Hancock Gas Lease

If New York City wants to prevent landowners from developing their property, they should buy the development rights to that land. Their refusal to do so just shows that they want to continue to be parasites on the rest of the state, getting their water at our expense.

It seems that State Senator Bonacic (R-C-Mount Hope) agrees with our philosophy. The Times Herald-Record quotes him as saying:

Let them buy the development rights. For those landowners who want to sell their gas rights, let the city pay the same market rate to keep the land undeveloped. We buy agricultural development rights for tracts of land we want to preserve. Let those who oppose the lawful exploration and extraction of gas in the Catskills (do the same). …

If New York City can stop development of energy sources in the Catskills, they can diminish the value of people’s land without compensation.

The article seems to say that the City is turning a deaf ear to these arguments:

While the city’s DEP points out that it has already invested $541 million to buy watershed land, it did not directly address Bonacic’s proposal, except to reiterate the “unacceptable threats” of drilling to drinking water.

“We look forward to continuing a dialogue with elected officials and all stakeholders to protect the watershed during this process,” said a statement by Environmental Protection Commissioner Cas Holloway.

Chesapeake Energy, the largest player in the Marcellus shale, has just released its Operational Update, discussing developments through 4th quarter of 2009. Although it doesn’t go very far in breaking things out by New York versus Pennsylvania or West Virginia, we can get some idea of what direction they’re going in overall. And that direction is down — drilling down, that is.

Since January 1, 2008, Chesapeake has drilled and completed 56 company-operated horizontal wells in the Marcellus. During the 2009 fourth quarter, Chesapeake’s average daily net production of approximately 45 mmcfe in the Marcellus increased approximately 26% over the 2009 third quarter and approximately 530% over the 2008 fourth quarter. Chesapeake is currently producing a company record monthly average of approximately 65 mmcfe net per day (115 mmcfe gross operated) from the Marcellus and anticipates reaching approximately 270 mmcfe net per day (515 mmcfe gross operated) by year-end 2010 and approximately 450 mmcfe net per day (855 mmcfe gross operated) by year-end 2011.

To further develop its 1.6 million net acres of Marcellus leasehold, Chesapeake is currently drilling with 24 operated rigs and anticipates operating an average of approximately 32 rigs in 2010 to drill approximately 175 net wells.

That is, they’re increasing the number of drill rigs they’ll be using in order to drill 175 new wells next year (across the whole Marcellus). And they’re expecting the output of these wells to significantly increase the amount of gas they’re extracting.

A non-profit advocacy group for landowners in Broome County. The Joint Landowners Coalition of New York says its mission is

To foster, promote, advance, and protect the common interest of the people as it pertains to natural gas development through education and best environmental practices.

Their general meetings are “held on certain (usually Tuesday) evenings 7-9 pm at Cornell Cooperative Extension”, according to their web site. And they’ve schedule a “Natural Gas Development Summit” on Friday, February 26th, but is open only to invited guests.

The Press and Sun-Bulletin reports that

The JLCNY will be able to accept donations, lobby lawmakers and fight for landowners’ rights and interests. That might include helping landowners in a dispute over how gas is metered as it’s taken from their property, interpretation and compliance of leases, or sorting through how mineral leases affect mortgages.

Last month we reported that Governor Paterson has proposed a 3% tax on royalties from gas. Now we learn what he plans to do with that money. He’s planning to add 35 jobs to the State payrolls, apparently to ensure the safety of our health and environment from drilling operations. As reported in The Press & Sun Bulletin:

New York is budgeting for 35 new positions in the next fiscal year to help oversee production of the Marcellus Shale, if and when it gets there.

While political and regulatory uncertainty clouds the fate of Marcellus production north of Pennsylvania, the staffing proposals are a sign that Gov. David Paterson’s office is preparing.

“If drilling moves forward, we have the infrastructure in place to do it in a safe and responsible way,” said Morgan Hook, a spokesman for the governor.

The staffing initiative would add 29 workers to the Department of Environmental Conservation, four to the Department of Health, and two to the Public Service Commission.

Today brought dueling demonstrations at the Capitol, with groups rallying both against gas drilling and in favor of it. The report in the Ithaca Journal says that hundreds of people turned out for the rally (and that’s with over an inch of rain pouring down there today). They say that there were local Southern Tier people on hand, as well as those traveling from New York City.

From where we sit, it sounds like both sides employed a common tool of exaggeration. Some examples reported; first the pro side:

“The jobs would be astronomical,” said Moore, 49, adding, “Without it, we’re done.”

and sounding off against:

environmental and conservation groups said in a statement that the proposed drilling “is arguably the most pressing threat to the health of the state’s environment.”

Governor Paterson has unveiled his budget proposal for the year beginning April 1. With nearly $1 billion of new taxes and fees, one can only assume it’s an April Fools joke. Some of this is targeted specifically at gas leases. As reported by ABC News:

A 3 percent tax on natural gas extraction from the Marcellus Shale formation in the Southern Tier and in central New York using horizontal wells, raising $1 million starting in 2011-2012.

This isn’t a lot of information, but it does imply a few things.

• Since it says “gas extraction”, I take it to mean taxes on actual gas coming out of wells, as opposed to just leases themselves. Note that some lease contracts make the landowner responsible for these taxes. If you’ve signed a lease you should check on this; if you’re considering it, make sure you understand what the deal will be.
• If they expect to derive tax income from gas drilling, it strongly suggests that they do intend to have wells drilled in 2010, and actively producing gas.
• If they expect $1 million dollars in revenue from a 3% tax, the math says that they expect $33.3 million dollars of gas to be pumped in fiscal 2010.

It seems that America has surpassed Russia in development of natural gas, becoming the largest producer in the world. World Oil Online reports

The US, with its big gas shale resources, has surpassed Russia as the world’s leading gas producer. The US government’s Energy Information Administration (EIA) said US gas production for the year probably rose 3.7% to 624 billion cubic meters, its highest level of the decade. Russia’s output fell 12% to 582 billion cubic meters last year, the Russian energy ministry said this week.

In the US, … lower gas prices last year than in 2008 encouraged the power sector to absorb the booming output from newly developed gas shale deposits. The surprising boost shale gas has given US output has closed the world’s biggest energy consumer to some imports and “created a huge oversupply of LNG in Europe,” Korchemkin said.

Exxon Mobil Corp. has entered the natural gas game by purchasing player XTO Energy. The New York Times article notes

The move — a show of confidence in the future of unconventional resources — could also spur additional investment in domestic unconventional natural gas plays like the Barnett in Texas, Marcellus in Appalachia and Haynesville in Louisiana.