Wednesday, October 27, 2010

NY Has 51,764 Acres of State Land Under Lease to Drillers — Without Much Controversy

Here's the editor's introduction to an Oct. 25 article in The Odessa File, which appears to be a web-based news source for Schuyler County, NY, the county that wraps around the southern end of Seneca Lake, with Watkins Glen as the county seat:
"Burdett journalist Peter Mantius reports that Sugar Hill and four other state forests in Schuyler County are among those that could be changed forever by a plan to let gas drillers hydrofrack in them and criss-cross them with construction roads and gas gathering lines."
The headline is, "Lost in the Woods," and Mantius' first line reads, "It's open season on New York's state forests." 

Right away, I could hear a voice inside my head — slowly exhaling — "Here we go..."

There has been a lot of this kind of talk lately.  It's sort of a sidebar to the main column of environmental concern over Marcellus shalegas development in New York — and Appalachia, generally.  So far as I can tell, the attention was triggered by an otherwise obscure draft Strategic Forest Master Plan — aimed at guiding future management of 786,000 acres owned by the state (and held in the form of State Forests, not the Forest Preserve, which is a different kettle of fish).  Much of this acreage consists of once-cleared farmland that was bankrupted by poor soils, a shorter, colder, higher-elevation growing season — and Depression-era economics.  A lot of it's been in state hands ever since.  I've hiked and creek-walked and birded a fair number of these areas, and — like Mantius — I'm a big fan.

But, recently, environmental activists must have noticed that somebody within the New York State Department of Environmental Conservation included some language in that draft planning document which dutifully called attention to the fact that — in addition to timber cutting, hiking, hunting, birding, truck-driving, snowmobiling, and ATVing — oil and gas development also falls entirely within the range of legal, managerial, and strategic options for these public lands.  In fact, it's always been that way.

Already on alert due to the shale gas brouhaha, anti-drilling activists quickly added another layer of protest.  Translated loosely, they asked:
How dare the DEC plan in advance for this?  How can the DEC possibly say natural gas is clean-burning?  New York State never made any serious money on this kind of thing.  Do we really want our State Forests to look like this here aerial picture of the Allegheny National Forest in Pennsylvania? 
[Never mind that this last poke is a knowingly unfair comparison — for a number of geological and legal reasons that I don't want to get sidetracked into here.]

But hellzapoppin', in other words.  Save the forests.  Write a letter.  The deadline for comments is coming up soon, Oct. 29.

Here's the main problem I have with a lot of this instantaneous, un-selective, activist-led cause-mongering:  The drama — the concern, the hand-wringing, the alarm, the fear — is so focused on perceived future peril that it's completely ignorant of past actual experience.  In this case, that past experience has to do with New York leasing its own land — our own land — to the oil and gas industry.

Here, let me just use Mantius' article as a particular example.  [I don't mean to pick on this article, because it was a good article, and it triggered practically a whole day's unpaid research on my part, and it's good to see that somebody's writing about this land, which doesn't usually get a lot of attention, compared to the Adirondacks or the Catskills.]

But, in this case... Sugar Hill State Forest — I hate to be the one to break this to you guys — but New York State has already leased most of Sugar Hill!  In fact, most of Sugar Hill is still under a producing, indefinitely running oil and gas lease — tied to royalty-paying production from an indefinitely-flowing gas well.  The gas well has been right there behind some trees, just northwest of the intersection of Evergreen Hill and Donovan Hill roads, for ten years now (see aerial photo from Google above).

In 1999 — during the early years of keen private-sector interest in attempting to find natural gas in New York's portion of the Trenton-Black River (TBR) limestone — the state DEC held a lease auction.  On the block were five-year drilling rights to 11 tracts totaling 13,061 acres spread across three Southern Tier counties — Chemung, Schuyler, and Steuben — right in the heart of the TBR zone.  When the final gavel sounded, New York managed to generate $3,027,580 in bonus money. (This does not count any future delay rentals, fixed in advance by the state at $3 per acre per year, and it does not count any possible royalty, then customarily placed at 1/8th.)

The majority of the money turned out to be generated by the most desirable State Forest on the 1999 list: 6,900 acres (out of a total of 9,085 acres) in Sugar Hill.  East Resources was the winning bidder (though the lease ownership has almost certainly since changed hands), and the company paid what was probably at the time a state-record price of $312.54 per acre bonus for a five-year lease, or a total of $2,156,526.

[Remember, this was 1999 — nine years before Marcellus shale mania increased the per acre lease value of hypothetical oil and gas to thousands of dollars, rather than hundreds.]

Fast forward to 2009, when the DEC's annual state lands leasing report (online as a PDF here) includes a Schuyler County well named SRA 2 #1.  [SRA stands for "State Reforestation Area," and SRA 2, or Schuyler 2, were the lease auction shorthand names for Sugar Hill.]  This gas well known as SRA 2 #1 is still a producing well, and — reading between the lines — one can see that royalty from this well is still serving to hold and keep open that 1999 lease, under which industry was originally invited to get drilling.  All the leasehold acreage is held, not just the acreage from which the natural gas is presumed to flow.  

State records show the SRA 2 #1 was spudded and completed in 2000, was connected to pipeline by 2002, and has generated to the benefit of state taxpayers $1,001,594 in royalty through the end of 2009 — though production has been steadily declining.  It's currently operated by Talisman Energy USA Inc., which is the name of Fortuna's Canadian parent company. 

One last detail:  In order to allow this well to be drilled, the state's report shows that 2.5 acres of state forestland had to be disturbed.  Checking for it on Google maps, it looks like some plantation conifers were taken out, and a roadway and maybe also a pipeline corridor were created, both leading to and from what I presume is some valves and tanks in the middle of a grassy patch.  The wellsite is also near a prison that shows up on the web as the Monterey Shock Incarceration Correctional Facility, which apparently was also at some point in time developed, right plunk on top of the state's forestland. (Again, see picture up top.) 

But what's the point of all this?  The point is that New York State has already placed  significant chunks of state land, on the line, under lease, to the oil and gas industry.  As of the end of 2009, the state's reports show 63,676 acres were under lease, but that number includes 11,912 acres in storage leases (which are probably not written so as to have any development significance).  Leaving out the storage acreage, New York has 51,764 acres of state land out there that fall within the category of currently developable leasehold.

Most of this, 32,537 acres, including Sugar Hill, was being held indefinitely by virtue of industry having done all the work of achieving oil or gas production.  And 19,277 acres still had about two years left to go on the primary terms of leases granted during the state's 2006 lease auction. 

When, and if, New York ever gets its act together — and decides that it does, in fact, like Pennsylvania, have the necessary regulatory expertise to oversee horizontal drilling and hydraulic fracturing in its underlying black shales (and the political wisdom to encourage this sort of balanced, economically beneficial development) — then these already leased State Forest acres will be already available for industry to consider testing for shalegas.  These leases are still open and running, and they were written to cover all rock formations.  Sugar Hill is good to go, in other words — assuming that that gas well which holds the lease keeps on keeping on.

Industry might drill again in this and other leased State Forests, or it might not. Marcellus shale or Utica shale might not be worth trying to develop in these areas of upstate — at least not in the beginning.  That's just how it goes.


Reconstructing the past from documents the DEC still includes online, here's what appears to have happened to all the state acreage previously put out for lease (at least in the last 12 years): 

For the 1999 lease round, the state's followup annual reports are a little hard to follow.  Nonetheless, it appears that — out of the 13,061 acres leased in 1999 — a number of the leased tracts reached "held by production" (HBP) status by association with producing wells.  In addition to Sugar Hill, the HBP acreage appears to include part or all of Catlin State Forest (Chemung County); part or all of West Hill (Steuben County); and part or all of Goundry Hill (Schuyler County).

In 2003, New York leased 21 tracts totaling 26,534 acres in Steuben and Schuyler counties, generating $4,578,537 in bonus money.  By the end of 2008, after those five-year primary terms would have been fully up, 6,558 acres of these lands appear to have been converted to HBP.  The HBP acreage includes:  971 additional acres in Sugar Hill (Schuyler County); 1,787 acres in Cinnamon Lake (straddling both Steuben and Schuyler counties); and 1,818 acres in South Bradford, 1,451 acres in Meads Creek, and 531 acres in Erin Hollow (Steuben County). 

In 2006, New York leased another 16 tracts totaling 19,277 acres spread across seven different counties (Chemung, Cortland, Schuyler, Steuben, Tioga, Tompkins, and Broome).  As of the end of 2009, the state reports that not a single well had been drilled on any of this land, or in such a way as to include any of it in a unit.  If anything's happened so far in 2010, I can't say for sure, but it seems unlikely.  Most visible exploratory attention has shifted since 2008 to Marcellus shale — but only out-of-state Marcellus shale.  Sometime during 2011, these five-year leases running from 2006 onward are all due to expire — assuming industry does not find a way to produce gas in the months remaining, and assuming industry does not challenge the fairness of a state government that accepts a significant amount of money for oil and gas leases in one year, and then two years later strips away much of the value of those leases by regulatory fiat.

I know we can argue a lot of "Yeah, but's..." here.  We can argue about whether shale gas is or isn't "your grandfather's old gas well."  We can argue about whether a temporarily occupied, 6-to-10-acre well pad on the surface — drilling and fracking and draining 600-to-1200 acres of subterranean shale gas in all directions — might even have less environmental impact than those "traditional" wells (which the environmental community suddenly somehow seems to think were never any big deal).  Better not get me started, though.

But I don't think we can argue much about this:  New York's actual history of leasing its publicly owned lands to the oil and gas industry has been relatively peaceful, low-impact, non-controversial, and problem-free.  In fact, it's been so quiet that Mantius didn't even seem to know his beloved Sugar Hill was producing gas, and still under lease!


The state's 2009 report also includes these facts of note:
•  Out of 32 leases given since 1999, only 10 have either had wells drilled upon them, or been included in a production unit where the well was drilled upon a nearby party.

•  Out of nearly 59,000 acres of state land leased since 1999, only 37 of these acres have been disturbed by well drilling, or road or pipeline construction.

•  From 1999 to 2009, New York generated nearly $31.6 million from all lease-oriented sources combined — bonuses, delay rentals, storage fees, and royalties.

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