Energy In America

Energy in America: Drilling Contract Regrets for Some New York Landowners

N.Y. residents trying to get out of allowing gas companies to drill deep into their properties


Hundreds of landowners in upstate New York who signed leases allowing energy companies to drill for natural gas on their property have filed or joined lawsuits trying to break or renegotiate the contracts. Many are arguing they should be getting far more money. Some say the environmental impact may be much greater than they were told.

The mining process is known as “fracking” or “hydraulic fracturing”. It involves drilling deep into the ground, a mile or more, then drilling horizontally just as far to reach gas deposits in dense shale rock. High volumes of water, sand and chemicals are pumped into the rock to break it up and release the natural gas. 

This is a relatively new way of mining, developed just a few years ago.

To get to the valuable resource, the energy companies had to first get landowners to agree to allow them on their property. Under New York law, if the owners of at least 60% of a well site sign leases, the drilling can begin, even if the owners of the rest of the land are opposed.

Everyone gets compensated if the well produces, but how much depends on the leases signed, which has become a big sticking point.

Some landowners agreed early on to allow the drilling for as little as $2 to $25 an acre, plus 12 ½ percent of sales of the gas extracted. Others signed for between $100 and $300 per acre, but now argue they didn’t realize just how valuable the rights really are. In neighboring Pennsylvania, some landowners got several thousand dollars an acre, but the New Yorkers argue they didn’t know this when the “land men” came to their door and convinced them to sign on the bottom line.

Marie McRae sold the rights to her 13 acre horse farm near Ithaca for $125 an acre plus the 12 ½ percent. She says the land men pressured her for nine months.

“Knocking on the door, sending us letters, calling on the phone, and I just kept saying I’m not interested, go away. The last time he showed up in the driveway, he said this is it, this is your last chance to have anything to say about what happens on your land because if you don’t sign this lease we are going to come in here anyhow under the law of compulsory integration.”

“At that point” Marie says “I felt backed into a corner. My lawyer said it is a standard lease, nothing bad can happen. Well my lawyer didn’t have any more information than I did.”

Now, Marie says, she fears “the rape of my land.”

“I signed the lease because I was backed into a corner and they told me things that were not true and I believed them. That was my error. I signed a lease. I was an idiot, yes, but they were counting on my not knowing and they were right.”

Marie says she fears her groundwater will be tainted, her air polluted and the roads around her property clogged by big trucks and heavy equipment. She says she doesn’t want more money, she just doesn’t want the drilling, ever.

“It’s not about the money… I don’t want their money. In a split second I would give it back if I could get out of my lease.”

Energy companies say the environmental fears are overblown and fueled by media hype and the leases are fair and legal.

“There is no fraud inducement here, there is no duping, there are no false pretenses” says Thomas West, the attorney representing Anschultz Exploration. He points to the first clause in every lease, which says “the operator has the exclusive rights as may be necessary or convenient at its election to explore for, develop, produce, measure and market production from the lease holds and adjoining lands, using methods and techniques that aren’t restricted to current technology.”

West says at the time the leases were signed, landowners ”were being paid market value in New York State” and in fact no one knows just how valuable the land might be until they drill down and explore, at the companies expense. He also says it’s in the companies best interest to protect the environment and they’re going to great lengths to insure no harm is done.

“Why do we want the resource recovered?” West asks. “It is good for the operator of course, it is good for the landowners who stand to make a lot of money on the royalties paid out over an extended period of time, and it is good for our country. It’s a domestic energy source that offsets the need for imported oil. We spend a million dollars a minute in importing energy into this country” West says. “We have an opportunity to offset that and improve our energy independence.”

In addition to battling lawsuits, the energy companies are now also fighting some municipalities trying to change local laws to prevent the drilling from taking place. The companies say state law will prevail and hope to begin drilling by the 3rd quarter of 2012.

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