Reps optimistic, cautious over gas leasing in region

By Matthew J. Perry
Three members of the state’s attorney general’s office came to Delhi on Dec. 16 to discuss landowners’ rights and remind local residents that while natural gas speculation is experiencing a lull, the subject is still of vital importance to local communities.
Assemblyman Clifford Crouch and Kevin Mathers, a representative of the Cornell Cooperative Extension, also addressed the meeting and took questions. Along with the three attorneys, they acknowledged the potential monetary rewards of gas drilling while making clear that natural gas leases are tricky, complicated documents that can work against an unwary landowner’s interests.
Assistant Attorney General Michael Danaher said that the state’s moratorium on gas drilling, in place until the Department of Environmental Conservation completes an update of its regulations, has coupled with the national financial crisis to reduce the number of leases being offered to landowners in recent months.
“I’ll admit things have slowed down markedly, but it will come back,” he said. “[Gas drilling] is going to generate a lot of state revenue. That’s the good news. The bad news is that we’ve received numerous complaints of fraudulent leasing tactics.”

Lease caution
The worst mistake a landowner could make would be to accept what some landmen call the ‘standard lease’ without consulting an attorney at least experienced in real property law, if not mineral rights leasing, Danaher explained.
“Don’t be penny wise and pound foolish,” Danaher said. “Do not sign the first least a landman gives you to sign. There is no such thing as a ‘standard lease.’”
The attorneys also acknowledged that contract law allows for other abuses that would be considered, at present, legal. For instance, a landowner is required to sign any contract and has only three business days to cancel it; the gas company has no obligation to sign or execute that contract.
“You are bound to sign the contract, they are not,” Danaher said. The law allows the gas company to withhold its signature indefinitely—unless landowners request that the contract be signed and returned to them for review. “There’s a problem with that,” Danaher said. He speculated that this aspect of contract law may change, but gave no specifics.

Other tactics
Other tactics employed by landmen attempt to reduce the time and extent of negotiation. A lease is the single means landowners have to control not just how much they are compensated for their mineral rights, but also to implement conditions for road and pipeline construction, rights-of-way, well placement and environmental protections. Mathers suggested that landowners concerned about possible water contamination have their water sources tested before signing a contract, and have the gas company pick up the tab.
“Always negotiate,” Mathers said. “Natural gas drilling will have an impact on the landscape. The impact can be mitigated with a sound plan, site selection, appropriate construction practices and proper rehabilitation. Fortunately, construction practices have improved over the years.”
Crouch stated that there is ample room for negotiation, even in the construction of gas pipelines, which will run underground from wells to larger delivery lines that will deliver gas to downstate markets. In Chenango County, according to Crouch, the leasing price of pipeline per lineal foot has varied from $5 to $22.
Much of the information provided at the meeting had been presented in July by consultants of Central New York Landowners’ Coalition, a group that claims 2,000 members with 135,000 acres under its control, many of them in Delaware County. While greater environmental concerns were acknowledged at both meetings, the focus firmly remained on business between landowners and gas companies. On both occasions, the inevitability of a gas rush in the region was treated as a certainty.

Temporary lull
Garth Battista, a member of CNYLC steering committee, agrees that the current slump in speculation likely will be temporary.
“I think leasing will resume slowly in 2009. The gas companies will use the economic downturn to their advantage, and keep their offers low as long as possible,” he said in an e-mail. “But landowners have seen what is possible, and they know more details of the true value of their gas rights, so there may be a bit of a standoff for a while.”
CNYLC is betting that any standoff ultimately will improve the landowners’ hand as they play against the gas companies. Assuming that the companies’ stock recovers and they claim more gas reserves as holdings, Battista is confident that lease and royalty rates will be driven back up.
“The gas companies have leased enough land to keep them busy for years if they only drilled their current holdings,” he said. “But eventually they’ll need to start adding reserves back.”