Here is a little-known, and little-appreciated fact: Today — Nov. 15, 2011 — five-year leases on 19,227 acres of New York State-owned forestland, bid out to the natural gas industry in 2006, expire according to the terms on their face.
I know it does seem hard to fathom that the Vampire State ever, in recent memory, wielded enough decisive, clear-headed authority to actually engage in bonafide business-like transactions with the oil and gas industry.
I know it does seem hard to fathom that the Vampire State ever, in recent memory, wielded enough decisive, clear-headed authority to actually engage in bonafide business-like transactions with the oil and gas industry.
But it is true. I mean — it was true, five years ago today.
Adding up signing bonuses and delay rentals spread over the full primary terms of these leases, New York State was paid nearly $9.5 million by the winning bidders, Chesapeake Energy out of Oklahoma, and Fortuna, now known as Talisman, out of Canada. The public lands ran in an arc across the southern end of the Finger Lakes region, ranging from West Hill State Forest near Painted Post in Steuben County on the southwest, to Hewitt State Forest in Cortland County's Town of Scott on the northeast.
These and prior mineral transactions are still explained online in bureaucratese by the NYS DEC on its web pages here.
Also, I've gone over all this in detail twice before: First, while countering completely wild, activist perceptions from October 2010 that future leasing of state land for oil and gas purposes would somehow represent some sort of unprecedented or catastrophic threat to public land. And, second, while raising questions of both wisdom and fairness, following the Cuomo Administration's terribly short-sighted decision in July 2011 (as part of the tortured fracking-related SGEIS process), to lay down a blanket ban against any future surface use of these state lands for shale gas development.
The Nov. 15, 2006 deals were inked approximately 14 months before the possibilities of shale gas became widely known in Appalachia. Since that time, however, much hard-bitten and cynical hindsight, coming from observers outside the industry, has created the revisionist mythology that sharp-dealing oil and gas executives always secretly know what their plans are for years beforehand — and that their 2000-2007 leasing behavior in NY, PA, OH, and WV was specifically calibrated by a desire to screw unknowing landowners out of their shale gas.
At the time of bidding, Summer 2006, I was into my seventh year of running title for this industry — mostly, believe it or not, on projects situated inside the boundaries of New York State! I can tell you from first-hand experience that the E&P decision-makers very often do not, in fact, know what their plan is — certainly not with any reliable certainty, much more than a year or so ahead of time. (I mean, they may have a plan in advance, but it hardly ever works out as planned.) Furthermore, I can tell you from first-hand experience that both CHK and TLM operations in New York State were in 2006 still single-mindedly motivated by the prospect of seismically discovering — and proving by horizontal drilling, without the need for any hydraulic fracturing — natural gas tucked away in discrete pockets of dolomitized Trenton-Black River limestone. Back then, that was "the play." Sandstone would have been a Plan B effort. And shale gas would have been a futuristic theory.
Since that time — in the Northeast, and in New York in particular — the natural gas game has totally changed.
Some of that change was economic — though driven by a sweeping technological revolution: It turns out that producing natural gas through the extra effort of hydraulically fracturing shalebeds within parallel, rectangular sections was a much surer thing — compared to the crapshoot of trying to hit an unverified sweet spot within limestone or sandstone.
The rest of that change was regulatory — though driven by a sweeping political firestorm: New York State installed a supposedly temporary shale gas moratorium, quietly since at least Feb. 15, 2008, and by public pronouncement since July 23, 2008 — which turned out to be a very unfortunate regulatory hesitation, clearing the stage for activists to ruin the rest of the show with uninformed babble.
You add those two landslide changes together, and — in the five years since all that money changed hands in New York, starting on Nov. 15, 2006 — there hasn't been any drilling on or near any of this leased state land. And, needless to say, no production, and no royalty — which would have been beneficial, in one way or another, to state taxpayers.
None! Can you believe that? Who can run a business this way? Buy something for $9.5 million, and then never even get a crack at earning any payback? (And, of course, this $9.5 million was just a small portion of what they were then spending statewide, largely on deals with private landowners.)
The bottom line is that all the best-laid plans of CHK, and TLM (and Anschutz Exploration, and Norse Energy) have fallen by the wayside hereabouts — simply because New York State turned out to be a Very Bad Bet. Sure, I mean — business is business, and shit does happen. But this is no way to govern a state economy.
I mean, really, let's ask a fair question here: Tell me again who got screwed on these deals from 2006?
I saw the whole collapse happen personally. I still remember the day the cell phones buzzed, and they moth-balled the last job I had a piece of in CNY. Immediately thereafter, and for nearly the last three years, me and nearly all my New York-based colleagues have been forced to shift the horizons of our employment to either other fields entirely, or to shale gas projects out of state. It's true that some of us are still paying income taxes as New York State residents, but the land work involved has been virtually all out-of-state acreage, with mostly out-of-state economic impact.
You ask me, I say the whole thing has been just one Big Blown Opportunity for New York.
Regarding these as-it-turns-out-useless state lands leases, Chesapeake has been already reported — through beyond-the-norm journalistic effort by Jon Campbell of the Gannett organization — to have had its lawyer write to the NYS DEC, asserting a claim to indefinite extensions under the customary "force majeure" clause. CHK's argument is, through no fault of its own, it has been stymied from proceeding as contracted under the leases by a superior force — specifically the disruptive regulatory power of New York State itself, which is still ongoing.
The counter argument, of course, is that these companies were still completely free to look for natural gas within the conventional prospects of drilling to limestone or sandstone, which is the main thing they contemplated at the time of leasing, but something they simply chose not to do afterwards. This is, of course, a good point in the theoretical world, but a pointless point in the real world of actual business — especially the fast-shifting oil and gas business.
No word yet on whether Talisman has similarly put its lawyers to work, sometime prior to today's lease expiration, laying down a claim against NYS for extensions on their share of these state lands deals. (Or demanding a refund.)
And no word yet on whether either gas company plans to sue — partly on the additional grounds that New York State used its regulatory power to unfairly and unilaterally change the terms of its own deals, and partly on the question of whether drilling for shale gas shouldn't be "grandfathered in" on previously leased state forests, some of which remain "held by production" from drilling activity undertaken based on rights from even older deals.
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| These are the 19,227 acres of state forest land New York State leased to the natural gas industry for five years, starting 11/15/2006 — about half of which did, in fact, allow for surface drilling operations: Broome/Tioga 1 = Tracy Creek; Cortland 1 = Hewitt; Cortland 3 = Kennedy; Cortland 9 and 10 = Tuller Hill; Tioga 1 = Fairfield; Tioga 2 = Oakley Corners; Tioga 3 = Robinson Hollow; Tioga 4 = Anderson Hill; Tioga 6 = Ketchumville; Tioga 7 = Jenksville; Tompkins 4 = Potato Hill; Chemung 1C = Catlin; Chemung 2 = Maple Hill; Schuyler 4 = Coon Hollow; Steuben 5A = West HIll. |
These and prior mineral transactions are still explained online in bureaucratese by the NYS DEC on its web pages here.
Also, I've gone over all this in detail twice before: First, while countering completely wild, activist perceptions from October 2010 that future leasing of state land for oil and gas purposes would somehow represent some sort of unprecedented or catastrophic threat to public land. And, second, while raising questions of both wisdom and fairness, following the Cuomo Administration's terribly short-sighted decision in July 2011 (as part of the tortured fracking-related SGEIS process), to lay down a blanket ban against any future surface use of these state lands for shale gas development.
The Nov. 15, 2006 deals were inked approximately 14 months before the possibilities of shale gas became widely known in Appalachia. Since that time, however, much hard-bitten and cynical hindsight, coming from observers outside the industry, has created the revisionist mythology that sharp-dealing oil and gas executives always secretly know what their plans are for years beforehand — and that their 2000-2007 leasing behavior in NY, PA, OH, and WV was specifically calibrated by a desire to screw unknowing landowners out of their shale gas.
At the time of bidding, Summer 2006, I was into my seventh year of running title for this industry — mostly, believe it or not, on projects situated inside the boundaries of New York State! I can tell you from first-hand experience that the E&P decision-makers very often do not, in fact, know what their plan is — certainly not with any reliable certainty, much more than a year or so ahead of time. (I mean, they may have a plan in advance, but it hardly ever works out as planned.) Furthermore, I can tell you from first-hand experience that both CHK and TLM operations in New York State were in 2006 still single-mindedly motivated by the prospect of seismically discovering — and proving by horizontal drilling, without the need for any hydraulic fracturing — natural gas tucked away in discrete pockets of dolomitized Trenton-Black River limestone. Back then, that was "the play." Sandstone would have been a Plan B effort. And shale gas would have been a futuristic theory.
Since that time — in the Northeast, and in New York in particular — the natural gas game has totally changed.
Some of that change was economic — though driven by a sweeping technological revolution: It turns out that producing natural gas through the extra effort of hydraulically fracturing shalebeds within parallel, rectangular sections was a much surer thing — compared to the crapshoot of trying to hit an unverified sweet spot within limestone or sandstone.
The rest of that change was regulatory — though driven by a sweeping political firestorm: New York State installed a supposedly temporary shale gas moratorium, quietly since at least Feb. 15, 2008, and by public pronouncement since July 23, 2008 — which turned out to be a very unfortunate regulatory hesitation, clearing the stage for activists to ruin the rest of the show with uninformed babble.
You add those two landslide changes together, and — in the five years since all that money changed hands in New York, starting on Nov. 15, 2006 — there hasn't been any drilling on or near any of this leased state land. And, needless to say, no production, and no royalty — which would have been beneficial, in one way or another, to state taxpayers.
None! Can you believe that? Who can run a business this way? Buy something for $9.5 million, and then never even get a crack at earning any payback? (And, of course, this $9.5 million was just a small portion of what they were then spending statewide, largely on deals with private landowners.)
The bottom line is that all the best-laid plans of CHK, and TLM (and Anschutz Exploration, and Norse Energy) have fallen by the wayside hereabouts — simply because New York State turned out to be a Very Bad Bet. Sure, I mean — business is business, and shit does happen. But this is no way to govern a state economy.
I mean, really, let's ask a fair question here: Tell me again who got screwed on these deals from 2006?
I saw the whole collapse happen personally. I still remember the day the cell phones buzzed, and they moth-balled the last job I had a piece of in CNY. Immediately thereafter, and for nearly the last three years, me and nearly all my New York-based colleagues have been forced to shift the horizons of our employment to either other fields entirely, or to shale gas projects out of state. It's true that some of us are still paying income taxes as New York State residents, but the land work involved has been virtually all out-of-state acreage, with mostly out-of-state economic impact.
You ask me, I say the whole thing has been just one Big Blown Opportunity for New York.
Regarding these as-it-turns-out-useless state lands leases, Chesapeake has been already reported — through beyond-the-norm journalistic effort by Jon Campbell of the Gannett organization — to have had its lawyer write to the NYS DEC, asserting a claim to indefinite extensions under the customary "force majeure" clause. CHK's argument is, through no fault of its own, it has been stymied from proceeding as contracted under the leases by a superior force — specifically the disruptive regulatory power of New York State itself, which is still ongoing.
The counter argument, of course, is that these companies were still completely free to look for natural gas within the conventional prospects of drilling to limestone or sandstone, which is the main thing they contemplated at the time of leasing, but something they simply chose not to do afterwards. This is, of course, a good point in the theoretical world, but a pointless point in the real world of actual business — especially the fast-shifting oil and gas business.
No word yet on whether Talisman has similarly put its lawyers to work, sometime prior to today's lease expiration, laying down a claim against NYS for extensions on their share of these state lands deals. (Or demanding a refund.)
And no word yet on whether either gas company plans to sue — partly on the additional grounds that New York State used its regulatory power to unfairly and unilaterally change the terms of its own deals, and partly on the question of whether drilling for shale gas shouldn't be "grandfathered in" on previously leased state forests, some of which remain "held by production" from drilling activity undertaken based on rights from even older deals.
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