Bill S3659-2011

Relates to integrated royalty owners in the New York Marcellus Shale region

Provides that integrated royalty owners in the New York Marcellus Shale region shall receive a royalty equal to the highest royalty in an existing lease in the spacing unit, but no less than 18.75 percent.

Details

Actions

  • Jan 4, 2012: REFERRED TO ENVIRONMENTAL CONSERVATION
  • Mar 1, 2011: REFERRED TO ENVIRONMENTAL CONSERVATION

Memo

BILL NUMBER:S3659

TITLE OF BILL: An act to amend the environmental conservation law, in relation to integrated royalty owners in the New York Marcellus Shale region

PURPOSE OR GENERAL IDEA OF BILL: To increase the statutory minimum royalty for landowners in the New York Marcellus Shale region who are involuntarily included in a natural gas drilling unit through compulsory integration.

SUMMARY OF SPECIFIC PROVISIONS: § 23-0901, subsection 3 of Environmental Conservation law is amended to increase the minimum royalty payment for landowners who undergo compulsory integration in the New York Marcellus Shale region from 12.5 percent to the highest royalty in an existing lease in the drilling unit, but no less than 18.75 percent.

JUSTIFICATION: When a natural gas drilling company applies for a permit from the Department of Environmental Conservation (DEC) to drill a well, the company proposes a drilling unit from which gas will be extracted. These unit boundaries may cut across property lines and include land owned by people that have not, for various reasons, signed a lease with a gas company for development.

If a natural gas company controls 60% of the acreage in a drilling unit through leases or ownership, the DEC will schedule a Compulsory Integration hearing which will give the driller the remaining non-leased landowners' subsoil gas rights to that gas formation.

In this case, there are three options for compulsorily integrated land owners offered by law. The first two include sharing in the considerable costs and complexities of natural gas exploration and well-drilling. As a result, the third option is typically chosen by landowners and they enter into a contract to receive the statutorily-set minimum royalty rate of 12.5 percent.

For years, this minimum royalty amount was consistent with what leased landowners in the same drilling unit where receiving when they signed a lease with a natural gas company. With technical advances in the drilling industry and the prospect of exploration in the Marcellus Shale formation, leased New York landowners have seen average royalty payments increase dramatically and they are now are consistently in the 18 to 20 percent range, with some lease agreements offering up to 30 percent royalties.

Given this positive change in market trends, landowners who are involuntarily integrated into drilling units now are receiving considerably lower royalty rates than their neighbors in the same unit. This bill seeks to equalize royalty rates by increasing the minimum royalty offered to compulsorily integrated landowners in the New York Marcellus Shale region to be equal to the highest royalty in the unit or 18.75 percent at the minimum.

PRIOR LEGISLATIVE HISTORY: ,in 0 S.7758 of 2009.

FISCAL IMPLICATIONS: None to the state.

EFFECTIVE DATE: Immediately.


Text

STATE OF NEW YORK ________________________________________________________________________ 3659 2011-2012 Regular Sessions IN SENATE March 1, 2011 ___________
Introduced by Sen. VALESKY -- read twice and ordered printed, and when printed to be committed to the Committee on Environmental Conservation AN ACT to amend the environmental conservation law, in relation to inte- grated royalty owners in the New York Marcellus Shale region THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subparagraph 3 of paragraph a of subdivision 3 of section 23-0901 of the environmental conservation law, as amended by chapter 386 of the laws of 2005, is amended to read as follows: (3) "Integrated royalty owner" means an owner who has either elected to be an integrated royalty owner or who does not elect to become either a participating owner or a non-participating owner. [The integrated] INTEGRATED royalty [owner] OWNERS, OTHER THAN INTEGRATED ROYALTY OWNERS IN THE NEW YORK MARCELLUS SHALE REGION, shall receive a royalty equal to the lowest royalty in an existing lease in the spacing unit, but no less than one-eighth. INTEGRATED ROYALTY OWNERS IN THE NEW YORK MARCELLUS SHALE REGION SHALL RECEIVE A ROYALTY EQUAL TO THE HIGHEST ROYALTY IN AN EXISTING LEASE IN THE SPACING UNIT, BUT NO LESS THAN 18.75 PERCENT. The integrated royalty owner shall have no obligation to the well operator or any other owner for any charges, taxes or fees associated with the operation of the oil or gas well and, notwithstanding any other law to the contrary, shall not be liable by reason of the owner's status as an integrated royalty owner for any claims for personal injury or property damage suffered by any person relating to the drilling and operation of the well. S 2. This act shall take effect immediately.

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