Saturday, January 28, 2012

New York’s shale gas future tied to battle over land rights

The Decker farm, where Exxon Mobile is extending its drilling rights
While companies publically threaten to drop their drilling ambitions in New York state, they are privately clutching their leaseholds with all their legal might.

Multi-national energy companies are using force majeure, the legal tool to extract a party from contractual obligations in the event of unforeseen circumstances and acts of God. Companies such as Chesapeake Energy are invoking force majeure after Governor David Paterson ordered an environmental review on the safety of high volume hydraulic fracturing in 2008. As most following the Marcellus shale story in New York state know, Paterson’s order was accompanied by a de facto moratorium on permits for shale gas extraction until the new permitting guidelines are finalized. Chesapeake and other companies are using this as a reason to extend their claims to the land under force majeure, even though conventional drilling and fracking are still allowed to explore the Marcellus or Utica shales, or to develop conventional horizons.

From here, the plot thickens. A market glut caused by a surge in shale gas production nationally combined with sluggish demand are forcing companies to scale back drilling operations and curb production in the Marcellus. In this context, it’s interesting that Chesapeake Energy and other companies reigning in operations are pointing to New York’s moratorium on high-volume hydraulic fracturing as justification to extend leases. There are market risks in doing business, of course. In the case or the drilling industry, operators are not shy about applying their considerable legal wherewithal to divert those risks to landowners. As noted by Sue Heavenrich, a reporter covering gas exploration in Western New York, gas companies are in some instances using force majeure as a blunt tool to gain control over leaseholds, even though (common to popular belief) drilling in New York has not been prohibited. Over the past five years, the state has issued 166 permits to Chesapeake for conventional wells.

The industry’s effort to press legal claims to New York’s Marcellus Country, even after leases have expired, runs counter to this theme commonly articulated by industry proponents: Delays and overbearing regulation in New York will surely kill drilling plans here. This view holds that the drilling companies are victims. Brad Gill, executive director of the Independent Oil and Gas Association of New York, recently made this very point to an audience at a forum hosted by the Binghamton Press & Sun Bulletin and the Greater Binghamton Chamber of Commerce: “I can tell you right now, this will drive an industry out of the state that is trying to get established, especially with [the same opportunities in] Ohio and Pennsylvania, and as uncompetitive as we are in New York.”

There are plenty of people on the other side of the issue who find the portrayal of the drilling industry as a victim laughable. But even within the pro-drilling camp, the force majeure battle is causing a new set of stress fractures among landowner groups. Some are banding together to fight the claims to their land in court. Others are not.

Dewey Decker, a drilling supporter, is among those landowners who are not. Decker, longtime supervisor of the Town of Sanford, leads a coalition of farmers in Broome and Delaware counties who leased 45,000 acres to XTO Energy (now owned by Exxon Mobile) for $110 million in 2008. The lease is schedule to expire next year, at which time the company would owe landowners another $110 million for a 5-year extension. Decker, who became a multi-millionaire from a lump-sum lease payment, told me this week he is “unhappy” about the claim to extend rights to his land without additional compensation. But he also wants to see drilling to come sooner, rather than later, and he blames the environmental movement and anti-fracking campaigns for stalling it.

Dewey Decker
“It’s the environmentalists’ fault,” Decker said as he took me on a tour this week and showed me his family’s once flourishing dairy farm. Decker, a fourth generation farmer, has sold his herd, and now the massive barns are vacant and the computerized milking equipment and stainless steel tanks sit idle. Dewey is hoping the land will soon yield a new era of production through natural gas development. Given the sum of money that XTO invested to acquire the mineral rights, that prospect once looked like a sure thing. Now it is not. The majority of XTO’s leasehold is in the protected Delaware River Watershed, where the future of drilling is complicated by jurisdictional issues that go beyond the growing tensions between local, state and federal government control, which have become the latest in a rush of developments that characterize the debate over shale gas development and onshore drilling. More than 80 percent of the XTO leasehold falls under the regulatory  watch of the Delaware River Basin Commission, and 10 percent of it is in the New York City Watershed, which respectively have various levels of protection. The front line of the fracking battle formed along this area on the western fringes of the Catskill Mountains, and it’s where environmental activists have focused their most devoted efforts.

Although the arguments for and against fracking are multi-dimensional – water quality concerns, market pressures, transparency, enforcement wherewithal, Decker, like many caught up on the fight, sees the issue as being pretty straightforward. In his view, it’s largely about restrictions on upstate landowners based on downstate interests. It’s a beef he holds dating to the early 1960s, when authorities bought out and flooded Cannonsville, a berg that had been an important market for the family’s creamery, to make a reservoir to supply New York City. Then came Route 17, which claimed some of the family’s farm buildings through eminent domain in the process of further connecting downstate with upstate.

Now, Dewey said, “They’re getting all our clean water. And then they send their trash back up Route 17 to be buried in upstate landfills. I resent that. They are not the only ones that care about the water, but they act like they are.”

Decker’s farm sits less than 10 miles from the border with Pennsylvania, and just south of this border federal EPA officials are sampling water in at least 60 homes after the agency identified health concerns from contamination associated with intensive shale gas development in Susquehanna County. Decker sees the complaints related to spills as exaggerated and unhelpful. I was in Dimock, Pa. last week, and I met residents with contaminated wells waiting on EPA deliveries of fresh water who would disagree.

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