Thursday, December 9, 2010

NY's Compulsory Integration Law:
Progressively Conservationist

[This was written as a comment upon an article by Peter Mantius appearing on a website from DC Bureau, which touts itself to be some kind of citadel of investigative journalism, but which turns out to be a very slanted bunch (that miraculously always seems to slant in a consistently similar direction).  At the time of my cross-posting here, my comment is still showing with Mantius' article, but I decided to preserve my text in hopes it would find more readers, and a longer shelf life.  In the meantime, I have noticed that Mantius' screed which, in a reply, he mentioned having actually gotten paid to write has gotten recycled on at least one additional crucadingly one-sided website.  Looks like I'm going to have to recycle my comments!]


Let's start with this: It's fundamentally incorrect to blame New York's (or any state's) compulsory integration law for the underlying legal principal of someone's rights to mobile property (in this case, natural gas) getting taken away by an extractive enterprise situated upon a neighbor. That's the rule of capture, which goes back to English common law, and to disputes over hunting game. And it’s still out there, this rule of capture, as an underlying legal principle, everywhere in America. The rule of capture came long before compulsory integration, long before IOGA-NY, and long before our modern-day showdown over hydraulic fracturing. All compulsory integration statutes are modern-day tweakings and softenings to the underlying rule of capture.

Though shocking to the uninitiated, most rational people can eventually recognize that the rule of capture is a necessary rule for fossil fuels extraction in a capitalist society (unless you decide to federalize mineral ownership, which many countries have chosen to do). Without this rule, you can't have much of any oil and gas industry within the checker-boarded American system of private land ownership. And that's what American courts long ago recognized when they applied the rule to the nascent oil industry. We’re talking, like, the 1800s here. Without the rule of capture, someone can always say, "Hey, that's my oil!" — and how you gonna prove it one way or the other? It's just endless litigation.

The well-spacing laws soften this rule of capture by — on one level, restraining neighbors from drilling needless additional wells — while on another level calling for them instead to share in the proceeds of a single well, even if it was drilled next door.

Next, there's this: You say, in 2005, in New York, "opposition never had a chance to mobilize" to fight modifications to the state's pre-existing well-spacing rules because it was all done without hearings or controversy. That's provably incorrect. The changes were accomplished in full public view — and right in the midst of a fairly heated and wide-ranging public controversy — especially in the Southern Tier of NY, where most booming natural gas production was then concentrated. It's true that there was fairly little environmentally minded opposition or involvement during the 2005 change. But it’s important to factually note that drilling wasn't a red-hot environmental issue at the time. And that the change wasn't about environmental impact. It was about property rights and proceeds.

The main difference between the 2005 controversy and the 2010 controversy is that the hottest issue, back then, was not killing drilling. Instead, it was the desire for everybody to get fairly paid (already) from past and future Trenton-Black River drilling and resource extraction, mostly in the Southern Tier. Millions of dollars in landowner-owned royalty income were getting locked up in escrow — under state government orders, for months or even years at a time — while New York State's environmental regulators were kerflummoxed over one primary, thorny question: How should we treat the holdouts?

The law then on the books was ripe for endless litigation — from opportunistic parties who had done nothing, signed nothing, invested nothing, and risked nothing — but who, unaccountably, threatened to hold their hands out, after natural gas was successfully found, for *all* the value presumed to flow from under their share of the production unit. New York faced a classic case of useless gridlock, in which all were being hurt, and nobody was being helped. For all its faults, the 2005 revision put an end to all this endlessness, and let ordinary people finally get paid, and let industry do the work that it does to pay its bills, to make its investors happy, to keep its workers employed (and to feed the fossil-fuels monkey maintained by our silent consumer majority).

Another thing — factually, the default royalty option for unsigned parties in New York is not 12.5 percent, and there is no deduction for 300 percent of drilling costs. You made two mistakes here. You got the “default” terms wrong, and you confused the "default" with the "carry" option. The current default rule for unsigned owners is they get the lowest royalty contracted for by anybody inside the unit who actually took a chance and signed on the dotted line — but no less than 12.5 percent. (The legislature could change that, in the future, and there have been proposals for that.) And, like customary royalty, there's no deduction for drilling costs. (There may be deductions for post-production processing and transportation costs — an obscure but very key, fine-print consideration for anybody who happens to own oil and gas in New York State.)

The way things are going in New York (I hope), there is unlikely to be many future leases at 12.5 percent royalty. In the future (I hope), New York State will finally get its regulatory act together, and will set the stage for large, widely-producing (but low-surface-impact) shale gas units where all of the included leases were actually worked on by knowledgeable professionals.

Another error — you said all spacing units in New York are 640 acres. To me, that means you didn't even read the 2005 changes, or the 2008 changes, or even the NYS DEC's very helpful explanatory web-posted materials about either. In 2005, New York State's legislature — in the interest of getting stuff done — actually effectively took the radical step of politically defining and simplifying geology, including the thorny question of oil and gas flowage through various layers of rock. Rather than allowing specialists to dither over the size and shape of every unit on a customized basis, they simply prescribed a whole table of unit sizes — for various rock layers, at various depths. In general, the deeper the rock, and the more flowing the rock, the bigger the desired unit, and the more widely spaced the drilling, per the public interest. (This is based on a principle of achieving maximum resource return for minimal surface impact, a rule that an increasingly small fraction of modern-day environmentalists still recognizes as part of their underlying philosophical worldview.)

There were also places where you misled your readers by leaving stuff out.

You say compulsory integration strikes some as "an outrageous violation of basic private property rights." (Again, it's the underlying rule of capture.) But let me ask you this — wouldn't it be more outrageous for a holdout, owning only 1 percent of the unit's natural gas, to assert that his subterranean private property rights are so touchy and inviolate that he's entitled to veto all drilling in the neighborhood — rendering useless the rights of the remaining 99 percent to produce their resource (including, incidentally, the guy who was ready, willing, and eager to host the drilling rig on his surface)?

You make the 2008 changes sound sneaky — paving the way for shale gas. But, really, they had more to do with this: The prior, 2005 changes completely failed to recognize what turned out to be already on the horizon. Believe it or not, the 2005 changes still envisioned shale gas units at a preposterously close spacing of 40 acres per well, vertically drilled, no matter what the depth, because of the known denseness of the shale. It’s clear that the brightest oil and gas minds in New York, in 2005, did not see coming the future of full-frack, 600-acre Marcellus shale units with six horizontal legs, radiating like pitchforks in either direction (or even a 1200-acre unit with 12 horizontal legs, which I’m reading is now technologically possible). In 2008, those guys were scrambling to fix their prior, short-sighted mistake.

You hold up PA as an example of a state which, by contrast, couldn't politically handle adopting an integration law similar to NY's. But you decline to actually explain how PA is effectively different from NY — right now, in real life, on the merits, on the status quo. In PA, the well gets drilled, whether the nearby holdouts like it or not, same as in NY. In PA, the gas gets captured, from the holdouts, whether they like it or not, same as in NY. But in PA, the holdouts are not compensated! In NY, they are — and, some might say, generously so.

Like virtually all modern-day critics, you completely fail to appreciate that PA's statute actually encourages resource waste, while NY's is truly, honestly, fundamentally, and progressively conservationist. And I mean “conservationist” in the oldest and most hallowed sense of the word.

Let’s get it straight. In PA — until those citizens understand the full ramifications and work to change their law — a horizontal drilling leg must stop the moment it has no choice but to directly strike the boundary of an unleased party, even if it's just a sliver of overlying land. Those oil and gas drillers are down there, right now, in PA — willy-nilly, all over the countryside — making all kinds of odd-shaped units and drill paths, driven largely by the pattern of who at present has signed, and who at present cannot be found or has refused, a mile or more overhead.

Make no mistake about it: In PA, significant, odd-shaped chunks of precious fossil fuels are simply being orphaned forever in the underlying shale! In PA, the horizontal leg must stop, and the private sector can never be expected to return to get that gas, sitting beyond the stoppage. Even when gas hits $50 a MMBTU, it won't make any financial sense to go back and get it, in most cases. There is only one realistic chance to produce this gas cost-effectively, and — drillsite by drillsite, unit by unit, acre for acre — that chance is while the private sector has its drill bit running on the horizontal, and while its completion contractor is ready to follow through with the frack.

Bottom line: Yes, PA's political sensibility and its policy currently produces way more natural resources, way more money, and way more jobs — compared to NY. But PA is also set up to waste lots in the long-run. NY's policy is technically ready to produce natural resources in a highly rational, highly rectangular, non-wasteful way. But NY has been politically restrained so far from getting started, because of the deference we grant to people who incorrectly claim the exclusive mantle of environmental concern.

Anti-drilling activists are always limited in their usefulness because they ask only certain questions. Mostly it’s: "How can we beat this?" Local law? Zoning law? Or maybe we need a study? Environmental impact review? Or what if we got federal regulation involved? Or a state or local moratorium? What about drainage basin commissions? Can they stop this? Or property rights lawsuits? How about nuisance lawsuits?

The point is that anti-drilling activists filter reality through these kind of persistently single-minded questions. It’s not a full picture of the necessary inquisitiveness, as measured journalistically, or by the public interest. On the compulsory integration question — the few times New York's situation has been examined — I consistently find that media people have been very much naively locked into just the questions posed by activists.

But there is a much wider array of questions out there — questions that are crucial to the full, ultimate public interest in people surviving in this world, with fairness and respect to this world, and with fairness and respect to each other.

Monday, December 6, 2010

Open Letter To NY Governor Paterson:
David, Just One More Thing Before You Go

Dear David,

Though I have never said this before — outside of friends and family, and usually while drinking at picnics, which often tend to lend themselves to good-natured devil's-advocate-type conversations — I have always admired your willingness to Do the Right Thing for New York State.  Especially when it pisses certain people off.  Truly, I do think you will go down in history as one of New York’s Most Unjustly Under-Appreciated Governors.

Incidentally, I should probably mention, some of my prior silence regarding the need to spring to your defense was just due to the fact that I was usually too busy working most of the time.  Yeah, in the oil and gas industry — sometimes New York, sometimes Pennsylvania.  Mostly land-title searching.  Kind of a grind, it’s true.  But, while it lasted, it did pay the bills.  Including my New York State income taxes (which, by the way, are gonna be Way Lower Than Usual for 2010 — sorry about that — though I imagine you are already privy to the forecasts.)

Right at the moment, basically, I’m just another out-of-work upstate New Yorker — still reluctantly flailing against the reality that Somebody Moved My God-Damned Cheese.  Part of me is aware that I must eventually come to terms with the economic imperative to abandon this state.  (My state!  My New York!  My upstate New York!  It's true — I don't wanna go!)

But, before I go, it must be that I got some stuff I wanna say!

One of the interesting things about having no work is you have lots more time on your hands to contemplate — and possibly even to obsess about — Current Events.  (This Internet is unbelievable, by the way.)  And there has also been lots more time for me to even think back upon your governorship.

I still remember those Summer 2010 vetoes, for instance.  I can’t remember where I was (probably working down in Pennsylvania), but it was definitely Summertime.  And you were definitely in all the papers.  The way you seized media attention by spending hours, day after day, hunched over that table, painstakingly scribing vetoes on every single one of those Thousands Upon Thousands of Ear-Marked Pork-Barrel Please-Please-Please Reelect-Me Member Items.  (Goddamn self-serving bastards!  Crazy that we re-elect those guys every time!)

To me, that was Friggin’ Heroic!  I will never forget it!

But — let me ask you something…  You think maybe you could scribe one more veto — before you pack up, come December 31?

The reason I ask is — well, it’s true, I got something in particular that springs to mind.  In fact, I have a whole slew of questions I hope you get a chance to ask of yourself, and of your professional staff — and even of incoming Governor Andrew Cuomo — before you sign off on this latest thing from the Legislature.  This is all about that badly conceived, stampede-driven passage — from last Monday night, Nov. 29 — of the Legislature's (First Annual) Shale Gas Moratorium — good until May 15, 2011, after which I'm sure it's in line for Perpetual Renewal.

Here we go:

• Does adding this second, overlapping legislative moratorium strengthen the legal case of gas exploration companies who have already sought — and might still seek — to indefinitely extend the leases they’ve already accepted from upstate landowners?  (In certain cases, mostly in the Southern Tier, some leaseholders have been unilaterally asserting this right, on grounds that New York’s Unprecedented, White-Knuckled Restraint of Commerce represents a “force majeure,” or “superior force,” preventing them from operating as originally contracted in the original leases.)

• Does this moratorium deepen a valid (though rarely asked) question of fairness and legal liability regarding New York State’s taking nearly $9 million in private-sector money in 2006 in exchange for five-year leases over 16 CNY state forest tracts totaling 19,277 acres?  (Ever since 2008 — as you’re surely aware, since you signed the directives — New York has basically stripped away most of the usefulness of those same leases it granted, along with many other private-sector leases, by Administrative Fiat, and now also, potentially, Legislative Fiat.)  (More here on the 54,764 acres of state land which, at last count, NYS had under lease to industry.) 

• You think maybe your successor, Andrew Cuomo, would prefer to have A Little More Flexibility, economically, running forward, during the opening months of his governorship?

• Does not even waiting to let the DEC people finish their hydraulic fracturing supplement to the famous generic environmental impact statement covering all drilling (plus their purportedly extensive regulatory rewrite) send the Wrong Kind of Message to the professional staff of that reputedly beleaguered agency?  (The DEC folks have been on this particular job since at least July 2008, and now the legislature — without even having seen their final results — already seems to think these guys need more time.  Hmmm…)

• Have the DEC Minerals Division professionals been painstakingly planning a late 2010-early 2011 sequence of rolling out the final SGEIS (together with draft enhanced drilling regulations, undoubtedly followed by much public commentary, and protest)?  (In other words, would the DEC’s original, pre-existing plan make the May 15, 2011 moratorium basically effectively meaningless — except as a Symbolic Gesture by legislators, ever-eager to score points with the right-sounding pressure groups?)

• Is it true — as asserted by IOGA of NY, the main pro-drilling industry group in the Empire State — that the text of this statute was so badly drafted it will require the DEC to halt even some ordinary oil and gas drilling and hydraulic fracturing activity?  (Supposedly, it’s going to disrupt routine WNY or CNY operations that have never before even so much as popped on the Radar Screen of environmentalists.)

• What is the risk of increasing the legitimacy of a takings lawsuit from upstate landowners?  (I’m not sure who said it first, but, of course, as a lawyer, you know they say no property shall be taken without just compensation...  The need for regulation of the extraction of this resource is understood...  Also, a truly occasional, truly temporary, moratorium can be patiently accepted by most reasonable private-sector individuals...  But, let’s face it, this is starting to look like a permanent ban on the private property right of underlying shale gas — thinly disguised as a Sequence of Perpetually Rolling Moratoriums — am I right?) 

• What is Pennsylvania so capable of that — for some reason — we here in New York cannot seem to get a handle on?  They got Penn State.  We got Cornell (and Syracuse, and SUNY, and even Columbia.)  They got — what? — probably 2,000 shale gas wells drilled so far already.  We got zero.  In fact, as of November, PA had 101 rotary drilling rigs actively drilling, a state record.  We had two (and they sure as hell weren’t drilling for shale gas).  It's true that PA's mishaps have been tragic and spectacular — by media measure, and by political measure — but not, ultimately, in the big picture of righting wrongs and life moving on.

• Have you ever wondered if maybe the State of New York is a Loveable, But Internally Conflicted, And Basically Self-Destructive, Sort of Character?  (I think you have.)  You have gone up against the public-sector unions, and all the special interests — which howl and complain, even while we taxpayers are drowning out here in Red Liquid Pain.  You have fought the good fight, and you have done your best for this crazy state of ours, which has gotten almost as bad as California.

You, of all people, know what I’m talking about!

But, really, on the fracking thing, I’m just asking you to consider giving sanity, rationality, professionalism, opportunity, and enterprise half a chance.  I know the Environmental People have been beating the drums non-stop on this thing, and that they are driving a helluva big flock of thoroughly spooked sheep — some of them even close friends of mine.

But you are so damn smart and independently minded — I know you, David! 

Let's face it — shale gas is just a natural resource, like many other natural resources with which we in New York are blessed.  I might be just be one guy, but I happen to think — once all the shuffling and the panic is finally put to rest — we could actually make this natural resource work for all of us, in a careful, regulated way.

Truly, I don’t think I’m asking for anything special.  I just want to be able to stay in New York, and still make a decent living.  (And maybe also go hiking on the weekends, if there are still any parks left open.)

Tuesday, November 30, 2010

New York's Shale Gas Moratorium:
Perpetually Temporary

In New York, a new fear-based religion, environmentalism, has just handily trumped the known, observable results of hydraulic engineering — not to mention the economic interest of thousands of hard-pressed upstate New York landowners.  I guess I should not be that surprised.  If history is any guide, it’s clear that freaking people out is not that hard to do in the political arena.  But I was still taken aback by the out-of-character swiftness with which New York State's lame duck Assembly, late the night of Nov. 29, joined the other house in passing, 93-43, a temporary overlapping moratorium on drilling for shale gas.

So much for gridlock.

I'm assuming Incoming Governor Andrew Cuomo will not think to ask Outgoing Governor David Paterson for a principled veto — in order to free up his new administration's ability to have at least some minor influence over New York’s economic freefall next year.  If I'm guessing right, then the ban on anything happening with Marcellus shale will briefly take effect — overlapping the state administration's now-two-and-a-half-year-old de facto moratorium — at least until May 15, 2011.  By then, the state's extensive environmental lobby will have surely established enough of a patterned drumbeat to ritualize an annual renewal by legislators.  Let's call it a Self-Congratulatory Festival of Springtime Smugness, in which all remaining, still-employed New Yorkers are invited to Albany to celebrate their good fortune in having gotten through another winter — burning natural gas fracked from Pennsylvania.

At some point, though, a small number of free-thinking upstate New Yorkers are going to wake up to the fact that Eternally Rolling Moratoriums (Moratoria?) are just a politically sneaky way of taking part of their property without compensation.  In America, there used to be a well-understood rule against that kind of unfairness.  If this moratorium vote proves how strongly taxpayers feel about giving land-owning New Yorkers no option except to forever leave their natural gas in the underlying shale, then these taxpayers should simply be required, under the American system, to buy the rights to the stuff at fair value.

If we New Yorkers collectively owned all the shale gas, then we would certainly be within our rights to leave it all in place, if we so chose, indefinitely — while we continue idly burning coal, oil, and natural gas produced from far more enterprising states or nations.

That kind of choice is what it means to be an owner.

But, see, we don't own it.

This is exactly the kind of subtle injustice that modern media are no longer able to fit into any of their off-the-shelf narratives.  Yes, there have been cases of fouled water and other external impacts, which we as a society must force industry to relieve, out of the internal proceeds of the enterprise.  And, yes, there have been unbalanced business transactions, which we as a society must work to level with the traditional rule of law, coupled with the simple Free Flow of Honest, Accurate, Truthful, Unpropagandized Information.

But there are also other ways of screwing a landowner.  One of those other ways is what New York State Legislators — acting at the behest of environmental activists who persuade with increasingly less and less scientific credibility — just did to their own people.

NY Shale Gas News — November 2010

Hello Upstate — my Upstate!

• Mon., Nov. 29
— Near the midnight hour, New York State's Lame Duck Assembly joined the other house in stampeding to passage, 93-43, a temporary overlapping moratorium on drilling for shale gas.  I awoke the next morning — unhappy at the news — and wrote a blog piece I called "New York's Shale Gas Moratorium:  Perpetually Temporary," which basically explains most of the nuances of this dismal news.  Even though I used the word "screwed" — which I'm pretty sure is still problematic for most family newspapers — I emailed it off to the Op-Ed desk at the Syracuse Post-Standard — because it turns out I actually stopped before I rambled past their limit of 600 words.  We'll see.  Then I went out on some errands in downtown Syracuse — a haircut, some lunch, and a swim — and I came home and wrote non-stop an "Open Letter to NY Governor Paterson:  David, Just One More Thing Before You Go."  (Yes, there was some alcohol involved.)

If you're still just sitting there — reading this, stunned — and you'd like to finally formally take sides with the True Underdogs in This Dog Fight — the Upstate New York Landowners, you can electronically ask Gov. Paterson for a veto here via the Joint Landowners Coalition of New York — an organization that I heartily recommend you sign up with, even if you don't yet own any upstate land.  Or, if you'd prefer to use industry's method of communication, you can give David your two cents here, via the Independent Oil and Gas Association of New York — an organization that I heartily recommend you keep in touch with.  (Or you can probably do both!  But do them both quickly.  The governor only has 10 days from passage to get his ball-point unsheathed.)

• Wed., Nov. 24
— As of this day, Upstate New York landowners — unwitting owners of millions, or possibly even trillions, of dollars worth of theoretically valuable shale gas — now seem to have been successfully lulled through a
Nearly Year-Long, Naively Trusting, Beddy-Bye Nap by Albany's ever-wily political establishment.  These landowners have been consistently fed a reassuring, coo-cooing message to the effect that a Handful of Still-Busy, Still-Stalwart, Still-Employed DEC Professionals have spent the last 11 months, Working Overtime, Fingers to the Goddamn Bone, addressing answers to the thousands of mostly robo-generated comments made upon the now-infamous hydro-fracking SGEIS.  All this was said to be in order that safe, regulated natural gas drilling might someday eventually return to the Empire State.  But now it turns out that maybe the DEC people, and their political bosses, have been faking the effort all along!  Here's the evidence:  Outgoing Governor David Paterson gave a Thanksgiving Eve chat with Joe Donahue and Alan Chartock of Albany's WAMC, in which he made these remarks:  "This is a very good example of public participation.  Our DEC... originally ruled that hydrofracking would not affect the water quality in the area, but we've received additional information and have not been able to come to a conclusion as to whether or not this is a good idea.  Even with the tremendous revenues that will come in at this time... we're not going to risk public safety or water quality, which will be the next emerging global problem after the energy shortage.  At this point, I would say that the hydrofracking opponents have raised enough of an argument to thwart us going forward at this time."  We can only hope Incoming Governor Andrew Cuomo has not been so easily spooked by the Forces of Panic and Obstruction.

• Wed., Nov. 24
— Just when Upstate New York landowners thought it would be safe to turn away from the Internet, and get that turkey stuffed, it became clear that Frack-o-Phobes had some after-holiday stuffing plans of their own:  R
amming the frack moratorium through NYS's Lame Duck Assembly.  "Kill the drill" activists announced plans to gather in Albany, Monday, Nov. 29, in order to turn up the heat on surviving and outgoing Assembly members.  They want the Assembly to sign off on the NYS Senate's ban on hydraulic fracturing, which overlaps (and also errantly exceeds) the current administrative moratorium, running until May 15, 2011.  If you've had enough of this, and you are a New Yorker, I encourage you to spend two seconds Firing Back HereAlso please click the automatic alert option at the end in order to involve several of your free-thinking acquaintances, should you have any.  (Look at it this way it's either two seconds, or a Continuation of Eternity, waiting for this madness to subside.)

• Tues., Nov. 23 — Cable business news specialist CNBC premiered a one-hour network cut of the indie film "Haynesville," a decidedly non-Gaslandian celebration of the changed lives of common people in Northwestern Louisiana, following the boom in that particular shale's gas play.  If you missed the first night, you will have another chance to see it on Sunday, Nov. 28, 10 pm EST.  This film focuses on the unexpected drama of real people — suddenly caught up in real money for the first time in their lives, for no reason other than just obscure geological fate.  Kinda cool.

• Mon., Nov. 22Catskill Mountainkeeper, on its web page here, put out a new campaign for frack-fearful citizens to sign onto a canned email to President Obama — a text which demands that the feds put a moratorium on new drilling permits nationally.  Only trouble is, this writing unwittingly reveals how badly misinformed modern-day environmental organizations have become:  Onshore, states issue drilling permits, not the federal government.

• Fri., Nov. 19
— In Towanda, PA — seat of Bradford County, top Marcellus shale gas producer along the banks of the Mighty Susquehanna River
Daily Review Editor Ron Hosie let loose a very nice piece of writing, taking the position that Lesley Stahl of 60 Minutes had shale gas right, while Josh Fox of "Gasland" had it all wrong.  Hosie wrote this:  "If you want a relatively quick overview of the natural gas phenomenon, watch the 60 Minutes program.  And, by way of contrast, see 'Gasland' and learn for yourself the difference between a responsible report and a hatchet job...  As we said on this page recently, the gas industry has brought about an economic boom that likely will continue to be a transformational force in this region.  In a word, it's called progress.  As the effects of the phenomenon spread, our lives, for the most part, are improved.  The future looks brighter.  Don't take someone else's word for it.  Evaluate the pros and cons.  Figure it out for yourselves.  In the final analysis, embrace the change, take control, ensure proper regulation and the means to pay for it, and see to it that if anyone is harmed, they are made whole.  But, most of all, celebrate the new opportunities, promote orderly growth, and reap the rewards."

• Thurs., Nov. 18
— It may take awhile for this to sink in, because of the natural resistance of wishful thinking, but the size of the viable part of the highly touted Marcellus shale belt just got a little smaller.  Encana Oil and Gas informed hundreds of undoubtedly heartbroken Luzerne County and Columbia County, PA landowners that natural gas is not commercially producible from their cut of the underlying Marcellus shale.  And Encana also let them know it would be surrendering their leases, rather than trying to find a more hopeful buyer, or keeping up annual payments.  Operating in the glare of a near-daily media spotlight (and also a number of scowling environmental protesters), Encana spent millions of private-sector dollars drilling two horizontal wells, and fracking one of them
both in the northwesternmost corner of Luzerne County.  But in the end it was Prognosis Negative.  Apparently, as was feared, when you get that close to Pennsylvania's famed coal belt, the same geological forces which produced the coal also over-cooked the shale, releasing the gas, a long long time ago.  All this should be a stiff leash tug on the media-approved tendency to allow Marcellus hype to be transformed into fact — long before anybody does the actual work of proving it, which in this case can only be accomplished by drilling and fracking.  Here's the full next-day story as told by the Wilkes-Barre Times Leader.

• Thurs., Nov. 18
Broome County, NY legislators by a 10-3 vote killed a proposed five-year oil and gas lease over a 3,200-acre portion of the county's own holdings, mostly the airport and the landfill.  After a false start earlier in the year, this second version of the deal was again paraded before skittish lawmakers by County Executive Barb Fiala, who was partly motivated by the unquestionably positive impact the $7.8 million signing bonus would have had on Broome's reportedly dire budget situation.  Averaging $2,438 per acre, and including 20 percent royalties, the offer seemed remarkably generous, especially in view of the fact that the signing money was due to be forked over prior to the SGEIS finale
which could conceivably turn out to be more of a slow-motion implosion, than a timely resolution.  I could be wrong, and I hope I'm wrong, but the way things are going Broome's elected reps may be showing New York landowners nothing more than how to behave as Pretty-But-Vain Wallflowers at the Shale Gas Ball.

• Tues., Nov. 16
— The City of Pittsburgh, became the first in PA to ban drilling for Marcellus shale within corporate limits. The city council vote was mostly symbolic, but it was also unanimously symbolic — which is absolutely the worst kind of symbolism.  Taking such an action is supposedly illegal under PA state law, but it won’t get challenged anytime soon, because nobody actually has any plans of doing any drilling there.  Thousands of folks in that metropolitan area make their living in some way connected to the oil and gas industry, but it didn’t seem to matter.  Next up, I expect activists in the NY cities of Rochester or Syracuse will put forth a similar Marcellus shale drilling ban — until somebody taps their shoulders to the fact that the glaciers already washed away all that rock, that far north, so not to worry.

• Mon., Nov. 15Albany-based outdoorsman and Twitter enthusiast Andy Arthur (@AndyArthur — definitely worth a follow) sent out this message to the unknowing, unseeing, unfeeling, unthinking universe:  "I figured out the solution to the hydrofracking debacle in NYS — simply move all of the Southern Tier into PA."  Despite at least one retweet, not a soul appears to have been stirred by this ingeniously bold call for Upstate New York Secession.  Nonetheless, I am recording it here, should it catch on eventually.  Even if historians wind up confused as to the origins — after, say, the Twitter archive crashes at the Library of Congress — people are going to need to know who to credit, or to blame, depending.

• Mon., Nov. 15
Newfield Exploration buys part of EOG Resources, paying $405 million for 50,000 acres, mostly in Bradford County, PA, and mostly Marcellus-shale focused.  For those New Yorkers counting chickens before they’re even conceived, that’s $8,100 per acre, which sounds pretty good.  (But this land is right in the heart of the hottest Marcellus zone, where there’s already production, and where the support infrastructure is already partly developed, and where — lastly — there's a state government that has always found a way to allow shale gas to be drilled for.)

• Mon., Nov. 15Halliburton struck back in an ongoing battle for persuasiveness against avowed enemies of fracking, and also the EPA.  This oilfield services behemoth — which has systematically built a reputation so foul that the mere mention of its name (or the phrase "Dick Cheney") is known from surveys to be capable of triggering Pavlovian Snickering from 9 out of 10 Organic Grocery Shoppers — engaged in two corporate revolutions at once:  First, Halliburton publicly released on the web the hydraulic fracturing fluid formulations it's been using, at least on Appalachian shales.  Secondly, it announced a “green” frack fluid formula, supposedly composed entirely of ingredients used by the food industry.  I haven't really read the reactions very closely, but I'm guessing there will be some reason why this wasn't good enough.

Sun., Nov. 14Lesley Stahl of the CBS news magazine 60 Minutes fronted a one-third hour segment on the pros and cons of shale gas, introducing — to me, anyway — the word “shaleionaires.”  Dead Louisiana cattle and Pennsylvanians with methane-infused well water got shown, but most pro-gas observers probably came away pleased with the generally bemused "modern-day gold rush" tone of the piece.  ("It's a gift from the good Lord," said retired oil field worker C. B. Leatherwood, memorably.)  Energy In Depth had some dutiful corrections afterwards over a few unstoppable pieces of misinformation — just-plain-wrong stuff which is now so tightly ingrained in the popular culture, not even CBS’s crack team of journalists and fact-checkers were able to separate myth from actual history.   But whaddaya gonna do?

• Fri., Nov. 12ProPublica put out a long interview with former NYS DEC chief Alexander “Pete” Grannis, who has become — since his sudden firing by outgoing Governor David Paterson — the ever-reflexive environmental community's Martyr-in-Chief for a Barren, Decimated, Crippled, Understaffed, Overworked, Barely-Able-to-Function State Environmental Agency.  I may be the only observer statewide to actually say this out loud, but much of this concern strikes me as a bit overdone, overblown, and over-the-top. 
First of all, there is no factual way the DEC is "in the weakest position that it has been since it was created 40 years ago," as the leaked Grannis-scribed memo asserted.  (Can one of these young, under-paid State Capital reporters please simply dig out that agency's payroll numbers from the 1970s, already?)  Secondly, the DEC's Minerals Division represents just a small fraction of what that agency is all about, so why does that monopolize the conversation?  Here's why:  What's really going on here is that drilling opponents are putting Grannis on a martyr's pedestal, and over-dramatizing the agency's budget-driven downsizing, because they think it helps their case for Eternal Delay.  This is especially evident, given that Grannis said right in the ProPublica interview that, of course, the DEC is going to link its drilling oversight staffing directly to the volume and pace and growth of shale gas development activity (which — have I said this,  already, someplace? — currently still stands at zero). [One last thing:  The reader comments following this interview are way more intelligent than usual — pro, con, and somewhere in-between — and I hope they survive online long enough for you to check them out.]

Thurs., Nov. 11 — Incoming New York Governor Andrew Cuomo, nine days after he's elected by a huge margin, shows up on the radio — WOR, 710-AM, the John Gambling Show, Paterson's old regular location — saying he’s all for drilling upstate, so long as it can be done safely.  This is reported as actual news, even though that's exactly the same fence he has been riding the whole time he was running for governor.

• Tues., Nov. 9
— After apparently getting a callback days later from the Anschutz PR people, Jon Campbell of the Binghamton Press reports that the 500,000 acres of Anschutz’s Appalachian leasehold which got sold to Chesapeake Energy for $850 million does not actually include any of its New York holdings.  Unreported:  Does this, or does this not, indicate that land in New York State currently has little oil and gas value under the present state of Regulatory White Knuckles over shale gas drilling?

• Tues., Nov. 9
— There's a showdown in Harrisburg, PA, in front of a highly obscure water infrastructure funding board, over whether or not to advance public funds to build a fairly expensive waterline to serve a small number of families in Dimock, PA.  Technically, the news was the board went ahead with the pipeline.  But it was interesting to see the typical media narrative getting disrupted by actual events.  Most readers are already well-acquainted with the Dimock victims — being those families whose water supplies were damaged by methane migration said to have been either caused or accelerated by nearby gas drilling — and with the obvious culprit, Cabot Oil and Gas.  However, the smooth, familiar flow of this typical narrative has gotten jostled lately — by the rise of a counter, anti-waterline citizens group, Enough Already, which basically thinks the state's solution to this water issue is needlessly expensive overkill.

Tues., Nov. 9EPA subpoenas Halliburton for the recipe on its Secret Fracking Sauce, asserting The Big Aitch was the only company, out of nine, which refused to voluntarily go along with the federal inquiry. 

• Tues., Nov. 9 — Busy day.  Chevron buys Atlas — for $4.3 billion if you include assumed debt — in order to diversify its long-standing oil focus with a shale gas effort, especially Marcellus. 
Among lots of other complicated assets, Atlas was widely reported to control 486,000 net acres in the Marcellus shale, and 623,000 net acres in the Utica shale, but to my knowledge not a single journalist was sharp enough to specify how much of this is the exact same acreage getting double-counted — what with the Marcellus layer sitting on top of Utica.  (For shame!)

• Sun., Nov. 7 — Free-thinking planning consultant Thomas J. Shepstone — on the banks of the Mighty Delaware River, in Wayne County, PA — had the temerity to dismiss "phony baloney about fracking."  By the time I got around to linking this thing, the Wayne Independent had 108 comments... and counting.  (Go ahead...  pile on...  It's a free country!)

• Thurs., Nov. 4"Shale Gas and America’s Future," a 30-minute film funded by industry front group American Clean Skies Foundation, is released.  You can order a DVD online.  I don't think they're charging much.  Public exhibitions are probably actually encouraged.  But — unlike "Gasland," or even "Haynesville" — the response has so far been... barely detectable.  I haven't even heard of any premieres, or cast parties, or reviews.  But, here — having attempted to watch it online using a very choppy DSL connection — I can give you my own take on this:  The film is intended to supplement an earlier "public education" effort, which is still represented on the web under the heading of "Shale Country."  While that low-budget picture-vid narrative was put together with warmth and simplicity and authenticity by artistically inclined Getzels Gordon Productions, this new film was done by somebody else, Hillman & Carr Inc.  Anyway, it shows.  I ain't gonna sugarcoat it.  It's okay.  It's factual.  It tries.  But you can't beat Josh Fox with this shit.  Days later, I noticed a Google-placed ad on a web page, which reveals how ACSF is actually hoping to lure viewers to this film: "Hydrofracking Exposed — New movie shows how it really works."  Ewww, boy...

• Thurs., Nov. 4
Chesapeake Energy reveals itself as the secret buyer of Anschutz’s 500,000-acre leasehold (said to be spread across PA, OH, and NY), paying $850 million, which works out to a crude gauge of $1,700 per acre. 
Jon Campbell of the Binghamton Press — who, by the way, is a million times more professional a reporter than Tom Wilber, who was formerly allowed by Gannett to daily tilt this Marcellus shale story fear-ward for Two, Long, Agonizing Years, but who is now working on a book about this conflict — had the news.  (But the NY acreage's inclusion in this deal turned out to actually be untrue — see Nov. 9.)

• Wed., Nov. 3
— President Barack Obama utters these words in the wake of the “shellacking” his party received during the Mid-Term Corrections:  "We've got, I think, broad agreement that we've got terrific natural gas resources in this country.  Are we doing everything we can to develop those?"  (If I could just translate, in other words:  "Drill, maybe, drill.")  For days afterwards, the Twitter-Sphere shows Frack-o-Phobes are completely freaked out by their Main Man's endorsement of such an obviously evil technology.

• Tues., Nov. 2
Mid-Term Corrections Day, widely seen as another angry tilt rightward, toward less government, lower taxes, and more business freedom.  PA was more or less red-shifted everywhere, but in NY, of course, blue Democrats clung to all statewide offices.  In upstate NY, though, there were races in three congressional districts which overlapped significant prospective shale gas acreage.  In those places, "To Drill or Not To Drill" became a key question in the minds of voters.  In NY-29 (Flame'n'Burn Rep. Eric Massa's old district), pro-drilling Tom Reed (R) handily defeated avowed anti-fracker Matt Zeller.  In NY-25, still-skittish-on-shale-gas Richard Hanna (R) ousted two-term Rep. Mike Arcuri, who
late in the race sided directly with Ithaca's most zealous "kill the drill" activists.  And in NY-22, leading congressional natgas obstructionist Maurice Hinchey (D) — who also broke bread with The Ithaca People — held off a closer-than-before, tea-party-infused and industry-backed challenge from George Phillips.  Not that it mattered much, but I had some choice remarks to make about Arcuri and Hinchey beforehand.

• Mon., Nov. 1 — Okay, so maybe all this was posted with an October 2010 publication date, but I still say the full spread of National Geographic's landmark shale gas coverage was not really available for reader absorption until November.  Anti-drilling activists immediately sought to suppress it from the Viralsphere on account of its ungodly sponsorship by Shell — despite assertions from the magazine's journalism team that it retained 100 percent editorial control.  I say this was an honest, colorful, and very accessible account of what could well be Upstate New York's future — the good, the bad, and the very challenging.  I wish all my fellow Empire Staters would simply give it a good read.

Sunday, November 14, 2010

Contentious Bedrock:
Photos of Marcellus Shale From Marcellus, NY

I drove out to Marcellus, NY, and took some photographs of Marcellus shale.
These are flakes of the now-famous Marcellus Shale at the base of a rock cut along Lee Mulroy Road, a/k/a Routes 174/175, just south of the Village of Marcellus, New York, near sundown on Nov. 12, 2010.

Marcellus shale underlies thousands of square miles in Appalachia, running as far south as the western end of Virginia.  But, of course, it had to have been first named and described within the scientific record from a spot where it could be studied on the surface as an outcropping.  That's where Marcellus comes in.  The naming of this shale
is attributed to Professor James Hall, who worked on New York State's original geological survey, starting in 1836, and first used the phrase "Marcellus shale" in a paper published in 1839.

Prof. Hall, incidentally, was quite the character.  He set the standard for early bureaucratic empire-building within the Empire State — refusing to stop work on the geological survey, even after the originally approved four years of money ran out.  Hall pushed the legislature for more money, and more time, and he relied on private fund-raising in the years when public money was short.  Eventually appointed to three overlapping jobs — State Paleontologist, State Geologist, and Director of the State Museum — Prof. Hall, in 1
894, finally published the last of his 14-volume Paleontology of New York, formally bringing the originally intended geological survey to a close.  [All this relies on the remnants of the New York Geological Survey, as kept alive by the State Museum, which is truly a rich and awesome place.]

My roadside rock cut has probably been sculpted some by road-making machinery, but Prof. Hall's original exposures could have been cut by just Ninemile Creek, working alone.  That creek flows nearby, approximately parallel with the road, carrying the outlet water of Otisco Lake, the easternmost of upstate's famous Finger Lakes.
This was the view around sundown on a Friday, Nov. 12, 2010, in "downtown" Marcellus, NY, a still-nicely-rural village that's also within a commuter's reach of Syracuse. 

The name Marcellus was originally borrowed from classical literature in order to impart an imposing grace upon the surrounding township — which was mapped from the wilderness by government-appointed surveyors in order to pay off Revolutionary War soldiers with free land. 

But the name Marcellus is now best known worldwide for having been applied to that nearby outcropping of shale rock.  That shale layer, and other North American shales, are altogether touted to contain enough domestic natural gas to eventually switch significant portions of the U.S. transportation fleet off of oil-based fuels — including trucks, school buses, and even passenger cars.

I read someplace that institutional fleets of bigger vehicles make the most immediate sense for systematically swapping out traditional models in favor of new stuff designed to run on natural gas.  They could have their own homebase fueling station, number one.  But, also, it's because the bigger vehicles have more room to stash away the fuel tanks, which are way bigger.  The public transit system in Syracuse now consists mostly of buses with these ginormous boxy protrusions lying prone on the roof. 

This is that same rock cut made out of Marcellus shale, out along Lee Mulroy Road, near Marcellus, NY.  I was struck by how crumbly it was, and by how green it was.  I'm told the deep underground stuff is so hard, it'll make a hammer ring when you hit it.  But this stuff that's been weathered, you couldn't build anything out this rock, that's for sure.  The greenish hue is probably from simple plants, now colonizing the nooks and crannies and soaking up the sun.

The hydrocarbons locked up in the more deeply buried sections of this shale were, in fact, made out of atmospheric carbon and solar energy.  It's just that it was old carbon and old solar.
  It's interesting to me that the most strident representatives of the environmental movement — those who have been very quick to develop an emotional commitment to demonizing shale gas — never seem to talk about fossil fuels in this way.

To my skeptical, challenging, contrary way of thinking, though, this is what comes to mind:  When this shale was getting laid down at the bottom of the sea, there was no one around with enough brain-power to think about it, fret about it, or protest it.  Nonetheless, the fact of the matter was — year after year — lots of energy, and tons of atmospheric carbon, were being locked up in those rocks.  No doubt it had an effect on climate, over the years. 

Now — ever since the days of burning significant coal, oil, and natural gas — we humans have been engaged in a furiously paced re-release of all that solar energy, and all that carbon.  I'm pro-shale gas (within limits).  But I don't deny human-caused global warming, like some of the other fossil fuel defenders out there.  I'm just calling it what it is — and suggesting that maybe we could stand to lighten up a little bit about it.
This was a really interesting piece of Marcellus shale, and I wish — looking at it now — that I took this chunk home with me as a memento after snapping this shot.  It’s so awesome and gnarly and colorful and… dessicated.

(Well, I suppose I could always go back…)

But let me just lay this on you:  One of the incontrovertible questions raised by opponents of hydraulic fracturing is the fact that the process “orphans” millions of gallons of fresh water — deep within the shale layer — and that this once perfectly good water is never expected to be returned to the well-known Eighth Grade Earth Science Water Cycle of evaporation, and rain, and snow, etc.

This must be acknowledged as true because industry reports that it only ever seems to be getting back a fraction — 10, 20, 30 percent — of the water it sends down the wellbore to fracture that shale.  What comes back is called “flowback water,” and in the Northeast this stuff must be dealt with within the current high-intensity fishbowl of state agency oversight, freelance monitoring by citizen activists, and the whole general PR issue.  But the rest of that water stays in the shale, a mile or so beneath people’s well water.

Doesn’t all this sound terrible?  It does.  But does it ever become an actual impact on humans or the environment? — that would be my question.

Well, as far as losing water from the world goes, consider this:  Just the act of burning fossil fuels adds new water to the topside environment.  This is because all combustion of hydrocarbons inevitably leads to the end products of carbon dioxide and water vapor.  Here, for instance, is the formula for burning methane:

CH4 + 2O2 = CO2 + 2H2O.

Yeah, but — how much water could that possibly be?  You’re not going to believe this, but Chesapeake Energy already has posted online a PDF by an engineer (whom they no-doubt employ), where the guy claims all that lost fracking water would get replaced within just the natural gas well’s first six months of producing combustible methane.  Everything beyond six months would be extra water.  It is a very interesting reply (although somebody else will have to double-check his calculations).
Another thing I want to say about water (and this is another picture of some very dry-looking Marcellus shale, so it's just as good a place as any to bring this up, I suppose) is that I have been very much taken aback of late by the number of fairly well-educated people who somehow believe that polluted water is an unmanageable, catastrophic, irreversible situation.

There are even heartfelt statements out there, findable online, from well-meaning-but-clueless politicians, warning the citizenry about the absolute fact that water is a non-renewable resource.  I don't understand what this is about.  Is this a new religion?

It's as though these people have never contemplated the fate of their own urine, or the steam coming off a boiling teakettle, or a wet towel drying on a clothes line.  O
r the source of all the rain and snow that falls.  Or why all that salt in the ocean has never really been a big issue for humanity.

The last person who got to me on this was an acquaintance of mine, a kinda-new-agey advanced-degreed biochemist in the upstate New York college town where I live.  Learning of my association with the obviously evil natural gas industry, I found her immediately transported into a vociferously held position — right in the middle of a drug store parking lot — to the effect that used frack water would be irretrievably bonded with its natural or man-caused pollutants, even after filtration, or reverse osmosis, or evaporation, or distillation.

I honestly think it just comes down to we humans wanting to believe whatever fits.  If we have to rewrite 19 years of schooling to get there, then — by God — even smart people will do that.
I was too busy trying to time my picture to get a close look at this car as it sped past — with the Marcellus shale rock cut behind it near Marcellus, NY.  In all likelihood, it was gas-powered, or a hybrid.  Maybe a diesel.  But it was pretty unlikely to trace its power source to the natural gas which is now known to be producible in large quantities from that background shalebed, along with other North American shales.

To be powered partly or wholly by natural gas, the car would have to be a plug-in electric, or a natural gas vehicle (new acronym, NGV).  Sometimes I see these NGV's — usually it's a utility- or government-owned sedan — and the only way I can tell what they are is because they usually have stickers plastered all over them, showing off with another new acronym, CNG (compressed natural gas).

I just re-tweeted something about this the other day from the Pickens Plan — a claim that European car-buyers have 53 different NGV models to choose from, but U.S. consumers have only one (a Honda).  Most of us right now would have a hell of a time finding a station at which to refuel one of these babies.  But — if the price of oil keeps getting pulled higher, while natural gas stays cheap — it could get all changed around soon.  Commerce is like that.
This is just another shot of a second, no-doubt-oil-fired schoolbus rolling through the Village of Marcellus

I never really gave much thought to T. Boone Pickens, and his so-called Pickens Plan, and all that stuff about weaning the U.S. off of foreign oil.  I just assumed it was all a bunch of right-wing, pro-business malarkey, and that's never really been much my style.  But the more I read, the more convinced I am the dude is onto something
— even coming from the perspective of an environmentalist, a social liberal, and a registered Democrat.  To me, domestic natural gas is just the fossil fuels equivalent to all that "Buy Local" proselytizing you get at a farmer's market.  (And the same goes for wind power!  Or corn-powered ethanol!)  The more we shift off of foreign oil, the more my own countrymen — even my own fellow upstate New Yorkers — can get the jobs, or the money, or both.  What the hell is so wrong with us that we can't do this?

And then President Obama
— in a speech he gave the day after his party's "shellacking" during the Mid-Term Corrections — actually touted American natural gas as a growth enterprise, a place where the Democrats and the Republicans could maybe find common ground.  (Boy, did that piss off the frack-o-phobes!  You sure couldn't prove there was much common ground by looking at the political conversation going on afterwards, right here in New York!)

Anyway, I wonder — if shale gas ever gets started upstate, and if it turns out to be not as devastating as some feared — maybe someday the boosters of Marcellus village will change their sign to read, "Home of That Famous Shale."
Here you can see the green-hued shale layers before it all crumbles below onto that sloping pile of loose flakes.

One argument I read a lot from anti-drillers — especially in the relatively anonymous online comments sections of some upstate New York newspapers
— is the green-eyed accusation of "greed" against both landowners and the natural gas industry.

This bothers me, for a number of reasons. 
For starters, I don't think wanting to be able to pay your bills is greedy (and, let's face it, that's what most landowners are going to wind up doing if they ever manage to make any money from their shale gas resource).  Furthermore, I don't think wanting to have a job is greedy (and, at the rate we're going, some of the New Yorkers we're talking about employing here are probably right now still in junior high school).  Lastly, I happen to know firsthand that getting natural gas out of the ground and available to the consumer requires a hell of a lot of effort — across an unbelievable variety of areas of expertise.  I don't think there's anything greedy about the willingness to risk one's money, or sell one's time, getting it done.

Truly, these things are not about greed.  Do these so-called environmentalists drive around the upstate countryside, looking at the rows of ripening corn, and mutter cynically to themselves, "Goddamn greedy farmer"?  Or do they curse themselves as greedy, every time they tear open their monthly retirement account statements — which are almost invariably touched, directly or indirectly, by investments in the fossil fuel business?

Let me just turn this around, and ask about greed in a way that nobody ever seems to want to contemplate:  Is it greedy to enjoy a lifestyle that includes all the benefits of natural gas (and other fossil fuels), but, at the same time, to loudly protest ever being asked to tolerate even just some of the acknowledged impacts required for its production?

(Or is that just childish?)
Shale makes for a big rubble pile, and shale gas makes for a big argument — no doubt about it.

How can there be such a wide variety of very different truths for different people on the shale gas issue?  I think — through a process of contagious persuasiveness and misinformation, some of it even appearing as regular journalism — otherwise intelligent, concerned, and well-meaning people have become, essentially, very afraid.  I don’t mean to be disrespectful or dismissive in saying this.

The fear that is making the rounds these days has quickly converted some New Yorkers into die-hard opponents of the whole concept of shale gas.  Essentially, these folks advocate turning our backs to development of this resource.  (It’s okay to use, but not to produce — at least not from around these parts.  That seems to be the logical end result of their line of thinking.)

The fear also quickly becomes the lens through which opponents take in all further information, and the way in which they spread the word.  And so it goes, like a virus

I don't know how to turn this virus around, but I do know it's not what I believe.  I believe that we in New York have a choice between figuring out how to make shale gas work for all of us in a careful, sensible, and regulated way — or letting fear, ignorance, and political turmoil shackle our future.  So long as we use natural gas, I think it’s a much more responsible approach to get it out of the ground, safely, right here in New York State, where we can manage our own impacts, and where our own citizens stand to benefit — rather than just idly pawning off all the risks, and all the rewards, on the people of Pennsylvania, Louisiana, Texas, or Canada.

Thursday, November 11, 2010

Norse Energy’s View of Central New York

While we upstate New Yorkers slept through the wee hours of Nov. 10, executives with oil and gas company Norse Energy Corp. were busy overseas, making a quarterly report to their shareholders from the private businessmen’s club Shippingklubben in Oslo, Norway.
A very approximate, highly generalized depiction of Norse's key leasing and drilling area — shown within the context of county lines, pipelines, and activity from competitors. I believe this map was created around January 2010.
Buried amid all the financial sand and gravel, there were a few key nuggets that should be of interest to anybody who owns land in Central New York — especially land in or near Norse’s key exploration area, which runs from southern Madison County, all the way through Chenango County, and down into eastern Broome County.

Norse currently controls the oil and gas rights to 180,000 acres, although — within the zone where Herkimer sandstone, Marcellus shale, and Utica shale represent over-layered prospects for producing natural gas — that number is more like 130,000 acres.  By industry standards, both Norse and its obscure Herkimer sandstone focus continue to be considered niche operations.  But, year by year, the company appears to be making headway toward what might eventually be a very big payday for its investors.

Norse originally operated stateside as Nornew, and it has amassed its current position over at least the last decade and a half in several ways:  partly by making outright purchases of land (about 5,000 acres); partly by drilling for and producing natural gas, an action which customarily converts ordinary oil and gas leaseholds into long-running, held-by-production leaseholds (about 20,000 acres); and the lion's share remaining (about 105,000 acres) held under leases which are still running undeveloped, their clocks ticking within primary terms.

Though Norse’s statements were intended to be a report covering just third quarter results, July to September, some of the bigger news of interest actually flows from events which have technically occurred since Sept. 30.

I have spent some time indoors on these last few fine November days, mining through all this Business Arcana, in an attempt to glean some insight (at least as filtered by industry’s perspective) for the benefit of upstate landowners and other observers, should any be interested.  To me, the landowners are the ordinary folks who — whether they like it or not, and whether they know it or not — actually do have broncos in this oil and gas rodeo.

Most of the highlights I’ve taken from the digitally videoed remarks of incoming CEO Mark Dice, who replaced Øivind Risberg in September.  If you want to hear it all for yourself, the 43-minute webcast can be found here.  Also, feel free to let your eyes glaze over some of the printed text and numbers, such as available here.

I wasn’t able to get to everything of interest, unfortunately.  Norse’s progress on an 87-mile pipeline connection
, for instance, will potentially have a huge impact on the local shale gas development picture for years down the road.  (Maybe another time.)  But here’s my take on what I did get a chance to contemplate, double-check, and write about.

• Raw land = $10,000 per acre

Let’s start with this.  Norse CEO Dice touts $10,000 per acre as the current rough value of land in Central New York — measured for oil and gas purposes, in a raw, relatively undeveloped state.  He bases his assessment on recent transactions largely driven by Marcellus shale in Pennsylvania.  This, of course, is not about the first round of leasing running from the resource owners to one or another gas company.  Instead, these kinds of numbers are coming from the big-money downstream transfers — by merger or assignment — of those already compiled leaseholds, such as when Chevron purchased Atlas Energy for $4.3 billion, as announced Nov. 9.

[A note of skepticism before I move on:  I did some quick calculator work on the publicized numbers from both the Chevron deal, and from Chesapeake's purchase of part of Anschutz from last week.  Even though dollars-per-acre is a very crude gauge, given that we readers don't have any way of valuing all the specific assets included, I can't make either deal come out as high as $10,000 per acre.  In fact, not even close.]

In a fully developed state of production, Dice asserts CNY land would be worth up to $25,000 to $30,000 per acre.

I'm no expert on land values, but, just to put these claims in perspective, I'm pretty sure there is very little raw land in upstate New York
— outside of maybe some kind of commercially valuable zone in certain highly traveled places — that would have any ballpark, tax-assessed, appraised, or open-market values anywheres near these numbers.

(Also, needless to say, none of these theoretical, speculative land values or lease values can be even remotely approached, in real life, under the current regulatory holdup in New York.)

But it is interesting to think about.

The NYS DEC’s SGEIS is still due out by the end of 2010

The long-awaited final Supplemental Generic Environmental Impact Statement from the state Department of Environmental Conservation, together with that agency’s new (proposed) hydraulic fracturing regulations, remain on track for release by the end of 2010.  (Followed by much additional protest from anti-drillers
, no matter what the state suggests for tougher rules — I'm going to go out on a limb and predict right now.)

“The most recent confirmation of this,” Dice said, occurred Oct. 27, when a key DEC Minerals Division official, Jack Dahl, spoke at a meeting of the Independent Oil and Gas Association of New York (IOGA of NY).

“He said that the DEC still intends and plans to announce the final SGEIS regulations around year end, hopefully before the end of the year,” Dice said.  “So that’s very good news, indeed.  It’s a very important trigger point for this company.”

Norse won't further test for shale gas under the current limits

In previous reports, executives gave out some hope that Norse would test the gas content of Utica shale now — in vertical wells, with a low-volume hydraulic fracturing, which is allowed under current DEC regulations.  At present, Norse actually holds two drilling permits for this sort of project, useable any time through the end of 2010.  But Dice said Norse is not going to do it.

“I don’t think it’s prudent to actually make that investment right this minute,” he said.  “We will start exploring and investing in the shale formations as soon as we understand the environmental regulation, and that uncertainty goes away.  I’m hoping that it goes away within the next month or two.”
Rig contracted to the Norse-Stryker joint venture, as it stood busy drilling the Davis 1H on 11-11-2010.  Even knowing from NYS DEC data where it should be, I had to hunt for it.  I found it tucked behind a cornfield north of Hunsicker-Lawrence Road, Town of Smyrna, Chenango County, NY.  In the background is the valley formed by Pleasant Brook, a tributary to the Mighty Chenango River (Susquehanna Watershed)
Horizontal drilling in the Herkimer restarts after eight-month hiatus

Since approximately February 2010 (and including the whole of the third quarter), Norse’s 14-or-so-year-old drilling effort in Herkimer sandstone (among other targets) has been on hold.  The company reportedly wanted some time to study the problem of water encroaching into some gas wells (later ruled a manageable issue), and also time to shoot some more seismic, and to go looking for a financial partner.  On Oct. 25 — shortly after lining up 50-50 joint venture partner Stryker Energy, LLC, of Ohio — Norse restarted its drilling program by spudding the first new well to have been pin-pointed by reliance on newly acquired 3D seismic data — the Davis 1H overlooking Route 80 slightly west of Sherburne, NY.  The rig was still drilling at the time of Dice's presentation, and the results were not yet known. (Google map of the location here.)

Norse intends to bring in a second rig before the end of 2010, and to continue running two rigs into 2011.  Dice’s reluctantly given prediction was for 30 Herkimer wells to be drilled over eight to ten months, once two rigs get cracking.

Herkimer sandstone is about producing gas, but it's also about HBP

About 20,000 acres out of Norse’s key 130,000-acre position is already represented by leases that the gas company has converted into the indefinitely running status of “held by production.”  This is accomplished by drilling wells to currently permissible zones, other than shale, which, if successful, can then generate production and royalty, or are capable of doing so.  Doing all that work changes the status of the affected leases.  During the two-plus years when New York has been faced with the challenge of regaining its political nerve — in order to walk through a contentious crossroads over shale gas — Norse's plan has been to quietly convert as much leasehold acreage as possible to HBP, usually from Herkimer sandstone. 

Way, way down the road, a big HBP position would give Norse (or a purchaser of Norse) the very valuable asset of having substantial acreage — drill-able for shale gas at virtually any future time, whenever it might make business sense to do so — over which the leases are already established, and do not have to be renegotiated or repurchased.

[Technical note: Unless the landowner — way back at the time of lease negotiations — was so sharp, so well-read, and so leveraged as to have succeeded in including "defensive measures" in his lease, such as the famous "Pugh Clause," then production from any part of the lease indefinitely holds the whole lease — across all idle acreage spread horizontally, and across all idle rock layers spread vertically.  The key word is "indefinitely" — meaning so long as the original well (or followup wells) produce.  That can last a long time.]

Watch closely in order to see the dawning of “split estates” under CNY

“Split estates” is a legal shorthand phrase for describing land ownership in the wake of a “severance” between surface ownership (which traditionally pays all the property taxes), and mineral ownership (for which New York and many other states have no established way of collecting property taxes — at least not prior to the development of a producing oil or gas well).

This kind of shared land ownership is relatively common in parts of Appalachia, especially in areas with long histories of fossil fuels exploration and development.  It often develops into a source of thorny controversy, because it greatly skews the distribution of costs and benefits in resource extraction between two very differently motivated parties — a surface owner, and a mineral owner.  Outside of Western New York, it is very uncommon for mineral severances to complicate or plague the ownership of significant chunks of land in upstate New York.  But now that’s changing, and Norse (along with the property tax foreclosure mechanisms of both Chemung County and Broome County) is among the initiators in making it happen.

Here's how:  The third-quarter report shows the company is in the process of selling surface-rights-only over the 5,000 acres of farmland that it had purchased outright, rather than leasing, sometime since Marcellus shale mania first swept the CNY landscape, starting in early 2008.  The company is looking to generate $1.5 million in deals scheduled to close by the end of 2010, and to eventually generate $5 million to $8 million total.  But, of course, Norse plans on retaining the mineral rights underlying all this acreage — which is likely to either directly state, or to indirectly imply, the right to future access for drilling, etc.

It might not become an issue for years or decades, but — when it does — you will have a surface owner with trees, or corn, or a house, on the land, having no choice but to work things out (for very little financial compensation) with a mineral owner who’s now ready to get access to his or her natural gas (and has the well-established legal right to do so).

Norse is heartened by the results of the mid-term elections

Dice called the results “amazing” and said it represented “an incredible shifting of power in the United States… Voters sent a very clear message to their elected officials. And we saw a big shift, a movement of power, as more and more Republicans were put in control, and more and more Democrats were asked to move on.  This is very pro-business, very positive for the energy industry.”

“In New York, there’s a clear economic need for more investment. The projected budget deficit in the State of New York is $9 billion, so there’s definitely an economic incentive for further investment in the Marcellus. They can see what’s happening right across their borders in Pennsylvania.”

Dice also called attention to the still-unresolved race between NYS Senator Antoine Thompson (D-Buffalo), who currently trails the challenger — Mark Grisanti, a Democrat who ran as a Republican — by 598 votes in a contest that will depend on a recount and absentee ballots.  Thompson’s district, on one hand, covers a heavily Democratic part of Buffalo.  On the other hand, Buffalo is also the leading city within New York for hosting the home offices of a significant number of regional oil and gas-related enterprises, including Norse.

Thompson upset shale gas proponents by using his chairmanship of an environmental committee to propose and push through a Senate-passed moratorium on all drilling permits involving hydraulic fracture completions through May 15, 2011.  The measure hasn’t been ruled on by the Assembly, or by the Governor.  The measure would effectively overlap and expand upon the coverage of the current fracking moratorium — which is administrative, in that it's controlled by the Governor and the DEC — which doesn’t have a formally announced end point.

“The sponsor of the frack moratorium appears to have lost his seat to a Republican,” Dice said.  “I won’t say that it’s all because of his position with regard to fracking — I don’t believe that.  But it is an important movement.”