NEW YORK—Patience is wearing thin for farmers and oil and gas companies who are ready to cash in on the natural gas boom in upstate New York.
It has been almost five years since a moratorium on hydraulic fracturing, or fracking, was imposed by then-Gov. David Paterson on New York state—locking in an estimated 489 trillion cubic feet of untapped natural gas in the Marcellus Shale.
Now, landowners and the gas industry may have to wait an additional two years.
If the state Senate imposes a new moratorium—which passed in the Assembly Wednesday by a vote of 95-40—it will be May 2015 before permits are issued for fracking in New York.
But for struggling landowners who could make money from leasing their land, and oil and gas companies, which have been investing in the region’s gas market for 30 years, the additional wait could be a game-changer.
With the price of natural gas plummeting, leases expiring, and cost estimates rising, New York state is no longer looking like a sure bet for gas exploration.
“These are people with a great deal of experience drilling through the aquifers, adhering to state regulations, working with municipalities, and providing tax revenue to those municipalities,” said Jim Smith, spokesman for the Independent Oil and Gas Association of New York (IOGA of NY). “This bill is based on the presumption that shale drilling and production operations are harmful to both the environment and to those who live in the vicinity of the wells. That is a false premise, and experience has proven it.”
Natural gas is nothing new to New York. The Empire State was home to the nation’s first commercial gas well in 1821, and the oil and gas industry has been using fracking to extract gas since the 1950s.
Horizontal drilling has been used in New York state since the 1980s, according to the Department of Environmental Conservation (DEC).
As of 2010, the last year data was available, New York had 15,092 oil and gas wells statewide, approximately half of which produce natural gas. Even with the moratorium, they remain active today.
Chautauqua County, which borders Lake Erie in far western New York, has 3,427 active wells, the most in the state. Almost all of those wells are vertical.
“You cannot drive in our county without seeing a well,” Assemblyman Andy Goodell said Wednesday. “Homeowners are delighted to have wells drilled on their property.”
Goodell said wells are next to schools, playgrounds, and homes, providing free natural gas and royalties for landowners.
He said of the 5,000 wells that have operated in Chautauqua County over time, only three have ever had any issues—0.0006 percent. Failed casings allowed gas migration in each of those cases, two of which were fixed and one of which was plugged. No major public health threat occurred in any of the cases, he said.
Goodell said the new regulations proposed by the DEC would require multiple well casings, something not currently required in vertical drilling.
Landowners located over the Marcellus Shale, who own the rights to the gas below, are sitting on a modern day goldmine.
As gas prices began to skyrocket between 2005 and 2008, gas companies flocked to the region to persuade landowners to lease their land. For many cash-strapped farmers, it was an enticing deal.
To avoid being taken advantage of, Daniel Fitzsimmons and other landowners formed the Joint Land Owners Coalition of New York. The group lobbied Albany and worked with the DEC to ensure the practice would be carried out safely.
Much of the language in the coalition’s 50-page landowner lease was adopted by New York state in its draft regulations—including eliminating open pits for fracking wastewater, which caused contamination problems in other areas.
But, as the five-year mark hits, leases containing a force majeur clause—which requires gas to be produced by a certain time period—are rendered void.
Fitzsimmons said as economic times have worsened, he is seeing an increase in investors purchasing mineral rights from landowners. Mineral rights allow investors to avoid leases and paying royalties.
“When that happens, the company and the person owning the mineral rights, has the right to go in and put a well in anywhere. It could be right behind your house,” Fitzsimmons said. “You own that surface, you pay those taxes, but you can’t stop them from coming in and putting in a well, because they own the minerals and they can legally access them.”
The oil and gas industry invested heavily between 2006 and 2008, applying for 1,168 permits and installing 732 wells upstate.
“The reason the Marcellus was so attractive was because they could drill horizontally and the price was right,” said Smith, from IOGA. “They were able to get more gas out of it, which made it more economical.”
In 2007, a 10-year high was reached with $11.8 million. Following the moratorium in 2008, the state has only seen $1.4 million.
Smith said many oil and gas companies are keeping roots in New York, however, they are taking their business to states such as Ohio, Pennsylvania, and West Virginia.
He expects them to return if “they are reasonable regulations that can be done and are competitive with other states in terms of cost.”
IOGA estimates the current proposed regulations in New York will add an additional cost of $1 million per well. Smith said on average it costs $3million to $5 million dollars to erect a well.
Goodell said he does not know if his county will see much of a boom in horizontal fracking if the moratorium is lifted, but will still vote in favor of lifting the moratorium based on the positive impact he has seen in his community.
“From an environmental, economic development, and public health perspective, moving forward on hydrofracking, consistent with appropriate regulations, is the right thing to do,” Goodell said. “I found it frustrating that my New York City colleagues, who will never have hydro fracking in their district, were telling me how hydrofracked wells would destroy my district without having any clues we have been hydrofracking for over 60 years.”
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