Ilya Marritz covers business for WNYC.
Natural Gas Could Transform Sullivan County
Wednesday, April 09, 2008
New York, NY –
Last winter, some residents of Sullivan County in upstate New York were surprised to receive mailers from companies that wanted to drill for natural gas on their land. Soon, cafes and gas stations were buzzing with talk that you could get rich off of gas deposits buried deep below the earth’s surface.
VAN SWOL: This is like Texas an Oklahoma during the oil booms in the early 20th century. You are going to see overnight millionaires in this region.
REPORTER: That’s Noel van Swol, a weekend regular at Lander’s Café in Callicoon.
There are no overnight millionaires yet, as WNYC’s Ilya Marritz reports, but a major natural gas find could transform a region just a short drive from New York City.
Harold Roederer is game.
ROEDERER: Maybe I’ll get to pay my mortgage and retire.
REPORTER: So is Dan Peterson, who keeps 150 head of cattle on his family farm.
PETERSON: It’d be a fantastic impact. I mean, create jobs, create money.It can’t do anything but good, I think.
REPORTER: The way Noel van Swol sees it, if you live on the Upper Delaware, you can probably get a piece of the natural gas action.
VAN SWOL: From Hancock, New York through Narrowsburg, New York. From what I gather, you can sink a well anywhere and you will hit commercial gas.
REPORTER: Four years ago, the customers at Lander’s debated whether new slot machines at the old racetrack in Monticello could lift the economy. Gambling money was the big hope, or the big hype, depending on how you saw it.
Today, if some people have dollar signs in their eyes, it’s because of what they know is buried below.
LASH: The Marcellus shale is abetween 370 and 380 million year old black shale, that stretches from probably the Albany area well down into West Virginia and over into Ohio and well into Pennsylvania.
REPORTER: Nobody knows the Marcellus shale better than Professor Gary Lash of SUNY-Fredonia. He says it has tremendous gas reserves, but the fine grain of the rock makes it hard to tap. He could go into more detail…
LASH: There have been times we’d do talks on shales at meetings, and empty the room. Because for the longest time nobody cared about shales. That’s not the way it is anymore.
REPORTER: The reason? Take your pick: the cost of a barrel of crude…High natural gas prices… Politicians railing against foreign oil…Over the past few years, energy companies have been willing to try cracking some of the toughest nuts – including the Marcellus.
Late last year, Range Resources of Fort Worth announced stunning find in the western part of the Marcellus Shale.
LASH: They had some wells that were pushing four million cubic feet a day or more, which is a really good number.
REPORTER: That got Wall Street interested. Subash Chandra is a gas analyst with the Jefferies investment bank.
CHANDRA: The market has known about the Marcellus for probably a good year and half...Where they finally paid for Marcellus, so to speak is when Range finally demonstrated they had a series of good wells with good results
REPORTER: Range did it using a new technique called “horizontal drilling”. Basically, the drill hole is L-shaped instead of perfectly straight. And that means the driller can break up the shale, and extract a lot more gas.
These wells cost more– as much as four million dollars each. But Chandra predicts gas prices will stay high, making them a safe investment.
CHANDRA: There’s many shales the market is not paying for because there’s no evidence those shales will work. Marcellus is different…
REPORTER: So as investors have poured money into energy companies, they’ve set off a scramble for drilling rights. Talk among property owners has turned from twenty-five dollars an acre leases to leases of two thousand dollars an acre. And royalties above a thousand dollars a day.
That could happen, but not every well will bring a good yield. When you sign a lease, there are no guarantees.
SOUND FROM DAVE’S FARM
REPORTER: Right now, there are only a dozen or so active wells in the Marcellus. One site that’s been getting a lot of visits belongs to a trucker who doesn’t want his name used, we’ll call him Dave. He has one of the biggest farms is Susquehanna County, Pennsylvania, about 50 miles west of the New York border.
Dave likes to say he and his family are “guinea pigs”. They signed a lease early - in 2006, when land was going for twenty five an acre. They got about a hundred fifty thousand dollars in total. Today the lease might be worth one-point-two million.
DAVE: They just completed second well on our property, they have done another one a few miles away. From what we’re told, and what we hear, there is gonna be the total of 200.
REPORTER: That’s two hundred in Susquehanna County alone. Of course like most information in Marcellus Shale country, it’s hearsay.
SOUNDS FROM DAVE’S FARM
As we drive the fresh gravel roads to get to the drill sites, Dave quietly makes it clear that he’s unhappy with the contract he signed.
The terms of his lease include the phrase “mutual consent”. But Dave doesn’t feel he has much choice. Recently, he persuaded the company to move a planned well out of his driveway. But it will still go in his front yard.
DAVE: It’s very intrusive. They take a couple acres for each site, plus access roads getting there, these are through fields, in your wooded areas. Wherever they happen to choose. They pretty much do take over.
REPORTER: Gas companies are obligated to do remediation – basically to restore the land as much as possible to its earlier state. But right now, it looks like major surgery that will leave some scars.
People have been streaming to Dave’s farm to see the wells up close. Not long ago, Noel van Swol came here with members of a nee group, Sullivan-Delaware Property Owners Association.
VAN SWOL: Now we want the energy companies to make lost of money here. We feel that under the proper circumstances this can be an enormous benefit to everybody. But at the same time we have to protect the local people, our friends and neighbors.
REPORTER: The idea is to neutralize what economists call information asymmetry. That’s when one party to an interaction (in this case the gas companies) has information that the other party (the land owners) does not. Like detailed seismic maps.
Van Swol says his members are collectively soliciting bids from the major players this. All told, they have forty-four thousand acres to offer. They’ll bargain for generous leases, and write environmental protections into the contract.
VAN SWOL: We've been doing a good job of getting info out to people that not smart to sign at this point. Understand what you're signing, and realize it's a once in lifetime opportunity.
REPORTER: The Sullivan-Delaware Property Owners Association expects to sign a deal with an energy company in the next month or two.
For WNYC, I’m Ilya Marritz.