Hancock Gas Lease

For some time now, New York City bureaucrats have been advocating an outright ban on drilling within the watershed. It seems that the DEC is punting on the question: rather than issuing an answer one way or the other, they are making the watershed area a separate class of regulations. Any application to drill in this area must be considered on a case-by-case basis. It seems likely that in practice this will amount to an insurmountable hurdle of red tape, becoming a de facto ban.

As reported by the AP:

New regulations announced Friday for natural gas drilling in the New York City and Syracuse watersheds will create a bureaucratic hurdle that effectively prevents drilling there, defusing concerns about possible drinking-water contamination.

Environmental Conservation Commissioner Pete Grannis said the watersheds will be removed from drilling regulations being developed for other parts of the Marcellus Shale region in southern New York. Instead, each gas well would require an individual environmental impact statement, which entails a long, costly and complicated process.

On the other hand, this sacrifice seems to be balanced by a more streamlined process for the remaining areas:

Under the broader regulations, companies applying for drilling permits would have to meet requirements spelled out in a “generic” environmental impact statement but wouldn’t have to do impact statements for each well.

The first question you’re probably asking yourself is: “am I in the watershed?”. Check out this link courtesy of NYC.

Yesterday we wrote that prospects for Southern Tier gas drilling look more remote due to the Governor’s political woes. Today we have a counterpoint to that. The Capital Business Council writes that GOP gubernatorial candidate Steve Levy supports developing the natural resources of the Marcellus Shale:

“The Department of Environmental Conservation should allow the process to move forward,” Levy said in a press release. “New York already has the highest environmental standards in the nation. There is no doubt that we can promote exploration while safeguarding our environment and water supply.

“New Yorkers look to their Pennsylvania neighbors and see a burst of drilling activity and they wonder why we can’t do the same here. Especially when the state is trying to close a massive deficit and promote job growth in a region that has been hurt badly by a lagging economy. Unfortunately, right now the American gas drilling boom has been blocked at the New York border.”

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.

State Senator James L. Seward (R/C/I – Oneonta) has proposed bill S6269 in the hopes of ensuring that gas operations do not damage New York’s water supply. As reported by WBNG 12,

Senate bill 6269 would allow the commissioner of the DEC to require any permit holder who is authorized to drill gas wells to post a bond with the state comptroller. The bond, an insurance policy, would then be available to defray the cost of repairing damage to a water supply.

“Gas exploration historically has been rather safe in New York, but it makes perfect sense to demonstrate continued vigilance in this matter,” Seward added. “This bill would establish accountability and responsibility on the part of gas drilling companies.”

The last several days have brought some news that may anger environmentalists.

First, Cayuga Heights may have violated its own laws concerning water quality accepted at its treatment plant. Writes the Press & Sun-Bulletin:

According to tests on wastewater coming to the plant, the village accepted material exceeding standards for metals such as copper and lead, and greatly exceeded standards for “Chemical Oxygen Demand” and “Total Suspended Solids.”

However

Mayor Jim Gilmore and Superintendent of Public Works Brent Cross responded that the gas-drilling wastewater was 3 million gallons of 540 million processed during the period. Monthly tests showed no violations of the village’s DEC permit while accepting the waste, Cross said.

Two days later comes news that there may be unexpectedly high levels of radioactivity being produced from gas well drilling.

An analysis of wastewater samples by the Department of Health found levels of radium-226, and related alpha and beta radiation that are up to 10,000 times higher than drinking water standards, according to a memo the agency sent to the Department of Environmental Conservation. That means the DEC will have to do more testing to identify drilling sites that pose radiation risks, and ensure hot drilling waste is handled and disposed of properly, according to records from the state. …

“The issues raised are not trivial but are also not insurmountable,” the health department’s memo to the DEC concludes. “Many can be addressed using common engineering controls and industry best practices.”

This is troubling coming right after the Cayuga Heights piece, which reveals that the DEC doesn’t really have the capacity to do this testing adequately.

Finally, the next day, two companies involved in drilling — Chesapeake Appalachia and Schlumberger — were each fined for a chemical spill at a Pennsylvania drilling site. Again from The Press & Sun-Bulletin:

Chesapeake Appalachia and Schlumberger Technology Corp. were both fined $15,557 for spilling 295 gallons of hydrochloric acid at a Bradford County drilling site early this year, according to records from the Pennsylvania state Department of Environmental Protection.

Failure of a tank used in hydraulic fracturing caused the spill in Asylum Township. …

Chesapeake notified the DEP on Feb. 9. An inspector called to the site determined about 7.5 gallons of the solution leaked every hour, which would suggest the leak happened over two days or more.

The companies sopped up free standing acid from the ground with absorbent pads and excavated trenches to contain the spill, according to DEP records. They later removed 126 tons of contaminated soil.

Fortuna Energy has reached an agreement with the state Attorney General over deceptive practices. They’re to be fined, and landowners who were fooled into extending leases must be allowed to renegotiate. The Press & Sun-Bulletin reports:

Fortuna sent letters to hundreds of landowners whose natural gas leases with the company were about to expire, stating that Fortuna had the right to extend the leases without the landowners’ permission, according to the AG’s office. Fortuna claimed that the leases contained provisions that allowed the company to put the lease on hold until they obtain the required horizontal drilling permits from the state Department of Environmental Conservation. Most landowners’ leases contained no such provisions, [Attorney General] Cuomo’s office said.

…

customers who were misled and ended up extending their natural gas leases with the company [will be allowed] to renegotiate their terms, Cuomo announced Tuesday.

The settlement also stops Fortuna from using misleading and deceptive tactics to secure leases from New York landowners. The company also agreed to pay $192,500 to the state in connection with the settlement, the AG’s office said.