Legislation To Revise, Update Natural Gas Drilling Rules Signed Into Law

Albany, N.Y.--

Legislation sponsored this year by State Senator George H. Winner, Jr. (R-C, Elmira) to initiate the first major revision of New York’s oil and gas exploration and development laws in more than 40 years, has been signed into law by Governor George E. Pataki.

"It’s important that we begin to build the gas and oil industry in New York State on a modern regulatory bedrock," said Winner. "This new law will encourage the economic potential and promise of this industry in our region, update industry safeguards and environmental standards, and ensure landowners have clear guidelines to better understand their rights and consider economic opportunities."

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Winner said that rapid growth in exploration within the Trenton-Black River natural gas fields throughout the Southern Tier has continually raised questions surrounding landowner rights and industry regulation. The new law provides a framework for a comprehensive overhaul of state laws governing gas and oil exploration, laws which were first enacted in 1963. It revises the regulations covering oil and gas exploration and drilling; upgrades industry practices in the drilling, development and operation of a gas well; and clarifies landowners’ rights and lease options.

The law was developed over the past year, Winner said, in discussions between state government and industry representatives, and following a series of public hearings held on the issue last fall by State Assemblyman William Parment (D-North Harmony) of Chautauqua County. Parment sponsored the legislation in the Assembly.

The centerpiece of the new law, according to Winner, clarifies a landowner’s lease options in three specific ways. Under the new rules, a landowner can:

-- choose to become a "participating owner," contribute up front in the cost of drilling a natural gas well and receive a full working interest in a well’s future production;

-- choose to become a "non-participating owner," not contribute up front in drilling costs but in the event a well produces, receive a full working interest in the well after incurring a 300% risk penalty; or

-- be integrated, cost-free, as a royalty owner at the lowest royalty paid to landowners who have voluntarily entered into lease agreement with drilling companies, or one-eighth, whichever is greater.

Landowners would still be permitted to enter into voluntary agreements with gas exploration companies like Big Flats-based Fortuna Energy Inc., the region’s largest drilling company which currently holds leases on nearly 695,000 acres of Southern Tier land.

The new law will also:

> revise the procedures for obtaining a well permit, establishing drilling units and integrating interests. Existing law, for example, currently allows a drilling company to drill a well before determining exactly what properties are affected and how royalty payments will be divided. The new law will reverse this process, as it’s done in other states, so that when a well site is proposed, the DEC and gas companies determine the boundaries of the properties above a drilling site before drilling begins, thereby making it easier to more precisely determine future royalties;

> require the DEC to conduct regularly scheduled public hearings with landowners who could be impacted by the execution of well permit in order to make landowners fully aware of their oil and gas rights, lease options and other matters;

> require that all leases contain an unconditional three-business-day right of recision; and

> create the New York State Oil, Gas and Solution Mining Advisory Board within the DEC to assist in the monitoring and oversight of state policies concerning the development, operation and regulation of the oil, gas and solution mining industry in New York State.