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Huge Gas Deposit Stirs Talk of Boom

June 30, 2008

By Jay Rey, The Buffalo News, N.Y.

Jun. 30–It was a year ago, when men from the oil and gas companies knocked on the door of Stephen Woloszyn’s dairy farm in the small Cattaraugus County village of Delevan.

They wanted to drill for natural gas on his property.

“They showed up at my house, and told me who they were,” said Woloszyn, whose farm has been in the family for more than 50 years. “I had two different outfits asking me for a lease.”

Soaring oil and natural gas prices have the industry turning over every rock in search of promising new deposits. But what’s really captured the imagination is a giant natural gas reservoir running beneath four states, including New York’s Southern Tier.

The potential is huge. And some lucky landowners are striking it rich.

“It’s extremely significant as far as the natural gas that’s expected to be recovered,” said Brad Gill, executive director of the Independent Oil and Gas Association of New York. “It’s put New York State on the map with the very large independent oil and natural gas companies from around the country.”

Company land men are swooping into counties, like Broome and Tioga, to lease property for drilling.

Along the way, they’re doling out tens of millions of dollars for the mineral rights to thousands of acres of farmland throughout south central New York and across the border in Pennsylvania.

“This is one of the biggest booms New York has ever seen,” said Arthur Van Tyne, an oil and natural gas consultant from Wellsville in Allegany County. “It’s amazing the amount of money being spent here, and the amount of acreage being taken.”

Landowners in these parts have yet to hit it big. But they’re watching closely, hoping they’ll be the next Jed Clampett, now that gas companies are sniffing around parts of Erie, Cattaraugus and Allegany counties looking to make a deal.

“It’s going on, on a daily basis,” said Robert Christman, the Allegany County clerk. At least a half dozen land men, from places such as Texas and Oklahoma, file into the clerk’s office in Belmont each day to pore over county maps, land deeds and old lease agreements.

“It’s exciting,” Christman said.

The commotion is over a geological formation known as the Marcellus shale. And among those stirring the excitement is Gary Lash, a Fredonia State College professor of geosciences.

Hard to drill into shale

Marcellus shale, Lash explained, is a black sedimentary rock formed 385 million years ago from the organic-rich mud of shallow seaways. As the organic material decayed, natural gas formed and dispersed through its pores.

Geologists have known about it for years. Companies would run into the shale while drilling, but thought little of it, because it’s relatively impermeable. In recent years, though, companies have had success capturing gas from shale in Texas by drilling down, then taking a horizontal path through the rock.

It’s a much more costly technique. But now that natural gas prices are up over $13 per 1,000 cubic feet — nearly 2z times what it was just last August — it’s financially viable.

Attention shifted to the Appalachia region’s Marcellus, the largest known shale deposit in the United States. It covers some 34 million acres across Pennsylvania, West Virginia, eastern Ohio and New York’s Southern Tier. At its thickest, it’s 200 feet, and at its deepest, more than a mile underground. “There’s no doubt there’s gas in there,” Lash said. “The problem is extracting it.”

Lash and Terry Engelder, professor of geosciences at Penn State University, recently released new research on the potential of the Marcellus.

Using horizontal drilling to penetrate the rock’s natural vertical fractures, they estimate enough natural gas could be recovered from the Marcellus to supply the entire United States for about two years.

The potential value: upwards of a trillion dollars.

“This is big for the industry,” Gill said. “There is quite an oil-and gas-leasing frenzy going on right now with a lot of positioning by some of the larger oil and natural gas operators.”

Engelder and Lash have had a lot to do with that, said Van Tyne, the industry consultant from Wellsville. “They told us a lot more . . . about the shale that we didn’t know,” Van Tyne said, “and that there was a lot more gas in it than we ever thought.”

But the hype has surprised even Lash.

Quick riches for some

It was March, when gas companies began asking to lease property in the Binghamton area for $50 an acre.

The New York State Farm Bureau held meetings to educate hundreds of landowners about the interest in Marcellus shale, and the benefits of them organizing to negotiate a good deal with the gas companies.

The price jumped to more than $800 an acre.

Then it shot up to $1,500 an acre. Last month, a coalition of 300 landowners, many of them farmers, signed a deal with a Texas company worth $90 million — plus a 15 percent royalty. Some became millionaires.

“In southern Broome County, if you’re looking at less that $2,500 an acre, you’re crazy,” said Lindsay Wickham, a Farm Bureau adviser. “The going rate right now is really $2,500 to $3,500 — and a 15 percent royalty.”

Dan Fitzsimmons — who organized a group with 14,000 acres in the Binghamton area — hopes he and his coalition of 300 will get a better deal when they put their leasing rights up for bid in the coming weeks.

“I think people are nervous,” said Fitzsimmons, a berry farmer. “You don’t know which way to take it, because this hasn’t happened around here before. There’s a lot of people that just can’t believe that this is true.”

What drilling could do to the environment and their well water is a concern, but they can’t help thinking what the money could mean for them and a county where the median household income is $41,500.

“I could go for a new tractor,” Fitzsimmons said, “but I’ll wait to see the money before I get too excited.”

Western New York has a stake in all this, too.

“Very much so,” said Wickham of the Farm Bureau. “The Marcellus shale extends all the way into Ohio. As they saturate [south central New York], they have to start pressing onward and upward.”

Right now, the focus in this region is on leasing land for possible drilling, but the offers have been small in comparison: anywhere from $15 to $100 an acre, according to those familiar with the deals.

“I hear of people getting contacted in the southern part of Allegany County, all the way up into the southern corner of Erie County in the Eden area, and over that way,” said Tim Bigham, a Farm Bureau adviser.

“I suspect it’s about Marcellus shale, but that’s not something [companies] make known,” Bigham said. “A lot of this stuff is very secretive, even among the landowners.”

More than 200 people showed up last month at a meeting in Franklinville, where the Farm Bureau talked about the interest in the shale.

It may take a few years for the drilling and the offers to pick up at this end of the state, Wickham speculated, but he encouraged the landowners to be patient, organize and weigh any lease offers.

Gill, the oil and gas representative, doesn’t think the offers will get nearly as lucrative as they are in the Binghamton area, because the shale isn’t as thick in this area.

Lash would tend to agree. “But,” Lash said, “who knows?”

Drilling permits increase

Nonetheless, the state Department of Environmental Conservation expects much more traditional oil and gas drilling to occur, regardless of what happens with the Marcellus shale.

The DEC anticipates granting 900 drilling permits in this region this year, up from 44 in 2003, said Chris Miller, a regional mineral manager.

“Now with the high prices, some of these reserves they knew were there have become profitable to drill,” Miller said, “so they’re drilling in more areas.”

As for Woloszyn, the Delevan dairy farmer, he did sign a lease.

And should the company drill and tap into a reserve, the deal means Woloszyn would get free natural gas.

“My hope is they would come and drill a well, so I could get enough gas for two houses and my barn. That’s where the benefit would be for me,” Woloszyn said. “But I don’t know if they’re going to find much gas here.”

jrey@buffnews.com

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