E&E Reports on Natural Gas Producers Leaving New York for Ohio

HYDRAULIC FRACTURING: Ground shifts under N.Y.'s feet as companies start abandoning leases

Colin Sullivan, E&E reporter
Published: Wednesday, December 5, 2012

NEW YORK -- Companies once interested in drilling horizontally for natural gas in New York have started giving up on the state or abandoning leases altogether in reaction to a tough regulatory process that has been dragging on for four years and counting.

The exasperation among industry stems from a process run by the state Department of Environmental Conversation on whether to permit leases for gas development via high-volume hydraulic fracturing, or fracking. The DEC has prolonged its review through many ups and downs, most recently requesting a 90-day extension on a fracking rulemaking that was to have expired at the end of November, in a possible last-ditch effort to lift the moratorium following a health review.

But the DEC, like Gov. Andrew Cuomo (D), maintains it still has no official position on fracking, deferring a final say until all the chits are in. In response, attorneys representing landowners and all manner of businesses associated with drilling now say the state has started running out of time.

Thomas West, a lawyer working for the Anschutz Corp., said the company he represents is not likely to foot the bill to continue most of its leases in the state.

"It's part of a growing frustration with New York, regulatory delays and regulatory uncertainty," West said. "To the best of my knowledge, they're not renewing most of their leases in the state."

West has been a key figure in the legal fight over fracking, representing Anschutz against the town of Dryden, which passed a municipal ban on gas development. The town won a first round in lower court holding up its zoning ban, but West is still working on the appeal and expects to go back to court early next year.

Echoing West's view was an attorney with Binghamton-based Levene Gouldin & Thompson who has opposed West in court on some cases but worked with him on others. Scott Kurkoski, who represents the Joint Landowners Coalition of New York, said there are still companies interested in New York, but they are increasingly the larger firms such as XTO Energy, which is a subsidiary of Exxon Mobil Corp.

Kurkoski said XTO has the capital to hold out, but many others have walked away since the DEC started looking at fracking in 2008. He estimates the state has lost billions of dollars in revenue and thousands of jobs to nearby Pennsylvania and Ohio in the process, which he sees as a shame given the hard recessionary conditions in upstate New York.

To Kurkoski, the Southern Tier of New York -- in the central part of the state bordering Pennsylvania -- was positioned to become a kind of regional gas hub. Instead, Pittsburgh has emerged as that hub, leaving towns to the north in New York waiting in its trail.

"If you talk to industry, the costs are greater to drill a well in New York than they are in other states," he said. "Once again, our state has overregulated ... and there are clearly companies like Anschutz that have said, 'Look, why should we spend more time and money in New York?'"

He added: "It's very hard to watch. Many companies were ready to set up offices here in the Southern Tier."

Why go vertical?

Jim Smith, spokesman for the Independent Oil and Gas Association of New York, would not comment on the lease issue, but he did argue that a simple look at the DEC's own numbers reveals the landscape has shifted. In 2007, the agency issued about 600 permits for old-fashioned, vertical drilling in New York -- but that number as of November 2012 was down to 152 permits.

Translation: Energy companies are less enthused about vertical operations in New York, because in other states they have the ability to explore and produce sideways if necessary. Smith said they get regulatory certainty in Ohio and Pennsylvania, so they operate there, where they can maximize plays.

"They're not even interested in doing the drilling that's allowed" in New York, he said. "That tells us that existing operators who were quite successful in New York and pleased with New York are looking elsewhere."

Kurkoski said it only makes sense for these companies -- some skilled in drilling but others in associated businesses like waste management or engineering -- to get out of New York given the risk. Rhetorically, he asked the question: Why would anyone waste millions of dollars betting on something that may never happen?

"They can't deal with New York as if it's a Third World country and then have the rug pulled out from under them," Kurkoski said. "It's not worth it."

This kind of talk comes as even veteran Democrats in nearby states have started to wonder openly about New York's approach. Just this week, former Pennsylvania Gov. Ed Rendell (D) reportedly said the Empire State would be "crazy" to keep a ban on fracking imposed by former Gov. David Paterson (D) in 2008.

"I told Governor Cuomo I would come to testify before any legislative committee. I told [Cuomo] it's a good thing to do," said Rendell (EnergyWire, Dec. 3).

Still, both West and Kurkoski agreed that industry will still come if the permits are issued. "I think it will eventually come back, but I think it will be a slow ramp-up," West said.

Otherwise, both complained about the politics of the process. It's no secret that Cuomo wants to run for president in 2016, but, to West, alienating the "25 or so producing states" that develop their resources is a bad strategy for making a national run.

"He's going to have to show that he's in favor of energy policies ... that get us closer to energy independence," he said. "Right now, it doesn't look so good."

Kurkoski expressed different concerns about the politics. He said the DEC "has gone underground," whereas it used to respond to claims made by interest groups on all manner of environmental regulatory matters. Anything anyone says, whether it's an industry official or environmentalist, "goes completely unchecked" by government officials looking to keep the DEC's position quiet, he said.

"The DEC used to come out and set the record straight on these issues," he said. "It's the worst recession in our lifetimes, and we have allowed businesses and jobs to go to other states.