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New Leasing Rules Benefit New York Producers, Land Owners

Legislation encompassing a sweeping reform of leasing and drilling rules in New York State that was signed by the governor last week is "a good compromise for all the parties involved," according to Brad Gill, executive director of the Independent Oil and Gas Assoc. of New York (IOGA). "This is fair to operators and landowners.

"We're real happy with it," Gill said, advising that IOGA and individual companies had worked with legislators to repair "a broken system." Implementation of the new law will help with development of the new deep Trenton-Black River formation in the Finger Lakes region of the state. Production in New York has increased from about 17 Bcf several years back to 47 Bcf last year, mainly from the developing play which extends west to Michigan and Ontario and south to West Virginia. Last year's gas production was the largest since the 1930s. While there are thousands of shallow wells in the state, "probably about 50 of the Trenton-Black River wells were responsible for the increase," Gill said.

"The law establishes a uniform and consistent process to encourage continued development of oil and gas resources, streamlines administration, and will help educate parties about the risks and rewards in oil and gas production," Governor George E. Pataki said. in signing the measure.

The law fundamentally simplifies the potential options for integrating ownership interests in a unit in the absence of voluntary agreement.

Landowners may:

The law provides for companies to determine the unit size and configuration and identify owners in advance Previously for a deep well, none of that was done until after the well was drilled. That opened the field to all kinds of claims and litigation.

The legislation includes a section designed to ensure that all individuals participating in leases of oil and gas interests have notice of the significant legal import of the leases, and requires that all leases contain an unconditional three business day right of rescission. There are other provisions to protect landowners, Gill said. The new law also includes rules for dispute resolution and redefines unit sizes to more "appropriate" spacing.

Meanwhile, since implementation will require the state Department of Conservation (DEC) to modify processes, develop new application requirements and change IT programs, all applications for wells subject to the new rules have been put on hold until further notice. "Applications will not be processed until we have informed industry of additional required application information, received and reviewed that information, and implemented the required data entry and notice procedures," the state agency said.

Companies operating in the Trenton-Black River trend include Fortuna Energy, Columbia Natural Resources, Pennsylvania General Energy, Energy East Resources, EOG Inc., Great Lakes Energy and Phillips.

Investments in new oil and natural gas production, especially in the Trenton-Black River formation, are expected to increase in coming years. Since 1996, independent oil and gas companies have invested an estimated $500 million in Trenton-Black River development, with an average well cost of more than $1 million.

Most of this exploration has been south and west of the Finger Lakes, with exploratory wells permitted as far east as Montgomery County and as far west as Cattaraugus County. Additional information on New York's oil and gas resources is available at www.dec.state.ny.us/website/dmn.

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