The Southern Tier is the part of New York most likely to be subject to drilling using high -volumehydrofracking (HVHF), whether on the basis of the completion of the SGEIS, the promulgation of new regulations or the initiation of an “experimental” drilling program.
The primary termformost leasesin theSouthern Tierhasalready expired,orwill soonexpire.
The gas companies operating in the Southern Tier obtained most of their leases in 2006 –2007.Whilethelanguageoftheseleasesdifferedfromcompanytocompany,mostleaseshadaprimarytermoffiveyearsand established several circumstancesunder which theleasetermwould beextended beyondfiveyearsfromthe dateof execution:1. The commencement of drilling activity before the end of the primary term2. The production of gas before the end of the primary term3. Bytenderingaper-acrepayment(sometimesnotstipulated)beforetheendoftheprimaryterm,thattermcanbeextendedafurtherfiveyears,andbythesamemeansextendeda further fiveyearsafterthat4. An application for a drilling permit is pending with the DEC5. A
(an act of god) preventing the company from drillingThe first three ways (above) in which the gas companies can extend their leases all cost realmoney.Inthecurrenteconomicclimate,andespeciallygiventhelowpriceofgas,thecompanieswould prefer thelast twooptions, whosecost tothem istrivial. Thefeefor a permit applicationthat will hold open theleasesina one-square-miledrilling unit established bytheapplication isaround $4,000
. Declaring a
that applies to an entire leasehold is even cheaper.Both of thesecheap optionsare being used by drillers.
.Despitetheexecutiveactionlaunched by Governor Patersonand continued by GovernorCuomo,the current moratorium on thepermitting of HVHF wellsdoesnot prevent some drillersfromextendingtheirleasesby submitting applicationsfor permits.
In fact, thelonger the permitmoratoriumisin place,thelonger thoseapplicationsarepending,theeasier it isfor drillersto“siton” their leasesand wait out currentlow pricesand lackof exportinfrastructure.
The state agrees thatits own SGEIS processconstitutesa
Thecheapest way toextend theterm of thecheap leasesbought duringthe“land rush” period istodeclarea
. ChesapeakeEnergy, forinstance, hastolditslessorsthat “Duringthetimethat your Lease isextended on thegroundsof forcemajeurearising out of theSGEISprocess . . . [our] interest in your Lease shall not terminate until December 31, 2013 . . . inaccordance withtheAOD(AssuranceofDiscontinuance).”TheAODwasanagreementbyAttorn eyGeneralSchneidermantoendhisinvestigationofChesapeake’sassertion of