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NY Producer Shuts Down, Citing Town's 'Ludicrous' Moratorium

Just days after a town in western New York adopted a one-year moratorium on oil and natural gas activities, the town's only operator made a rare move and decided to shut down its wells and pipelines there, halting royalty payments and free natural gas to landowners.

Board members in the Town of Avon, located in Livingston County, passed a law on June 28 that essentially bans all oil and gas exploration and extraction activities, underground natural gas storage and the disposal of wastes from oil and gas drilling.

In response, Lenape Resources Inc. sent letters to 10 landowners in Avon on July 6 notifying them that the town's actions were essentially forcing the company to shut down its pipelines and 16 vertical wells. The Alexander, NY-based company, which owns more than 5,000 acres of leasehold in Avon, began shutting down its assets on July 9.

"Because of the broadness of the language of the law, we decided to take a very cautious approach and just shut things in," Lenape President John Holko told NGI. "We told our landowners what we're doing and that we would sit down and start analyzing what we can and can't do."

Cherie Messore, spokesperson for the Independent Oil and Gas Association of New York (IOGA), told NGI that the move by Lenape "is the first [by the industry] that we are aware of." Holko is a board member at IOGA.

Holko said he understands that town officials passed the law because of their concerns about high-volume hydraulic fracturing (HVHF), but he said they didn't heed his advice to study work being done by the state Department of Environmental Conservation (DEC), which is nearly finished with a supplemental generic environmental impact statement on the issue (see NGI, Oct. 3, 2011).

"In New York, it's very clear that the state regulates our industry," Holko said. "I've operated in this town for more than 20 years, and they've never written a law [on oil and gas regulation] before. Now they're writing a law to prohibit my business."

Holko said Lenape's 16 wells in Avon were drilled vertically to a shallow depth -- all less than 2,000 feet -- and were hydraulically fractured with small stimulation treatments, a process that has remained legal in New York. But despite this, he said the new law is problematic in its provisions for grandfathering existing wells. "The law starts to talk about under what conditions the wells will be grandfathered and when they will drop out, but it doesn't talk about any additional development or anything else," he said. "So they've essentially taken away my business."

Town officials could not be reached for comment. Town Supervisor David LeFeber told the Associated Press that Lenape wasn't required to shut down its operations.

"We were very careful to word our moratorium to protect existing gas wells," LeFeber said. "This is only a moratorium; it's not a ban. We wanted to take some time to study the issue and put in place any things that would help make sure we protect the health, safety and well-being of our local residents."

Livingston County is just north and west of Steuben County, which is one of five counties that in June were floated by New York Gov. Andrew Cuomo's administration as possible localities that could be open to HVHF, provided the DEC grants regulatory approval (see NGI, June 18). Meanwhile, local governments across the state have been choosing sides in the fracking debate, with some banning the practice and others embracing it (see NGI, June 4; May 28).

Holko said that although Lenape has some operations in Ohio and Pennsylvania, and that Avon probably represented less than 10% of the company's business, "when you're selling gas for $2.50 [per Mcf], every little bit helps.

"This is my bread and butter. What's going on is just ludicrous."

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