What role the DEP has in units, pooling, and well permits.

   I have spent several hours this week on the phone with variuos branches of the PA Department of Environmental protection.  I called them because of my ongoing concern that various drilling companies have xpressed a stratagy to tie up many acres of land for indefinite years of time by drilling shallow vertical wells and then unitizing large areas around them.  These companies are concerned that they will run out of time in the next year or so on their leases to drill the wells and frack them properly to have a legitamite hold on the land.  They either do not have funds to offer new leases at current market value or are completely unwilling to.  The DEP issues the leases.  They DO NOT get involved with limiting the size of units.  Ther is a shale formation below the Marcellus, called the Onendoga, that was used as a boundry depth by the DEP many years ago to set up many of the now antiquated laws concerning unitizing and conservation wells.  From what I could gather, the Marcellus shale is not really even affected by these laws because it is shallower than the Onendaga.  From the DEP's website, it does appear that they do have some influence on unit size and spacing of wells in some parts of PA, but only when it concerns this Onendaga formation.

    So, where does that leave vulnerable land owners?  Much legislation is being thrown about to improve this situation.  After all, the state cannot tax income from royalties, bonus money, or gas extracted if it doesn't happen for many years.  This delay can happen if land is tied up because it is unitized around a shallow, nonproducing well.  Call your representatives, congressmen, senators.  In this instance the tax man is your friend.  I would rather pay taxes on bonus money and royalties now, then never see that income at all.  I would rather see that tax bill, thean look at an ineffective pipe sticking out of the ground for years to come.  Taxes on this developement are inevitable and rightly so.  Roads will wear out fast.  Schools will have to be inlarged to handle the children of the workers, crime will increase.  The list goes on and on.  Taxes will increase in differnt ways as time goes by and the return on the wells will decrease.  I would rather be drilled now at the beginning.  If politicians are aware of the potential hazard of drilling shallow wells to lock up land, they may work quickly to prevent it.  Perhaps they will even urge that the permit issuing process be more stringently monitored.  Companies who start wells and suddenly decide to stop and start another elsewhere might find permits being issued slower or not at all for a time until proper proceedures and legistlation can be inacted.

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Replies to This Discussion

Permalink Reply by SK Miller on February 19, 2010 at 6:53am
As an attorney quoted: You would be a fool to trust DEP to protect your property. If they didn't have natural gas drilling they wouldn't have a job. They protect their job, not your property. Ask a good environmental attorney if they agree, one which hasn't already worked for the DEP! Gas companies are not your friends and neither is DEP. they went to the same school.
Permalink Reply by Brian Day on February 19, 2010 at 1:58pm
Yes, you are probably correct in some respects. DEP is part of the state government and I reinerate, they can't tax me on royalties and bonuses I am not getting because my land is locked up in a unit with a non producing well on it.
Permalink Reply by Rey Olsen on February 23, 2010 at 5:29am
You are incorrect. The DEP is part of the government of New York City
which has no right to tax anyone in the upstate counties. Therefore
no revenue from gas royalties will accrue to NYC other than as a
landowner of property they have purchased to add to their watershed
inventory.

Rey Olsen
Permalink Reply by Brian Day on February 23, 2010 at 7:47am
Rey, I was talking about Pennsylvania, not New York state. Sorry for the confusion. I did mention this at least once in the blog, but perhaps I should have included a ditinct sentence about that. We all worry about our own backyard and sometimes forget the wider picture. Good luck in New York.
Permalink Reply by joe pierson on February 22, 2010 at 9:53am
it's always a fine balance between making the companies happy or the landowners
Permalink Reply by BuckinghamGasMan on February 23, 2010 at 11:26am
Brian:

Slow down, take a deep breath. You are mixing a lot of things in your email. A unitization will be set up when a well is drilled. It has to be productive for the unit to continue in existence. The Onondaga Limestone underlies the Marcellus Shale and provides its basement floor. Some issues of unitization were set up by the State of Pennsylvania before the Marcellus was considered and the legislation will probably be amended by the State Legislature. Unitization in Pa will not include landowners who do not have a lease with the company doing the drilling/unitization.

Having said that, there will assuredly be cases where companies drill wells into the Marcellus, set up a "unit", and then cap the well once it hits gas. This is because they want to drill to keep the lease from running out; there is only so much demand for gas; and because the pipeline may not have reached your site.

However, even after providing these comments, I am still not sure what your fear is.
Permalink Reply by Peter Pagano on February 23, 2010 at 1:29pm
You need a "vertical pugh clause" to protect your marcellus from being locked up by a shallow well, and a clause governing payments for acreage locked up by a shut in well, often called "shut in royalty". You may also want to consider a "horizontal pugh clause" that requires release of any acreage not held by production or shut in royalty at the end of the leases term. You can even try to spell out the terms and conditions of any "pooling" they will be allowed to do. Shutting in a well makes economic sense if supply exceeds demand, but it could leave you with no income without a good lease. If you are not extremely well versed in this, talk to a lawyer who is. The drillers are out to spend as little as possible for the greatest advantage. I've seen some companies quarterly presentations which brag about how much marcellus acreage they have locked up indefinately via shallow wells.
Permalink Reply by Brian Day on February 23, 2010 at 2:01pm
The last few comments to my blog have been good clarification in most points I think. The DEP seemed to be telling me that they could do little or nothing about the size of units/pools on anything above the Onendaga Shale at this time. As for all of those lovely legal additions to leases, you people are correct, but these leases were signed four years ago when almost no one in the area knew anything about the intricacies of this gas business. No one expected such possible devious practices by companies they signed with for just about enough money to pay the taxes on the lands that they held. I signed a lease with a company in good faith that if a well was drilled, its purpose would be for the extraction of gas or oil WITHIN THE TIME FRAME OF FIVE YEARS. I did not sign a lease granting indefinite use of my land by sticking a pipe in the ground in the last few days or months of the lease and calling it a well. I am involved in a consortium and yes, I do expect to have as much protection as bargaining will allow in the new lease. I do not feel that a company should be able to commit a fraudulant act by getting a permit on me or my neighbor, stabbing a pipe in the ground, and unitizing 640 acres. If the company that I or any other landowner is dealing with is runningout of time, let them make me a better offer now. If they don't have the bucks, let them drill the lands with legitimate Marcellus type wells on lands that they already have permits for. I shouldn't loose a chance for better money sooner, just because they bit off more than they could choose. Incidentally, I spoke ith Representative Matthew Baker today in a failry long and pleasant phone call today. He was extremely cordial and informative. If anyone else wishes to call their government representatives to express their concerns - or e-mail them - it was quite an easy and pleasant experience. Mr. Baker was very approachable. He said that several pieces of legislature were in the works. I urged him to urge things to move along speedily in this particular problem. I asked if any temporary measures might be inacted. He of course couldn't answer this one, but the seed of thought may have been planted. i also pointed out the amount of lost income that cannot be taxed if land is locked up indefinitely with out production.

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