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eCorp, New York Landowners Group Scrap Drilling Agreement

eCorp International LLC and a property owners organization in New York have decided to scrap a "complex" plan to create a company indirectly owned by the landowners and will return to the drawing board, delaying the possibility of bringing waterless hydraulic fracturing (fracking) to the Empire State.

Houston-based eCorp had signed a memorandum of understanding (MOU) with Southern Tier Energy Partners LLC (STEP) in late March (see Shale Daily, March 30). The group represents about 2,000 property owners that control nearly 135,000 net acres in Tioga County. The MOU envisioned giving STEP landowners a majority share in a proposed company that would develop their minerals, in exchange for lower royalties (12.5%) and no bonus payments. eCorp then planned to organize the landowners' holdings into several contiguous 25,000-acre blocks, with each block designed to have similar production results.

But on Monday, eCorp conceded that the plan, "though appealing to many, does not appear to allow sufficient flexibility to assimilate all stakeholder needs and concerns, or find agreement among a consensus of the stakeholders." No figures were given on the number of stakeholders that had signed on to the agreement.

"After greater in-depth analysis of the original conceptions, we felt that the preliminary notion of incorporating a landowner-owned company might prove too complex and cumbersome," eCorp CEO John Thrash said. "Accordingly, eCorp and STEP have gone back to the drawing board to continue the process of identifying a beneficial deal structure for all stakeholders consistent with all applicable regulatory requirements.

"We will continue to attempt to craft an approach that will be streamlined, understandable, and afford greater flexibility to those considering selecting eCorp as the operator working their land, and hope to be back with a new and more workable concept in the near future."

Mark Stauss, eCorp's director of commercial operations, told NGI's Shale Daily that low natural gas prices, and the expectation that they would continue into the foreseeable future, drove the company and landowners to consider a more unconventional business arrangement. "It was complicated and I think some of the landowners were confused and maybe uncertain about it," Stauss said. "So we're going to go back to the drawing board and revisit what type of entity we should set up."

The MOU had also brought in GasFrac Energy Services Inc., a pioneer in the waterless fracking process. The Calgary-based company's use of gelled liquid petroleum gas (LPG) instead of water had eCorp officials and STEP landowners equally optimistic that perhaps oil and natural gas drilling could take place in New York despite a moratorium on high-volume fracking (see Shale Daily, Feb. 8; July 5, 2011).

The New York Department of Environmental Conservation (DEC) has indicated that LPG technology is a "viable" alternative to water fracking. Despite this, a coalition of environmental groups last month called on regulators to ban LPG fracking as well (see Shale Daily, April 16).

"We still prefer a propane frack," Stauss said. "There is talk about it not falling under the current SGEIS [supplemental generic environmental impact statement], but obviously whatever we do would be in total compliance with New York State and the DEC. This isn't an opportunity to try and do an end-run or sneak something under the wire."

Asked if a future proposal between eCorp and STEP would also incorporate waterless fracking, Stauss said "it's our preference. It makes great sense without having to use all that water. There's just so much logic associated with it. The landowners liked that idea because it's environmentally friendly. They seemed very supportive and wanted to do it."

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