Legislature Approves Revised, Updated Natural Gas Drilling Laws

Albany, N.Y.--

The New York StateLegislature hasapproved legislation sponsored by 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.

The legislationnow goes to Governor George Patakito be signed into law.

"The old laws don’t address new realities in the gas and oil industry in New York State. We need to build this industry on a modern regulatory bedrock," said Winner. "We can act legislatively in a way that encourages the economic potential and promise this industry holds for our region, updates industry safeguards and environmental standards, and ensures landowners have clear guidelines to better understand their rights and consider economic opportunities. No one wants these issues to linger endlessly in the courts."

Winner said that rapid growth in exploration within the Trenton-Black River natural gas fields throughout the Southern Tier has continued to raise questions surrounding landowner rights and industry regulation. His legislation provides a framework for a comprehensive overhaul of state laws governing gas and oil exploration, laws which were first enacted in 1963. It would revise the regulations covering oil and gas exploration and drilling; upgrade industry practices in the drilling, development and operation of a gas well; and clarify landowners’ rights and lease options.

Winner'slegislation has been developed over the past several months 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. Parmentsponsored the legislation in the Assembly.

The centerpiece of the measure, according to Winner, would clarify a landowner’s lease options in three specific ways. Under the proposed legislation, a landowner could:

-- 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 legislation would 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 beforedetermining 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.