULLIVAN COUNTY — January 18, 2008 — No one really knows how much natural gas is underneath Sullivan County.
But judging by the building frenzy of landmen (mineral rights negotiators) activity in the area, the companies that drill for and distribute that gas evidently are certain great quantities exist.
And geologists say they may very well be correct.
“Pretty much anywhere you put down a well in New York State, you can get gas,” remarked Robert Demicco, a professor at SUNY Binghamton’s Department of Geological Sciences and Environmental Studies.
While Demicco said that’s been known for nearly a century, state records indicate not a single successful gas well has ever been drilled in Sullivan County. The inability to cost-effectively retrieve local natural gas has kept companies focused on other parts of the country.
Until now.
Leases have already been finalized in Wayne County, Pa., and Sullivan County towns that border Wayne along the Delaware River have landmen roaming their streets, lease agreements in hand, hoping to secure a quick deal that will allow gas companies to drill.
Pennsylvania residents have organized groups that bargain for better leases, driving up per-acre offers from $250 to $750, and at least one large-scale negotiation is headed for the $1,000 mark.
While both landmen and local residents are loathe to talk about such deals, it’s apparent that gas companies – eyeing the nearby Millennium Pipeline, which opens this November and will offer direct distribution to the huge New York City market – are seeking swaths of land on which to site exploratory drilling operations.
Backwards as it may sound, the natural gas mining industry must first secure the right to drill before being able to ascertain whether gas even exists in the area (which requires drilling).
But according to Dr. Doug Patchen, a New York native who now works for the West Virginia Geological Survey, the Marcellus shale bed that underlies the area has “proven to be productive.”
“It’s a huge area,” Patchen added, “. . . so the potential is even greater than what we’ve found so far.”
Indeed, billions of cubic feet of natural gas are being produced every year in western New York, particularly around the Finger Lakes region. Though not all of it is coming from Marcellus shale deposits, the record 55.3 billion cubic feet of gas produced by the more than 6,200 statewide wells in 2006 (the most recent year for which data is available) contributed $67.5 million to New York’s economy – and hundreds of millions more to the gas companies.
Of particular note is that an estimated $52 million of that $67.5 million figure consisted of royalties paid to landowners.
And there’s where locals may one day be counted, as well.
While the leases (typically for renewable five-year terms) result in immediate payments to property owners, royalties – a state-mandated minimum of at least 1⁄8 of a producing well’s profits – provide an ongoing income with little to no expense.
This means that smart landowners who engage a knowledgeable attorney can reap thousands of dollars just for allowing a gas company to drill a well (usually no more than a two-month process, albeit a dusty and noisy one) that innocuously occupies an acre or so of their property.
But there are a myriad of pitfalls, proven and potential, and based on a host of national, state and local sources, here’s the top 8 cautions:
1. Never sign a lease without consulting an attorney. Standard leases are always written in favor of the gas companies, and while payouts may seem incredibly generous, property owners may give up more rights than they’re comfortable with.
This philosophy should also apply to agreements for distribution pipelines and underground storage areas.
For more information, the state offers a detailed brochure at www.dec.ny.gov/energy/1553 .html.
2. It’s better with a group. Though no organized effort yet exists in Sullivan County, the Northern Wayne Property Owners Alliance has begun negotiating leases for hundreds of property owners in Wayne County, Pa.
Contact organizer Marian Schweighofer at sprigntwig @ezaccess.net for further details.
3. You can run, but you can’t hide. While wells are required to be at least 660 feet away from neighboring properties and cannot be sited on unleased land, New York State also has a “compulsory integration” law.
Simply put, this means that even if a property owner doesn’t want to sign a lease, he/she will still have to come to an agreement via the state should (a) the gas company have leases for at least 60 percent of the surrounding properties, and (b) it be determined that gas will likely be removed from some portion of the unleased property.
This can easily work in favor of the property owner, however, as New York offers three options: entering into a royalty agreement (the default selection that costs landowners nothing), agreeing to be involved as a non-participating owner (again, no costs involved, but royalty payments only commence once the well has paid for itself three times over), or becoming a participating owner (essentially partnering with the gas company, requiring upfront payments to cover drilling and operation costs).
Public hearings are scheduled whenever such integration efforts are deemed necessary, allowing all interested parties to comment – though they must travel to Albany to do so.
Those in Pennsylvania have no such recourse, as the “rule of capture” applies there: should a company retrieve the gas from an area that extends beyond the property it is currently leasing, only those with whom it has an existing agreement are entitled to payments of any kind, including royalties.
For a more detailed discussion, the New York State Department of Environmental Conservation offers a brochure at www.dec.ny .gov/energy/1590.html.
4. Be aware that while an active well is usually inconspicuous – rising no more than a few feet above the ground – well drilling is a noisy, dirty construction process that could take up to two months.
Sometimes these operations are 24/7, lit brightly to allow work throughout the night. Roads often must be constructed to the well site, forests may be cleared, and workers may even camp on site to finish the job within budget and time constraints.
See the Oil and Gas Accountability Project’s online book available at www.earthworks action.org/LOguidechapters.cfm#CHAPTERS.
5. Also be aware that signing a lease does not mean a well will be drilled, nor even that a drilled well will become productive.
In other words, substantial as initial lease payments may be, that could easily be all the money a property owner ever gets.
6. An active well may include a compressor, which could generate an annoying or distracting amount of noise, especially if livestock are nearby.
There are a range of other environmental concerns that local and national groups have identified, as well, from the potential for soil contamination to the possibility of quality-of-life degradation.
7. If a well does become productive, it will eventually exhaust the local gas supply, at which time it will be shut down and abandoned.
Due to contamination of groundwater and other bad environmental experiences of the past, New York State now requires companies that drill wells to pay several thousand dollars into a state-held fund – in essence, a security deposit that will be used to pay for a well’s permanent shutdown (including filling it in with cement) should the gas company not complete that responsibility.
State inspectors are authorized to monitor a well even after it’s been abandoned and can cite well owners – and in some cases, leaseholders – if concerns are noted.
8. Most leases require 60 days’ written notice from property owners should a gas company not live up to the lease terms.
If things are still not resolved, the only option is a court proceeding, which is often expensive and time-consuming.