A newly formed organization that represents about 2,000 New York property owners in Tioga County has signed a preliminary agreement with developers to stimulate unconventional natural gas wells using waterless hydraulic fracturing (fracking) that may bypass the state’s drilling moratorium.

The Southern Tier Energy Partners LLC (STEP) landowners group, which controls close to 135,000 net acres in Tioga County, represents landowners who banded together as the Tioga County Landowners Group. STEP sought a “responsible, environmentally sensitive operating company” to develop prospective Marcellus and Utica shales,” which they believed were under their surface holdings.

In eCorp International LLC and GasFrac Energy Services Inc., STEP may have gotten both.

Under a memorandum of understanding (MOU) signed Wednesday with eCorp and GasFrac, the group agreed to allow Houston-based eCorp to operate some natural gas wells when they are drilled, while Calgary’s GasFrac would provide the stimulation technology. STEP landowners would receive working interest shares to make them operating partners, as well as royalties.

Developer eCorp has been at the forefront of some of the biggest gas projects in the country, including the Stagecoach Gas Storage Facility in Tioga County, now owned by Inergy Midstream. Calgary’s GasFrac is making a name for itself in the oilfield services market using a waterless frack process that injects gelled liquid petroleum gas (LPG) into underground rock formations to release trapped natural gas (see Shale Daily, Nov. 14, 2011). In addition to using no water, independent testing by several producers of the reservoir stimulation method also has been found to produce more gas.

“In order to make this project attractive to all stakeholders, we had to be creative in structuring a deal with respect to the minerals,” said eCorp CEO John Thrash. “We had to demonstrate that we continue to stay true to our high best practice standards. We believe this game-changing technology will be embraced by, not only regulators and the industry, but by the general population as well.”

GasFrac’s reservoir stimulation process is similar to water fracking in that it creates pressure to crack the fractures and free trapped gas bubbles. And like water, the propane gel forces particles of sand and proppant into the cracks to hold them open to allow the gas to flow. However, the similarities end there. Unlike water, GasFrac’s propane gel reverts to vapor under pressure and heat, and it returns to the surface — with the flowing gas — for collection, reuse and resale. In addition, LPG doesn’t return drilling chemicals, salts and underground radioactivity to the surface.

GasFrac and eCorp in February signed an MOU to introduce the reservoir stimulation technology in Europe. The “gas fracking” process has been used for more than 1,200 stimulations in reservoirs across North America, including in the Western Canadian Sedimentary Basin, the Eagle Ford Shale and the Piceance Basin. GasFrac also has done exploratory work in portions of Pennsylvania’s Marcellus Shale.

Last year GasFrac officials made presentations to Tioga County landowners and state regulators. At that time they also provided public comment sessions.

The New York Department of Environmental Conservation (DEC) has indicated to GasFrac previously that the LPG technology is a “viable” alternative to water fracking, which has been strongly opposed in some parts of the state, particularly the New York City area. The MOU may test how viable the LPG fracking alternative is.

State regulators continue to review the revised supplemental generic environmental impact statement (SGEIS), which would determine whether unconventional wells may be drilled and stimulated using high-pressure water and sand proppants. A moratorium on drilling horizontal wells using water fracking in the New York portion of the Marcellus Shale has been in effect since then-Gov. David Paterson ordered the DEC to complete the SGEIS in mid 2008 (see Daily GPI, Feb. 8; July 5, 2011; July 28, 2008).

The drilling moratorium doesn’t allow “high volume” fracking using more than 300,000 gallons of water — basically, all unconventional drilling. The SGEIS does not cover waterless fracking, which would be governed under conventional drilling regulations put in place by DEC in 1992.

DEC spokeswoman Emily DeSantis said if regulators receive a “formal application” by eCorp to drill in Tioga County and use the GasFrac process, “we will follow the current permitting process as set forth in the 1992 SGEIS. However, our review may require additional information and additional analysis, including an environmental impact statement, if warranted.”

The MOU still requires individual Tioga County landowner approval. The final agreement also needs to be completed, and drilling permits still need to be obtained from DEC. If all goes to plan, exploration and development could begin as soon as this summer.

“This is an incredible opportunity for our landowners,” said STEP Chairman Nick Schoonover. “It combines the best of both worlds by implementing LPG fracturing with a very responsible operator, using best business practices and state of the art equipment. Landowners working together to create sharing companies of which they are the majority owner, receiving the majority profit, in addition to their royalty share is unheard of in the industry. This represents an unprecedented opportunity to improve the economy in the Southern Tier and bring in a number of good local jobs. We expect to have member meetings shortly to present the opportunity.”