A pair of attorneys with extensive knowledge of New York’s regulatory, business and geological climates said the rules proposed by the state Department of Environmental Conservation (DEC) governing high-volume hydraulic fracturing (HVHF) won’t hamper development of the state’s shale plays, and they believe permits will be issued soon.
Mark Romanowski is an attorney with Harter Secrest & Emery LLP who is based in Buffalo, NY, and heads the firm’s energy practice group. He told NGI’s Shale Daily he was optimistic that New York would begin issuing HVHF drilling permits to operators in 2013.
“I believe the regulations will be issued by March, at the end of the 90-day [public comment] period,” Romanowski said Tuesday. “And I fully expect that there will be environmental groups that will try to block those regulations from being implemented. But I think that you will see permits being issued — some companies have actually put them into the pipeline already — by the end of 2013.”
Thomas West, an attorney for The West Firm PLLC in Albany, NY, who represents oil and gas companies, expressed optimism as well.
“I’m cautiously optimistic that there will be several operators who will try and go through the arduous process that’s contemplated by the regulations and the final SGEIS [supplemental generic environmental impact statement] standards,” West told NGI’s Shale Daily on Tuesday. “[But] it’s going to cost time and money. It’s going to be significantly more expensive to get a well permit in New York than in other states. There are not likely to be many takers, but there are likely to be some.”
West added that shale development in New York would depend on commodity prices and the quality of the wells being drilled. “If they’re boomers like Susquehanna County, PA, the industry is likely to come back more quickly,” he said. “If they’re mediocre wells, as some have predicted, they’re likely to come back very slowly.”
Although the DEC and the Independent Oil & Gas Association of New York (IOGA) have conflicting views of how much of the state’s portion of the Marcellus and Utica shales would be open to drilling (see Shale Daily, Dec. 4), Romanowski, an IOGA member, said the answer is “probably somewhere in the middle.”
“It’s difficult to predict when you look at in the aggregate, [going] across the state, [looking] at the setbacks and trying to play with GIS mapping and determine the way it’s going to play out,” Romanowski said. “It really starts to come down to site-by-site decision making, and you’ll find that typically the industry can get very creative and start positioning themselves in ways that they can make projects work when they take closer look at it.”
IOGA asserts that only 20% of the Marcellus would be open to drilling, while the DEC said 80% of the play would be accessible to drillers. “I think the state is probably being generous, and IOGA is probably being a little pessimistic,” Romanowski said.
West concurred. “I’d probably put it in the middle someplace, 40 or 50%, based upon the analysis that we did the last time we went through it,” he said. “Several operators did a pretty deep dive on their properties and found the cumulative effect of the prohibitions and setbacks is significant.
West said determining whether 20% or 80% was the more accurate figure depended upon whether the watersheds for New York City and Syracuse were included in the analysis.
“Most people don’t think that the watershed areas are going to be prospective, although that is really unknown for the Utica because it extends a lot farther north and may extend into the Skaneateles [Lake] and Syracuse watershed,” West said. “But if you take those big areas off the table, and their buffer zones, the rest of it is probably closer to 50%. And lot of it depends upon whether you are unfortunate enough to have leaseholds in the vicinity of a primary or principal aquifer, because that’s probably the next-biggest restriction that impacts well pad location.”
Asked if he thought the DEC’s proposed regulations would dissuade oil and natural gas companies from conducting business in New York, Romanowski said “the bigger factor, quite frankly, is gas prices. “That’s going to drive whether they come to New York. If it’s profitable to drill, gas companies will do work wherever the asset might exist. And they’ve been shown that there’s a pretty significant asset in New York State.
“Pennsylvania’s regulations have gotten more restrictive over time as they’ve figured it out, and the industry has adapted and responded. I think the same thing will happen [in New York], but they need to be motivated to [come]. That’s less likely at significantly depressed gas prices, but I think in the long run they still will.”
Last week the DEC said it was filing for a 90-day extension and would accept public comments on the draft regulations beginning Dec. 12 and ending at 5 p.m. EST on Jan. 11 (see Shale Daily, Nov. 29). The department said it needed the extension to give Department of Health (DOH) Commissioner Nirav Shah more time to complete a health analysis of HVHF.
West took issue with Monday’s characterization from an anti-fracking group, the Environmental Advocates of New York (EANY), that the 90-day extension was “meaningless.”
“I don’t think it’s a ‘meaningless’ step, it’s a step in the regulatory process,” West said. “Quite frankly, it took me by surprise; I thought they were going to let the regulations lapse. Apparently they got a directive from the governor’s office to implement the procedures to get them a 90-day extension. That signals that we do have a light at the end of the tunnel.”
West said the rulemaking process needs to be completed by Feb. 27 or the regulations will lapse. He added that the state law also requires that the SGEIS be completed at least 10 days before the rulemaking process is completed.
“So as a matter of practicality, it means that the department will have to finalize the SGEIS by early to mid-February at the latest in order to stay on this schedule,” West said. “I don’t think they would have gone through this effort unless they intend to finish the process in a timely manner.”
Both attorneys also disagreed with EANY that significant changes would be made to what the DEC has proposed after the 30-day public comment period.
“It’s unrealistic that there will be significant changes from what’s happened to date,” Romanowski said. “The revised regulations that are currently out respond to a lot of the health concerns that were raised by opponents to the regulations. Certainly the DEC didn’t do this in a vacuum when they developed these regulations; they worked with the DOH. But now it’s a little bit more of a formalized effort with Shah being involved.
“I think there may be tweaks, but I don’t think there are going to be significant changes.”
West agreed, adding that the state administrative procedure act (SAPA) limits the amount of substantive changes the DEC could make to its proposed rules without requiring a reset rulemaking process.
“We’re probably going to see some fine tuning on these regulations, but they’re basically close to final,” West said. “But that doesn’t mean that the department can’t react to the health review and make changes in the SGEIS. The department has a great deal of flexibility in going forward to react to whatever comes out of the health review process.”
The DEC’s proposals include a ban on drilling through HVHF within the New York City and Syracuse watersheds, an adjacent 4000-foot buffer zone, and within 500 feet of private drinking water wells. The agency has also suggested banning well pads and access roads for HVHF within 100-year floodplains, and a requirement that operators disclose the additives used in HVHF.
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