Natural gas search could impact Fund

Albany – A modern-day version of the gold rush could have a
tremendous impact on the landscape of New York and Pennsylvania as
natural gas exploration reaches a fever pitch in both states.

The impact of the gas search is many sided. Property owners –
including the states – are seeing per-acre lease agreements
skyrocket to, in some cases, $2,500 or more per acre. And that’s
just for exploration rights.

Farmers who may have been looking to sell their land at the end
of their careers in the field are now able to keep their tracts
thanks to huge payments for gas lease rights. That means, in many
cases, land that remains open to hunting.

But there are some environmental concerns as well. The
hydrofracturing process in which gas drilling is conducted takes
massive amounts of water. As a result, gas companies are seeking
permits to draw thousands of gallons of water from the Susquehanna,
Chemung and other rivers for well-drilling work.

“We’re a little concerned from a natural resources perspective,”
said DEC Assistant Director of Fish, Wildlife and Marine Resources
Doug Stang. “It takes a lot of water – a tremendous amount of water
(to drill gas wells). It’s not an impact-free venture.”

It’s a bit of a Catch-22 situation for DEC, as the department
stands to benefit from the gas exploration surge but at the same
time wants to monitor the impact of drilling operations across the
state, including on state-owned tracts.

“We’re trying to minimize the impact but we realize we’re going
to have to open more WMF (Wildlife Management Area) land for gas
exploration,” Stang said.

That’s potentially good news for the state’s cash-strapped
Conservation Fund, which would receive any monies generated from
gas lease payments or drilling royalties on WMF land. Funds derived
from other state tracts would go into the state’s general fund.

Between 2005 and June of this year, the state’s Conservation
Fund has seen $27.6 million in revenues from land leasing for
activities such as gas drilling and exploration. Natural gas
production from wells in New York – on both private and state land
– was at its highest level ever in 2006, with 55.157 billion cubic
feet produced. That’s enough to supply nearly 8,000 homes for a
year.

The prolific wells of the Trenton-Black River formation in the
Finger Lakes area of the Southern Tier was largely responsible for
that figure.

Chemung County, where a local sportsmen’s club struck gas gold
and now receives monthly royalty checks well into six figures,
leads the state in natural gas production, with 22.7 billion cubic
feet in 2006. Steuben County is next with 17.1 billion cubic
feet.

Pennsylvania recently put more than 74,000 acres – roughly 115
square miles – of state forest land in the northcentral part of the
state up for gas drilling rights bids. More than 300 companies have
reportedly expressed an interest in bidding on the tract.

Brad Field, director of DEC’s Division of Mineral Resources,
says if the companies continue to find natural gas the fervor will
continue.

While the state doesn’t track royalty rates for private leases,
he’s hearing figures as high as 25 percent, although most companies
have indicated they lease subject to a 12.5 percent royalty.

But many landowners are suddenly finding themselves wealthy via
only the lease payments of $2,500 per acre for exploration
rights.

“I would hope they manage that windfall wisely,’ Field said.

Other landowners, however, remain locked into lease payments of
as little as $50 per acre or less under long-term,
automatic-renewal deals struck long before the lease prices began
to skyrocket. That has led to charges that gas companies have
misled property owners unaware of the value of what lies beneath
their ground.

Landmen who search for properties on behalf of the big gas
companies have crowded into county clerk offices daily, poring over
deeds to see what tracts are available. As the search intensified,
the American Association of Professional Landmen, with the
cooperation of the state Attorney General’s office, produced an
informational brochure for area residents about gas leasing. That
brochure notes that the landman can’t force you to sign a
lease.

The natural gas furor has been fueled by the Marcellus Shale
formation, a deep gas reservoir located 6,000-8,000 feet
underground. The formation is believed to contain huge quantities
of natural gas across the Southern Tier of New York, much of
central and northern Pennsylvania, and parts of Ohio and West
Virginia.

Gas gurus have known for years of its presence, but only
recently has the hydrofracturing technology been developed to
extract the gas from the ground. Most wells will require about two
million gallons of water during the fracturing process; that’s why
companies are working with states and the Susquehanna River Basin
Commission to draw the water they need from those rivers and
creeks.

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