Drilling forum two years on

Compulsory integration and other concerns

By FRITZ MAYER

MONTICELLO, NY — “If you don’t participate, you will be marginalized by the press and the opposition.”

That was lawyer Chris Denton speaking to people seeking information about gas drilling leases. The opposition, in this case, was the drilling companies. Denton made clear that he is not particularly fond of the industry, but his business is representing landowners and coalitions in negotiating gas leases.

Denton has been to Sullivan County to speak several times over the past two years, most recently at a forum at Monticello High School on June 29, where about 75 people turned out. When the question was asked: “How many of you own 40 acres or more?” more than half the audience raised their hands.

If gas drilling comes into the county in a large way, as many expect it will, some of those owners will likely have no choice about whether the gas under their land is extracted. That’s because of the New York provision of law called compulsory integration. If a drilling company lines up leases for 60 percent of the land in a 640-acre drilling unit, which is drawn by the Department of Environmental Conservation, then the company can claim the right to drill under the remaining land.

Owners of such can respond in several ways, each coming with different risks and costs. If a landowner chooses to become a non-participating owner in the deal, the drilling company may not erect a well or anything else on the property, but can drill under it; the property owner will receive 12 percent payments, soon to rise to 18 percent, but not until the land has produced revenue equal to three times the cost of the related drilling project.

Another option for the property owner is to negotiate as good a lease as possible with a willing gas company before the compulsory integration. Denton said that in the past two years, the landscape has changed regarding what the drilling companies will agree to. In the beginning, the companies indicated they would never agree to close-loop drilling, in which fracking fluids are collected and recycled, thus minimizing the chance of accidental contamination of land and water. Now, it has become a common feature of leases in the Southern Tier.

Compulsory integration options are detailed at www.dec.ny.gov/energy/1590.html.

Denton pointed out a couple of other features that are important to leases. He said there are no regulations in the state as to the operation of the meters on the gas wells that will determine the amount of money to be paid to the property owner. The leases he now works with have four pages of details about the meters.

He also said an auditor once told him that he had never heard of an audit of a gas drilling company where the gas company did not owe the landowner more money than had been paid, so the right to audit the operation is also an essential lease element.

Brad Vickers, president of the Chenango County Farm Bureau, who has also spoken in Sullivan County several times, said some drilling companies are also willing to include farm preservation elements in leases.

For instance, he said, top soil that will be disturbed in the process of creating well pads and gathering lines and other gas-related installations should be protected so that it does not get contaminated with drilling mud or other materials. When the initial drilling is completed, the topsoil can be replaced and once again used to grow crops.

Vickers said that he did not advocate leasing but said the farm bureau wanted to educate farmers, in case they decide to make that decision. He noted that with the tough economic conditions facing many farmers, it is a choice they feel compelled to make.

He said, “If you’re the neighbor of a farm, and you don’t want them to lease, why don’t you offer to buy their mineral rights and help them out a little?”