Regulations/DEC/DMN

In three decades of drilling, John C. Holko said, his oil and gas business has never faced such a hostile environment.

Years after he negotiated leases for gas drilling in upstate New York [Chenango County, where Oxford is located — RL Ed note], strict rules on fracking that state environmental officials proposed threaten to put 20 percent of that land off limits, he estimated. And local drilling bans adopted by town boards could put him out of business altogether, he said.

“Why should I put money in the ground if any one of the towns can say no at the next town meeting?” said Mr. Holko, the president of Lenape Resources in western New York. “The issue of home rule is the demise of the industry.”

In November he sued the State DEC and Avon, N.Y., in Livingston County, seeking $50 million in damages for lost business since the town enacted a ban on all drilling last summer.

By late February, Gov. Cuomo is expected to decide whether fracking, a controversial drilling process that is already under way from Pennsylvania to Texas to North Dakota, will be allowed in New York. Any decision will be made against a backdrop of ferocious opposition from environmental groups, which say fracking poses too high a risk of groundwater contamination, air pollution and other environmental problems.

But a mix of local drilling bans and some of the tightest drilling regulations in the country raise questions about whether the process could flourish here.

Beyond those constraints, natural gas prices have declined sharply in recent years, limiting potential profits even as technology opens the way for the exploitation of vast shale gas resources. Fracking involves pumping millions of gallons of water and chemicals into underground shale to release natural gas.

Gas companies have a long history of conventional drilling in New York, and if prices rise from their current lows and there is money to be made, there is no question that gas companies will want to do business in the state, industry officials say.

“Certainly there are companies that, once they get a green light, will come in and drill,” said Brad Gill, executive director of theIndependent Oil and Gas Association of New York, which represents 400 drillers and drilling-related businesses.

But he and others in the industry argue that New York’s proposed rules would significantly limit opportunities for both companies and the upstate communities that hope for a surge in drilling jobs and an economic boom.  [Ed note:  After this article was published, the DEC received 204,000 public comments on its proposed regulations.  The vast majority of comments were negative and demanded much stricter revisions, thereby limiting opportunities for drilling even further.]

Mr. Gill contends that the drawn-out nature of state deliberations on whether to allow fracking — the process has been under way for four years — has allowed many land leases to expire and prompted some companies to walk away and focus their resources on drilling in other states.

Companies like which have drilled with conventional methods in New York and had hoped to expand into hydraulic fracturing, have moved operations to Pennsylvania, Mr. Gill said. Another company based in New York, Norse Energy [Ed note: Norse holds the majority of leases in the Oxford area] filed for bankruptcy in early December.

Gas industry officials contend that the proposed regulations would block access to up to half the land they might have drilled — by mandating setbacks, for example, or by prohibiting drilling through aquifers, in grasslands or near streams, private water wells and water supplies used for crops and livestock. (This is in addition to outright bans in the New York City watershed in the Catskills and other sensitive areas.)

Meanwhile, Governor Cuomo has said that towns and cities should have a say in a decision about allow drilling within their boundaries, which companies say raises far too much uncertainty for their business. So far, two of the bans have withstood court challenges.

In a November 19 letter to Mr. Cuomo, Mr. Gill said that his own trade group had lost at least 10 member companies to other states in the last year and that he could not overstate “the dramatic unattractiveness of New York to our industry.”

Tom S. West, an industry lawyer in Albany, said the proposed rules would add anywhere from $500,000 to more than $1 million more per well in extra fees and planning costs.

But in documents, officials with the State Department of Environmental Conservation have deemed some of the industry’s cost estimates “excessive.” They predict that fracking in New York would be undertaken by large multinational companies that could afford the costs of drilling in the state.

Studies commissioned by the state project that the drilling process in New York could create 17,600 construction jobs and more than 29,000 indirect jobs. Under a conservative chain of events, state officials say, more than 42,000 horizontal and vertical wells would be developed over 30 years.

Michael A. Levi, an expert on energy and the environment at the Council on Foreign Relations in New York, said too many variables were at work for anyone to predict how many companies would invest in fracking in the state, and how quickly, should the state give the go-ahead.

Companies with leases and other investments in New York will be more likely to drill than companies that are doing business elsewhere and prefer to wait and see what the first wells drilled in New York yield, he said.

“It’ll vary from company to company,” he said. “But if there is money to be made, Santhat will be done.”

Mr. Holko of Lenape Resources, which has acquired drilling rights on about 100,000 acres of land in more than a dozen towns, said the amount of land actually opened up to drilling would make the difference in deciding whether it was economically viable. “When you start taking away land mass” through state regulations, he said, “everybody will evaluate their individual acreage, and from that they’ll decide whether it’s worth pursuing in New York.”

To those seeking a ban on hydraulic fracturing, no set of state rules would suffice to safeguard water supplies, public health and the environment.

“We’re putting fracking in the same category as smoking,” said Sandra Steingraber, a distinguished scholar in residence in environmental studies at Ithaca College who leads the coalition New Yorkers Against Fracking.  “The only way to make smoking safe is to not smoke.”

Despite the constraints, Dennis Holbrook, executive vice president of Norse Energy, said he looked forward to the day when the industry could prove the naysayers wrong. He said his company still held drilling rights over 130,000 acres of land and planned to seek new capital by forming a partnership with an investor once hydraulic fracturing is allowed.

“My hope is that if the industry has an opportunity to drill,” he said, “the public will be reassured that this can be done safely.”