Dan Hust | Democrat NOEL VAN SWOL of the Sullivan-Delaware Property Owners Association with the list of property owners belonging to his association and maps showing their land parcels.

Mega-leases
for mega-land

Editor’s Note: The following Q&A represents the fourth in a periodic series focusing on the organizations that have rallied to promote, oppose, learn about, negotiate with, and regulate the locally burgeoning natural gas industry.
Save for a brief introduction, the format for each article will be question-and-answer, allowing these groups to speak for themselves.
If you have a recommendation for a group we should interview, feel free to contact Editor Frank Rizzo or Senior Staff Writer Dan Hust at 845-887-5200 or editor@ sc-democrat.com.

By Dan Hust
LONG EDDY — Of all the groups engaged in the Marcellus Shale natural gas play here, the Sullivan-Delaware Property Owners Association is perhaps closest to the front lines.
Lawyers who are both members and representatives of the organization are even now negotiating lease agreements that will be distributed to several hundred members who hold 62,000 acres of land in Sullivan and Delaware counties.
It’s land gas companies want, but it’s land they’re not going to get without serious money and serious concessions. Already, the per-acre upfront lease payment rate is hovering between $2,500 and $3,000, with royalty rates reaching as high as 25 percent of company profits.
Association co-founders Noel van Swol and Bill Graby identified this industrial juggernaut early in its march across the Northeast and planned ahead.
They researched books and articles, took trips to well sites, talked with gas company reps and the people with whom those companies had done business.
They found that the best way to tame the corporate beasts was through a landowners alliance, similar to ones then being formed in upstate New York and northern Pennsylvania.
The result of this retired educator and this working farmer’s efforts is manifested in thousands upon thousands of acres that stand on the brink of being leased to gas and oil companies – land the Sullivan-Delaware Property Owners Association intends to both profit upon and preserve.
How? Here’s what Noel van Swol, the retired educator and a Long Eddy native, has to say about it. (Callicoon farmer Bill Graby will be interviewed separately.)
Q: What kind of experience do you have with the gas industry?
A: It’s almost as if this was pre-ordained. I’ve been something of an amateur geologist all my life. I’ve always been fascinated with the oil and gas industry.
In fact, I have speculated in oil and gas leases in Mississippi and Wyoming over the past few decades. I’ve bought and sold some, so I am well aware of what an oil and gas lease involves, and there are very few people in this area who have that kind of a background.
So I’m not easily intimidated by landsmen or executives from oil and gas companies. I can speak the language. I understand what’s going on.
... On a local basis, 30 years ago, I leased the family property to Exxon.… The Exxon one just expired worthless, because the three companies that were involved in this area at that time – which were Exxon, Arco and Gulf – didn’t find anything that was practical to extract at that time.
... The interesting thing is that most every well that has been sunk to 7,000 or 8,000 feet in this area appears to have hit the Marcellus Shale, but at that particular time (I’m going back to 1971) there was no way to extract the gas in a profitable manner.
The technology wasn’t there, the fracking process hadn’t been developed, horizontal drilling was still a new concept. Of course, all of that has changed now.
In the last 10 years or so, this stuff has become widely used, quite practical, and the price of gas has now gone through the roof. This is the “perfect storm” which will benefit everybody in this region.
Q: How did you create the association?
A: Landmen were in the area last October, signing people up for $25 and $50 an acre and committing what I would refer to as “the sin of omission.” They knew exactly what kind of treasure we were all standing on and deliberately neglected to let property owners know the value of what they had.
It was this that forced Bill and me to start the Sullivan-Delaware Property Owners Association because we didn’t want to see any more of our friends and neighbors being ripped off and taken advantage of.
... We started in the beginning of January. At this particular point, it is a non-profit corporation, registered in the State of New York.
Q: Both you and Bill Graby have included some of your property, as well?
A: Exactly. We want the same deal that everybody else gets.
Bill and I started at the same time with the same idea independently.
I went to the January Town of Fremont Board meeting and let people know what was going on and started signing up people right then and there.
Bill was doing the same thing with his neighbors at exactly the same time.… He then called me, and we agreed to work together.
We’ve kept this as a bare-bones operation, reducing expenses as much as possible and focusing on the primary goal, which is to get a good and fair deal for all of the property owners in the area who are willing to ally themselves with us.
Q: How quickly did you grow?
A: That [first] night we had a few hundred acres, and it mushroomed after that.… In February, we were up to 13,000 acres – that’s how rapidly it grew – and we are now up to 62,000 acres, [representing] hundreds [of landowners].
I can’t give you the exact number really because of the fact that it might give an advantage to the people that we are negotiating with to know the exact number.
I can tell you that we represent at this point well over 1,000 properties in an area stretching from Hancock almost to Port Jervis.
Q: Were most of these properties solicited or unsolicited?
A: In the beginning we solicited, but actually, after the first article in the Sullivan County Democrat ... the phones started ringing off the hook.
Q: Were you selective in choosing which properties to accept?
A: We tried to focus primarily on the [Delaware] River towns, with the addition of some properties in the Town of Bethel. We’re focusing on the areas that appear to be the richest with respect to the Marcellus Shale.
... It became obvious to us when we toured the Susquehanna [County, Pa.] wells in February that proximity to a pipeline increased the value of the acreage as far as oil and gas companies are concerned.
Now, that doesn’t mean the richest ground is next to the pipeline. It’s just that if the pipeline is there, it makes it easier for the oil and gas companies to drill. They don’t have to shell out millions and millions of dollars for infrastructure.
Nobody can duplicate what we have here in the Millennium Pipeline, and we feel it’s no coincidence that, almost simultaneously with the final start of the Millennium expansion project, you have these energy companies coming around soliciting people for their acreage.
They’ve known all along it was here, but now they have a way to market it.
... Initially, they’re going to focus on the areas closest to the pipeline.
... In an early sitdown meeting with a representative of Chesapeake Energy (an executive from the Charleston, WV office), we asked, “How close is ‘close to the pipeline’?”
... The answer we got was “20 miles.” That’s an indication of how enormous the Marcellus Shale is through the Sullivan and Delaware county regions.
Q: But you’ve since stopped adding properties?
A: We came to that determination because we had to go and begin the laborious process of providing a spreadsheet [of owners’ names, addresses, properties and contact information] and then going to the civil engineering firm in order to map everything so that we could sit down for formal negotiations with the various oil and gas companies.
All of them want to see exactly what you’ve got. They want to see the spreadsheet. They want to see the maps, so that they know that you’re serious and you do represent what you say you’re representing.
... I have put out $3,000 of my own money for civil engineering firms to map all the properties we have and for people who are computer experts to do the spreadsheet for us.
That’s how much I believe in this process and the huge potential Sullivan County has at this particular point.
Q: So what is the association doing at this point in time?
A: We have started the negotiation process. We’ve only done this as of the last two weeks [since the beginning of August]. In that time, we’ve already contacted several major oil and gas companies, including one company that is not presently here that is larger than Chesapeake, XTO, and Cabot, which is extremely interested in what we have on this side of the river.
In the last week, I’ve also been approached by a privately-owned company operating out of Colorado that has raised $470 million of capital. They called me; they want to sit down to discuss the possibility of taking our acreage.
It’s too sensitive at this particular point [to name names], but that’s an indication of the interest already.
This is the California Gold Rush all over again or, in a more modern sense, you can say this is a repeat of the East Texas oil boom of the early 1930s.
And since we appear to be on the verge of a depression at this particular point in time, it’s interesting to note that in the 1930s, the oil boom in East Texas actually sheltered a lot of the residents there from the full impacts of the Great Depression.
Q: What of reports that bidding has slowed down, that interest is waning?
A: If you check on the Internet at the various Websites that are focusing on the New York and Pennsylvania sides of the river, you’ll see that, really in the last 8 or 9 months, from almost nothing, the applications for drilling permits that have either been granted or are being applied for in Susquehanna County, Pa. are now up over 100.
That’s an indication of what I’ve been saying since day one: this is Little Texas.
What is happening here is a lifeline for the United States of America. This natural gas supply we have, which is virtually unlimited, is going to give us the 30-50 years of energy independence that we need in order to develop really practical alternative energy solutions.
Q: Are there any drilling permits that have been applied for in Sullivan County?
A: Not to my knowledge, at this point.
In Delaware County, I understand that permits have not been applied for in the Hancock area yet, but the landsmen indicate that there are seven wells being contemplated now which will be drilled relatively shortly. I suspect that they’ll start no later than spring.
Potential delays may involve the questions that are being raised by the DEC [NYS Dept. of Environmental Conservation] at this point on the permitting process.
Q: But with more than half a dozen independent leases signed in Sullivan County since December, why haven’t companies started drilling yet?
A: The strategy of all major oil and gas companies is to get as much land under lease as possible. You don’t want to drill on somebody’s 100 acres and strike a gusher or an enormous gas well and then have competing oil and gas companies come and gobble up all the property around you.
... That is also the reason why so few leases have been filed. The companies have been holding back on the leases because every time they file one, they’re alerting their competitors as to just what the hot areas are.
So I anticipate that sometime down the road you will see the major players come in and suddenly file a thousand leases on the same day in the county clerk’s office.
... I anticipate that when drilling starts, activity will pick up pretty fast.
Q: Are you concerned about any negative impacts from this industry?
A: I think it’s positive for everybody in the entire region.
The fact is my training as an undergraduate in college is in economics, and there’s a concept in economics called the multiplier effect.
What that involves is the fact that every dollar that these companies spend in the area will trickle through the economy and has a multiplier of anywhere from 5 to 7.
So this is going to benefit everybody – every store owner, every gas station attendant, every restaurant in the entire region. This gas play has the potential to rebuild Callicoon and Jeffersonville, Liberty, Narrowsburg, Fallsburg, Monticello. The whole county is going to benefit from this.
Q: What about damage to roads and infrastructure?
A: That all can be taken care of with a bond that is filed by the company in question that wants to do the drilling and exploration. And almost all of the companies of any size are perfectly willing to do that.
If you [municipalities] ask, you can negotiate it. You don’t need legislation. This is all scare tactics as far as that’s concerned.
Q: What of concerns that this will “industrialize” the area?
A: This is not going to industrialize Sullivan County.
Sullivan County is huge – people do not understand that.
In the heyday of the hotel industry, we had well over a million people visiting Sullivan County in the summer, and you never knew that they were here.
That isn’t going to happen now. When you’re done, you will see a “Christmas tree” – a pipe sticking out of the ground six feet. And that is it.
And, of course, the property owner will be able to collect his royalties and hopefully spend them in the area.
... Additionally, from what we now know, the pressure in the Marcellus Shale is phenomenal. These are literally Texas-style gushers, and it’s quite likely they will not need compression stations. This is not a marginal gas play.
Q: You feel there’s nothing to worry about with the environment?
A: Absolutely not.
The radical environmentalists refuse to listen. They’re being driven by emotion and not by proper research and logic. They go to sources that are completely biased against the production of energy in this country. That is really the problem.
[NYS] Senator [John] Bonacic, the DEC, the people speaking [at the recent gas leasing forum] ... have repeatedly pointed out that since 1821 there have been 75,000 gas wells drilled in New York State and there has never been a major environmental problem. That’s an excellent track record, and I would take those odds any day of the week.
... We are now a part of a national battle over whether we are going to drill and provide energy independence and safety for the people of the United States ... or we are going to be dependent on hostile powers overseas who intend to destroy us.
The logical flaw in the argument is that these people don’t want any drilling anywhere in the U.S. They don’t want you to drill off the coast of Florida. You don’t get to drill in the Gulf of Mexico. They don’t want you to drill in the Rocky Mountains, or on the California coast, or in ANWR [the Arctic National Wildlife Refuge in Alaska].
If you can’t drill in any of those places, where can you drill?
This is just the local manifestation of something that is being argued about on the national level and in the presidential campaigns.
... You have to remember that all these arguments about what happened in Colorado or other areas are apples-and-oranges comparisons.
New York has the toughest regulations in the country when it comes to oil and gas drilling, and the DEC is extremely professional and quite capable of handling the job.
Q: But aren’t you negotiating environmental protections into your leases?
A: This is exactly why we have formed this coalition, in order to make sure that these addendums are there.
At heart, everybody is an environmentalist, but there’s a difference between being a practical environmentalist and being a radical extremist, and we are on the practical side.
We’re willing to sit down with the companies and negotiate protections. We feel that the best steward of the land is not the government or regulations imposed by some outside authority, it is the property owner. No one wants to see their own property destroyed.
Everybody, if they have sufficient information, will opt for the kind of lease that protects their own hometown, their own property, their own environment.
Q: But what of people who signed company-written, “boilerplate” leases that don’t include these protections?
A: I think that the DEC – with its vast oversight of the permitting process and the fact that they have the power to inspect the drilling sites and close operations down – has sufficient authority so that even in those terrible situations where people have been taken advantage of, at least environmentally, they will be bailed out by the state.
Q: In your leases, are you looking at specific protections like a closed-loop system that would recycle water used to fracture the shale?
A: That’s an open question at this point. This is something that we are definitely looking at.
Another solution has been proposed, and that is steel containers [to store the water].
All of these are options on the table that would have to be negotiated between the local citizens and the companies involved.
What I’ve seen is that most of the large companies, the New York Stock Exchange-listed companies, the kind of responsible oil and gas company that we want to deal with, are extremely sensitive to these kinds of questions.
They don’t want bad publicity. They don’t want the black eye that Exxon had with the Valdez incident that has haunted them for decades. They want to do things right.
You have to, at some point unless you are totally anti-business, have to give them some slack and a certain amount of trust.
Q: Are there any non-negotiable environmental protections you are requiring?
A: Reasonable people can negotiate everything and anything.
There are many solutions to these problems. It isn’t an all-or-one situation, and people have to understand that.
A solution might be proposed by property owners that might not be economically feasible to the energy companies, and they can and will often come back with an alternate proposal – sometimes things that nobody has ever considered.
Q: Any idea when you might conclude negotiations?
A: It’s tough to say. Our sister organization, Northern Wayne Property Owners Alliance [representing landholders in Wayne County, Pa.], has been negotiating with various companies for eight months now.
It’s a very careful and complex process. We’ve been at this for two weeks [as of mid-August].
Now if a major company comes along and gives us everything we want, we’re ready to settle tomorrow, but if not, we will listen to anyone with a proposal, any company who’s interested in coming into the region.
We’re going to see if we can get the best possible deal for all the people in the region.
Q: What happens when the association accepts a gas company’s bid?
A: What we will do is send out a mass mailing, including the terms of the deal and a copy of the draft lease to every property owner who is on our list.
At that particular point we are encouraging them to take the lease to their own attorneys if they wish to sign.
Now remember, this is entirely voluntary. If somebody feels it is not good enough and they can do better, they do not have to sign [and can negotiate on their own].
Q: And once this group of landowners concludes its efforts, will the association continue, perhaps representing another group of property owners?
A: I think that Bill and I will step aside at that particular point. We’ve pioneered this whole process here, and there will be others who will be able to do the same thing down the road if necessary.
And then again it may not be necessary. If we get a good lease, that may be the prototype for other negotiations with other landowners, particularly if the company or companies involved feel that this is the way to go.
Q: Any advice for property owners contemplating leasing?
A: A lot of people suddenly will have more money than they’ve ever had in their lives. You’ll have people who will become overnight millionaires, and getting all of that in one lump sum in one year is going to push them into very high tax brackets.
I would warn everybody not to be taken in by the amount of money that you’re being offered. Understand that 40-50 percent of that money will wind up in the hands of Uncle Sam and your local/state authorities, so that’s another reason to sit back and hold out for more.
If you want a certain amount of money in your bank account at a particular time, it might do to wait.
What I am particularly afraid of is that a lot of people will not consider the tax impact of this money and may spend all of it and then wake up next April not being able to pay their taxes.
So I am advising everybody to be extremely prudent and put at least half that money away so that when the tax man comes, they can pay him off.
Be cautious. Be cautious.
And I want everybody to understand that responsible environmentalists and property owners have no problem getting along. They both want the same thing.
Up to this particular point, a lot of environmentalists – the saner ones – have been looking toward government for the solution.
We say government is not the solution. The solution rests in the hands of the individual property owners having a good lease.
The Sullivan-Delaware Property Owners Association, which has already been extensively featured in local and metropolitan media, just completed an interview with NBC Nightly News. The airdate has yet to be confirmed, so check back with the Democrat for this and continuing coverage of the association’s activities.