The New York Times wrote last week about a plan being developed by the administration of Governor Andrew Cuomo of New York to allow horizontal drilling and hydraulic fracturing in portions of five struggling counties along the Pennsylvania border referred to as the Southern Tier. Importantly, the areas to be opened would be communities that have expressed support for these technologies. The plan being developed by the New York State Department of Environmental Conservation targets the deepest areas of the Marcellus Shale formation in the western part of the state. Activity would be prohibited in areas such as near aquifers and nationally designated historic districts along with the Catskill Park. There are thoughts that the plan's details were leaked to The New York Times as a trial balloon to assess the reaction from anti-shale groups.
The plan envisions requiring drillers to maintain a 1,000-foot buffer between ground water sources and the top of the shale formation, in an attempt to ease residents' concerns about possible water pollution. There are other location (setback) restrictions that might reduce the number of well locations, but could increase the number of wells and their length from the drilling pad locations allowed. These setback restrictions are being cited by some leaseholders as a problem because if a single drilling pad cannot be located within a single 640-acre section due to setback rules that property might not be drilled costing the landowner income. Possibly, these inaccessible areas might be able to be reached by extended horizontal wells, but that will add further to the cost of these wells. We have seen estimates that the restrictions in the proposed Cuomo plan could eliminate drilling on about 60% of the leases held in New York State.
As seen in Exhibit 17, drilling in Pennsylvania has stretched from the southwest corner of the state, which tends to have more oil and liquids-rich gas, to the northeast portion of the state that tends to be "dry" gas oriented. It is this dry gas region that lies just south of the area of New York State that may be available for shale development if the suggested plan is approved. This plan has been developed in response to the state's restriction on shale drilling in mandated until adequate study of how gas shale could be developed and potential risks mitigated. The temporary ban on shale drilling in New York State was initiated in 2008. Since then about 25 communities have banned the use of hydraulic fracturing while another 75 have put in place moratoria on the technology until additional rules and safeguards were enacted. One restriction the state has put in place is a restriction on drilling and fracturing in the watershed areas for New York City and Syracuse. After an extended prohibition period, the start of drilling may be drawing near. We expect plenty of fireworks over the rumored proposal when it is finally presented. Unfortunately, the claims and counterclaims by proponents and opponents to gas shale development will obscure the fact that this resource can be developed in an environmentally-friendly and safe manner for the benefit not only of residents of New York, but for all power customers throughout the New York, New England and Middle Atlantic regions of the country.
G. Allen Brooks works as the Managing Director at PPHB LP. Reprinted with permission of PPHB.
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