THIS MAP CREATED by Richard Nyahay, James Leone, Langhorne B. Smith, J.P. Martin, and D.J. Jarvie in 2007 drew a lot of attention when geologist Don Zaengle presented it Tuesday. It shows the Marcellus Shale’s thickness underneath Sullivan County may be more than 1,000 feet. The thicker the shale, the likelier gas will be found in it so this area may be in line for even more attention from gas companies. The green stars indicate wells (not necessarily gas) used for sampling.
Speakers urge landowners to protect their rights in leases
By Dan Hust
LAKE HUNTINGTON County Legislator David Sager, who represents much of the area in Sullivan County likely to see natural gas drilling, said he views the whole issue as a Rubik’s Cube.
It was an appropriate way to kick off Tuesday’s forum at Sullivan West High School in Lake Huntington, where approximately 400 people got an in-depth education on the enormous complexity of leasing land for gas drilling.
Third in a series of forums Cornell Cooperative Extension leader Joe Walsh hopes to extend through the fall, the 31⁄2-hour meeting began with a uniform message from Walsh and representatives of the night’s two other sponsors: Sullivan County Division of Planning Commissioner Bill Pammer and Chenango County Farm Bureau President Bradd Vickers.
“Boilerplate leases are definitely suspect,” said Walsh.
“The idea is to stay away from a boilerplate lease,” agreed Pammer.
“It’s your job to be an informed individual and understand what he [a landman] is offering,” added Vickers, who was first offered a drilling lease 10 years ago and has led the Farm Bureau to a national award for its program, “There Is No Such Thing as a Standard Lease.”
But if you feel you have been bamboozled, surprise guest speaker Michael Danaher, an assistant NYS attorney general out of Binghamton, said his office wants to know about it.
“They are modern-day ‘used-car salesmen’ from what I hear,” he remarked of the landmen who are swarming the region seeking cheap, company-written gas leases with unsuspecting landowners. “... You’re crazy if you don’t spend the money to get somebody to give you your own individual advice.
“... There is no such thing, really, as a standard lease,” he continued. “Do not be blinded by the dollar signs.”
He urged listeners to not trust “handshake deals,” to avoid signing leases with blank spaces, to always get copies and remember that the state allows a lease to be cancelled within three days of execution.
“Don’t believe everything a landman tells you,” he added, listing examples of false statements like “Your property won’t be part of the [production] unit if you don’t sign” or “You’re holding up your neighbors’ gas leases” or “We can take the gas out from under your land anyway.”
He distributed a brand new tip card and brochure from NYS Attorney General Andrew Cuomo and urged those concerned about illegal or deceptive business practices to contact the regional office in Poughkeepsie at 485-3900.
Subsequently, a trio of men featured at a host of upstate NY gas forums passed on their knowledge to the crowd.
Petroleum geologist Don Zaengle, CPA Jim Leonard and attorney Christopher Denton have joined forces to provide legal, financial and environmental advice to potential leaseholders through Denton’s Binghamton law office.
Zaengle offered an in-depth review of the rocks beneath residents’ feet, notably pointing out that a variety of potentially gas-rich formations even deeper than the Marcellus Shale are also being eyed by the gas companies.
“You need to be thinking for the long term,” he advised, predicting that gas drilling through all the formations could easily last for two generations. “... Your land should come first, not the money.”
He advocated against open pits holding wastewater from the fracking process and illustrated a closed-loop system that Southern Tier property owners and groups are now requiring in leases. Such systems drastically reduce pollution concerns, he said, and actually improve drilling efficiency.
Leonard focused on the financial impacts, noting that royalties, not upfront lease payments, hold the greatest potential for riches though they can easily (and usually do) bounce landowners into much higher tax brackets.
He cautioned those interested in leasing that “for tax purposes, the mineral rights are separated from the rest of the property” and don’t count toward existing or future exclusions or exemptions.
He also warned that income tax preparation is quite specialized in this area, calling it a “very different animal” than what local tax preparers are used to.
Denton, who has spent the last decade focusing on the legal issues surrounding gas leasing and drilling, indicated virtually anything in a lease is negotiable, from damage and well rig fees to insurance and royalty rates.
That said, a lease “is an extremely dangerous document it’s a powerful document,” Denton explained. “It’s a transfer of your right of possession. ... It’s a complex business transaction masquerading as a lottery ticket.”
By way of explanation, he noted that “unless you limit the surface rights, you have literally given up your property. It is subject to their whim so long as it’s oil or gas development.”
He recalled complaints from landowners who didn’t realize that the “standard” lease entitled the drilling company to build facilities and house equipment right next door to their homes.
“Don’t sign that document unless you know everything about it,” he warned.
He also advocated against property owners conducting their own negotiations, urging them to retain a knowledgeable attorney and even join a group of other landowners seeking leases.
“You start to play poker with them [one-on-one], you’re going to lose,” he stated.
Denton detailed a slew of legal issues and leasing options, from compulsory pooling to pipeline easements that can long outlast well operation.
He also answered questions from the audience and spoke of how the leases he is negotiating for several upstate individuals and groups specifically prohibit often-overlooked items like leaving drill cuttings on the property or conducting seismic tests without compensation (or groundwater protection) for landowners.
Notably, he confirmed that people can be held liable if activities on their properties are proven to pollute or otherwise damage other properties. Though gas companies can and sometimes do indemnify landowners, Denton said he has found it difficult to convince companies to add property owners’ names to their insurance policies.
As for the state Department of Environmental Conservation (DEC), he acknowledged they’re working hard to change the fact that the gas and oil industry is relatively unregulated in the state compared to other industries, but right now he feels they are understaffed for what is coming.
And while the potential payout could be in the millions of dollars, he stressed that landowners should think long and hard about what they want to do with their acreage not just for five or 10 years but for decades.
“It can be a little industrial site,” he said matter-of-factly. “... If you don’t want development and your neighbors don’t want development, then don’t lease.”
The response from the audience was enthusiastic and appreciative. Those interested in leasing were given tools to approach gas companies in a way that protects people and property, while those solely concerned about the impacts were shown what to stay aware of.
“It was a well-informed program,” noted Catskill Mountainkeeper Program Director Wes Gillingham, who particularly liked the geology portion. “... I wouldn’t question the validity of the information.”