Many NY gas leases expire as moratorium remains

SYRACUSE, N.Y. (AP) -- New York's five-year moratorium on shale gas development promised to be a blessing for many landowners eager to end leases they signed before anyone outside of the oil and gas industry had heard of fracking.

But actually getting out of a lease can be tricky. Many have clauses giving the drilling company the right to extend them for another five years. Gas companies have tried to extend thousands of leases by claiming an unforeseen barrier — the moratorium — has prevented them from drilling. And even when a lease has expired, landowners often have to take several legal steps to clear their land of claims.

Thousands of leases have reached the end of their five-year term since the moratorium began in 2008. That gives some landowners the chance to get out of a lease they signed for $2 or $3 an acre and 12.5 percent royalties and try to negotiate a new one for the far more favorable terms seen in recent years — potentially thousands of dollars an acre and 20 percent royalties.

Other landowners simply want to end their leases to free their farms from fracking, which uses huge quantities of chemically treated water and sand to crack shale thousands of feet underground so trapped natural gas can flow into horizontally drilled wells.

Ellen Harrison, of the Tompkins County town of Caroline, started an organization called Fleased to help landowners navigate the complex legal issues related to gas leases. She regrets having signed a lease with a gas company and is now firmly in the anti-fracking camp, which raises health and environmental concerns about gas drilling and has been pushing Gov. Andrew Cuomo to make the moratorium permanent.

Cuomo has said there's no set timetable for his decision.

"In New York, your lease doesn't just end when the five years are up," said Joe Heath, a Syracuse civil rights lawyer who partners with Harrison in lease-termination workshops and offers his services for free to people trying to end gas leases. "The law says when the lease expires, the company must provide the landowner a document, but they often don't. The lease stays there until the landowner takes action."

The landowner has to send letters to the gas company and all investors that have bought interests in the lease; if none of them file an affidavit to extend the lease within 30 days, the landowner can file a document with the county clerk ending the lease. One upstate landowner had to notify eight companies to end his lease at the end of its 10-year term.

"These leases are commodities that they have to sell," Heath said. "Companies are desperate to extend these cheap old leases so they can sell them. They use every extension clause they can."

Heath said he has successfully gotten landowners out of a "couple hundred" leases in the past two years.

"Hundreds of millions, if not billions, of dollars are at stake if these operators can hold onto these leases which have very favorable terms for them," said attorney Robert Jones, who has represented hundreds of landowners in lawsuits challenging efforts by Chesapeake Energy and other companies to extend leases.

A federal judge ruled against Oklahoma City-based Chesapeake and Denver-based Inflection Energy in November, saying that even though the state doesn't allow fracking, nothing stopped the companies from using conventional drilling methods. The companies have appealed.

In a separate case, Attorney General Eric Schneiderman reached an agreement with Chesapeake last June to allow more than 4,400 landowners whose leases were expiring to renegotiate terms with other companies, which Chesapeake could match. The trouble with that, Heath said, is that no companies are interested, given New York's uncertain regulatory future.

Albany lawyer Tom West, who represents Chesapeake and other companies trying to extend leases, said it's only fair that companies should be given time to do the gas exploration they agreed to in their leases.

"I'm certainly sympathetic to landowners who think their leases shouldn't be extended," West said. "But the operators' perspective is, we just want the amount of time that we've been delayed tacked onto the lease. It's a deal they feel they bargained for, and they should have the opportunity to come in and test the resource when the moratorium is lifted."

Most of the landowners who come to lawyers like Jones and Scott Kurkoski, who work for different firms in Binghamton, hope to negotiate new leases with better financial terms and more protection for their land and the environment.

"Some people are happy that their lease has expired, but unfortunately, there really isn't any lucrative deal out there for them," said Kurkoski, who represents the 77,000-member Joint Landowners Coalition of New York, which is seeking leases on nearly a million acres of upstate New York land that haven't been leased before.

Two-thirds of the leases people bring to Heath can't be terminated because they have clauses allowing the company to extend them, he said.