Oil and Gas Drilling in New York State

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1 Oil and Gas Drilling in New York State Otsego County Representatives Albany, NY August 29, 2008

2 New York State Department of Environmental Conservation Jack Dahl Director Bureau of Oil and Gas Regulation 625 Broadway Albany, NY 12233

3 Today s s Key Points Oil and gas well drilling in New York is subject to full environmental review Overview of the DEC s regulatory program Issues associated with the Marcellus and Utica Shales DEC s plans going forward

4 Oil and Gas Wells in NY Oil seeps near Cuba, NY dating back to 1627 Natural gas first produced in 1821 outside Fredonia, NY New York s s first oil well was drilled in Allegany County in 1863 Est. 75,000 wells drilled since the 1820s Approx. 13,000 wells reported in new well permits issued in 2007 Over 540 well applications so far in 2008

5 Wells in NYS

6 New York s s Oil and Gas Industry 2007 data 55 bcf gas 5% of NYS gas consumption 796,000 homes heated 345,000 bbl oil ~ 13,000 gas and oil wells reported by owners $513 million wellhead market value (95% gas) $64 million landowner royalties $15 million in local taxes

7 DEC s Authority New York State Environmental Conservation Law Article 23 Oil, Gas & Solution Mining Law State Environmental Quality Review Act Regulations 6NYCRR Part Guidance and Special Conditions Other permitting authority: air, water, solid and hazardous materials

8 Oil, Gas & Solution Mining Law Passed in 1963; major amendments 1981, 2005 Regulate development and production of oil and gas to protect public health, safety and the environment Provide for greater ultimate recovery of oil and gas, prevent waste Protect correlative rights of all persons including landowners

9 Regulations Mineral Resources Part Reports and Financial Security Permits Well Spacing Drilling Practices Plugging and Abandonment Operating Practices Secondary Recovery Transportation Bass Island Regulations

10 FGEIS (Final Generic Environmental Impact Statement) Framework for SEQRA compliance Routine application requirements allow the DEC to conduct site specific environmental assessment: Program specific EAF Plat map Pre-drilling site inspection Determine potential environmental impacts Select appropriate mitigation FGEIS findings statement sets forth significance for range of permitting actions Supplemental EIS available

11 Requirements Well drilling permit for each well Compliance with permit conditions, law and regulations Filing accurate records Completion reports Plugging permits and reports Annual well reports Non-routine incident reports

12 Enforcement DEC enforcement authority Administrative: up to $5,000, $1,000 a day Civil: Referral to NYS Attorney General Criminal: $1,000 a day or one year or both Also Suspend or revoke permits, operations Order suspension of transportation until violation is eliminated Order remediation

13 Permit Process Permit application form Environmental Assessment Form Plat map where s s the well re other wells, property lines, roads, structures, etc. Location, orientation and construction of pits Casing and cementing plans Erosion control plans Financial security Application fee

14 Environmental Protections Before a well permit is issued Pre-site inspection, review plans for well site, pits, access road, verify setbacks Need for other DEC permits When a well permit is issued Site-specific permit conditions, notification requirements Drilling inspections: Cementing surface casing, testing BOPs,, drill through, E&SC compliance After a well permit is issued Inspect site reclamation, pit closure, restoration Annual reporting, requirement to plug w/ permit

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16 Well Photos

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21 Marcellus and Utica Shale Consumer protection - leasing Permitting and drilling - environmental protections Horizontal drilling Hydraulic fracturing Water consumption Water handling, disposal, treatment Local impacts

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23 Private Oil & Gas Leasing Leases are negotiable contracts Many leased properties are never drilled or placed into spacing units DEC has no jurisdiction over lease offers or lease terms, but does provide educational information DEC does have jurisdiction over well site, drilling and environmental issues

24 Regulating Marcellus and Utica Development Current permitting process provides environmental protection for siting,, well drilling, and production Casing and cement requirements protect groundwater 1992 GEIS provides framework for SEQR compliance Site-specific environmental assessment, supplemental EIS are available Supplement to the GEIS for Marcellus horizontal drilling process underway

25 Horizontal Drilling First horizontal well in New York of 665 applications in 2007 were for horizontal or directional drilling

26 Hydraulic Fracturing ( Fracking( Fracking ) Process to unlock reserves in tight formations - used for decades in NYS Target formations are thousands of feet below surface and groundwater Does not occur until after the groundwater zones are sealed and drilling completed Fracturing is limited to completion interval Standard for all shale wells Larger scale for horizontal wells (1 million gallons or more per well) Frac fluid composition

27 Water Consumption

28 Otsego County

29 Water Handling and Disposal Fresh water brought in by truck Held on site in either lined pits or tanks Frac flowback water primarily into tanks Flowback water transported off-site by DEC licensed hauler DSHM Part 364 permitting and reporting, source and destinations identified At least two sites in PA accepting NY frac wastes Municipal treatment plants DEC s DOW

30 DEC and Local Government Authority for Oil and Gas Regulation Article 23, Title 3 of the Environmental Conservation Law (ECL) Delegates all authority to regulate oil and gas activity to DEC Specifies that local governments retain jurisdiction over local roads and their rights under the Real Property Tax Law Requires local govt. notification before operations commence

31 Marcellus and Other Horizontal Shale SGEIS DEC developing draft scoping document end of Summer 2008 Provide for public comment, hold meetings across the state Assess comments, revise scope as necessary, develop draft SGEIS Provide for public comment Finalize SGEIS Spring 2009

32 Well Spacing and Compulsory Integration Wells are drilled within spacing units of acres, established by law. Spacing unit acreage is assigned to the well for the purpose of sharing costs and production revenue. Lessors and royalty owners have no costs. Unleased owners may choose to participate (share) in well costs and a greater share of production if a well is successful.

33 Sample Spacing Unit The Well Operator must have 60% of the unit acreage under lease to submit an application for permit to drill (APD)

34 Establish the Unit The spacing unit is the area assigned to the well, usually more than one property. Pooling or integration refers to the grouping of more than one property into a single spacing unit. Unit set when permit is issued. Usually established by permit without a hearing. May sometimes require review and a hearing if exception from law is requested.

35 Compulsory Integration ( forced pooling ) If the Well Operator has control of 100% of unit acreage, compulsory integration is NOT necessary. If the Well Operator has less than 100%, then compulsory integration IS required. Compulsory integration requires a DEC hearing and order. Compulsory integration does not affect owners leased to the well operator. Does not authorize surface entry or disturbance

36 Compulsory Integration - Elections 1. Integrated non-participating owner - If unleased: no royalty paid during penalty phase (accelerates payout) - If leased: sliding scale penalty paid during penalty phase (1/16, 3/32, 1/8) 2. Integrated participating owner - Pay your share of costs and receive WI share of production 3. Integrated royalty owner - Lowest royalty in unit but not less than 1/8 th (paid on gross) **Consider not only the rewards, but also the costs, risks and responsibilities associated with each option. **See DEC s s brochure, consult an expert.

37 NYS Oil & Gas Web Links Overview: Landowner info: On-line database: Questions?