Drilling Into Property Rights
11:52:26
Laura Underkuffler: Okay. Good afternoon. Welcome to the panel for our conference titled
Drilling Into Property Rights. I am Laura Underkuffler. I teach here at the Cornell Law School
and I am pleased to present this panel. Of course as we know natural gas is a physical finite,
often considered to be owned or controlled natural phenomenon. It's physically found in the
earth, which in our legal system means that is probably a part of someone’s land. In addition its
methods of physical extraction is something which implicates both the general physical
environment and the property of others. We therefore have in this area a melody of conflicting
property claims of landowners, neighbors, large physical communities and ultimately the citizens
of the state. All of this leads to very difficult emerging and high state legal issues. So today we
have four experts in the field who will talk to us about some of these issues and how they might
be approached. The veterans of the panel are Anthony Guardino, partner at Farrell Fritz, P.C. in
the municipal litigation department, Scott Kurkoski, partner at Levene Gouldin & Thompson,
LLP, Eduardo Penalver, professor of law here at the Cornell Law School and Helen Slottje,
senior attorney in the community of environmental defense counsel. We will have brief remarks
be each panelist and then perhaps a few questions among us up here and then we will open it up
for all of you to ask any questions you wish. Anthony?
Anthony Guardino: Thank you. My name is Anthony Guardino. I am a partner with the law
firm of Farrell Fritz. Farrell Fritz is a law firm that is on Long Island. I practice in the area of
land use and zoning almost exclusively and I represent not only developers, but I do also
represent municipalities, so I have a municipal perspective, as well as a developers perspective
on some of these issues. I am also a planner in my former life before I became an attorney. I
have a planning degree in ______*11:54:48. So do I have a fairly lengthy experience with land
use regulation and zoning. I just wanted to say I do not represent any oil and gas companies, nor
do I represent and municipalities. Down on Long Island of course we don’t have the Marcellus
shale to deal with. We mine sand rather than gas and oil, but that actually is somewhat relevant
as I will discuss in a few minutes. What we have is this large formation of Marcellus shale with
the natural gas in it. The geologist estimate about 500 trillion cubic feet in the entire formation.
From municipalities this is both a blessing and a curse, obviously municipalities, you know enjoy
the economic benefits, the significant economic benefits that come with this activity in form of
job creation and increased business activities, but on the other side of the coin as we have all
heard there are potentially significant health, safety and environmental concerns that are
associated with the process of extracting the natural gas from the formation. Once the
moratorium expires at the state level and the DEC completes its study you know we anticipate
that there is going to be a lot of activity, municipalities is going to scramble to see if they are
going to regulate this area and if they can to what extent. I will start off with just talking about
municipal home rule powers, because the powers to zone and regulate the local level derive from
the municipal or from the home rule power and the home rule power basically comes from three
areas, actually more than three areas. You have the state constitution, which allows
municipalities to regulate in the area of their affairs and property and government to the extent
that regulations are not consistent with the constitution and not consistent with state and general
laws of the state, provided that the activity has been superseded. You also have a statute of local
governments, which allows municipalities to legislate again in their local affairs. Again you
have municipal home rule law which also provides authorities similar to what the state
constitution provides, again legislature in the areas of property affairs and government that are
not inconsistent with the constitution and also not inconsistent with general laws. These powers
have been, should be liberally construed as the constitution provides, so that is a pretty
significant grant of power to local municipalities. The problem that they face in this area, is that
you have a state regulation in the area of oil, gas and solution mining and that is the oil, gas and
solution mining law, which is part of the ECL and the regulations that were propagated and
pursuant to that law and in that legislation there is some supersession language and it specifically
states that provisions of this article shall supersede all local laws ordinances relating to regulation
of the oil and gas solution mining industries, which shall not supersede local government
jurisdiction over local roads or the rights of local governments under the property law. So while
language supersedes both laws that relate to the regulation of the gas industry the questions
remains whether regulations are total preempted or the regulations that are impact the regulation
of mining or do they relate to all laws in this area and the question is really answered by looking
to other statutory schemes, particularly the mine plan reclamation law. There is only one case
that I found that addresses this particular supersession language that is in the oil and gas solution
mining law and that is the _____(s/l Keyatony) case, where a developer objected to the town’s
zoning ordinance but provided that no oil and gas well could be constructed in the town without
prior payment of compliance bond and a $25.00 permit fee. The court found in that case that that
law was preempted because it was governed by state statutes and regulations, which has the
supersession language in it. The court said that this should supersede all local laws and
ordinances and preempts not only a consistent legislation, but also any municipal law that reports
to regulate gas and oil on drilling operations unless they related to roads. The argument here was
well it did relate to roads. What the court found was yes it related to roads, but what happened in
this case is that the bond requirement only impacted oil and gas trucks, in this case natural gas
trucks did not apply to other businesses that use heavy trucks similar to what this industry was
using and it reports that it is in fact a regulation of the gas industry because you are treating these
companies or businesses differently. Then you have two other cases which round out the New
York law and again these are looking to comparable sections or different sections of the law that
have comparable supersession provisions. In a ______*12:00:53 (s/l free run) gravel products
the court of appeals was called upon to look at zoning ordinance that provided that sand and
gravel mining was not a permitted use in a particular zoning district and again this section or this
activity is regulated by the ECL, a different section contained similar supersession language and
that said that it superseded all laws related to the extracting mining industry. The court there
applied a plain meaning interpretation and it said that such and such relating to the mining
industry and they ultimately determined that zoning regulations did not relate to the mining
industry, that there were different purposes for zoning between zoning laws and mining laws and
it found that the zoning regulation was in fact a general regulation of land use and upheld the
regulation. Then a couple of years later you had a case called ______*12:01:55 (s/l Dranat)
asphalt company and in that case the court appealed, the same court was asked to look at the
regulation that did not determine where these mining activities could be located but it was an
ordinance that prohibited them all together from the entire municipality, all districts and again
the court, similar rationale said zoning regulates land use and mining statues regulate mining
activities. They have two different purposes, two distinct purposes. So again if we believe the
courts are going to look at the mind land reclamation cases in order to decide what they might do
with this similar supersession language that is in the oil and gas law I think those two cases are
very instructive and then the last case was this _____(s/l Hundely) case, which comes out in
Pennsylvania and in the ______ (s/l Hundley) case there was a regulation that sought to prohibit
the gas operations from a residential district and you know the gas operator said look I have my
permit from the DEP in Pennsylvania, was then notified by the burrow that they couldn’t have
this operation in this district and they brought suit claim again similarly that the zoning law was
preempted by the Pennsylvania Oil and Gas Act and the court there in similar rationale to what
the court of appeals did in the ______*12:03:39 the reason that the state statutory scheme
regulated the technical aspects of mining, but zoning laws are laws of general applicability that
do not regulate mining activities. They regulate land uses generally and the court ultimately
determined that that was permissible regulation and notwithstanding the fact that there is some
overlap. The court did recognize that there was some overlap between the two regulations. One
that has the zoning one has an incidental impact on finding activities but that is not enough for it
to be pre-empted. At this point we have just this framework to look too, these cases to look, but
I don’t have a crystal ball. I don’t know where the courts are ultimately going to go with this
because we don’t have any court decisions on this particular section other than the _____(s/l
Keyatony) case and I think in the future we are going to see more and more cases like you see
cropping up in Pennsylvania, once there is more activity here in New York.
Laura Underkuffler: Scott.
Scott Kurkoski: Good afternoon everyone. It's a pleasure to be with you today. The last time
that I was here in this building I was an Ithaca college student and came here every now and then
to get away from the craziness and here I am. You also might have to bear a little bit with me
today. I am from Binghamton and you might have seen this report that came out that said that
Binghamton is the fifth most depressing cities in the country. I am really struggling with this
one. I represent landowners throughout the state. I represents a number of landowner coalitions.
I also represent the joint landowner coalition of New York. This is a nonprofit group that is
dedicated to educating landowners, educating the community and also moving forward with this
process with this process of natural gas in the state. We are made up of 38 landowner coalitions
and over 800,000 acres that are pledged for natural gas development. So you might guess my
views. I know that this is a volatile issue and that everybody has very different views on this
particular issue, but here are some of the things that I think motivate me to move forward with
this process. First when I look at drilling within New York I first start with the fact that we have
been drilling in this state for many years. We had 14,000 active oil and gas wells. I also focus
on the scientists that speak at these issues. Scientists like Terry Engelder from Penn State
University. Last year Terry Engelder spoke to the groundwater protection council and he
explained exactly why it is that we have drilled over a million wells in this country for 60 years
and we have not had any ground water contamination from the process of hydrofracking. I also
listened to the EPA and the U.S. Geological survey who have also confirmed that. Last night for
the first time I went onto the Cornell’s web site and I saw and I think you might be here
Professor Richard ______(s/l Armondigger's) web-site and there he said that hydraulic fracturing
is a well known technology that has gotten a bad rap in this debate, while some will have you
believe that the technology is new. I have been teaching the basic mechanics of hydraulic
fracturing for 25 years and the technique had been used commercially for at least twice as long.
The environmental issues of course we all have disagreement on that too, but I believe in that
issue that natural gas development in our country and in our state will be better for our
environment and not just burning at the power plants where clearly that is far better than coal,
but I think many experts throughout the country will tell you that if you take a look at the entire
life cycle of natural gas from the drilling process from where you started and until the end that
that is still something that is better and it will end up reducing our greenhouse gases in this
country. Last year the clean air task force has issued a report that talked about pollution from
coal fired power plants. Those emissions that last year they predicted would cost 13,500
premature deaths nationwide and roughly 945 in New York. The total cost of health problems
related to coal plants is more than $100 billion dollars a year in the United States. Then we get
to energy independence and we know we don’t have it. We know that we have been saying this
for many, many years that we have to be able to get our country back to the point where we are
energy dependant and we are not. We are now of course getting ourselves into a brand new
conflict in the middle east, but right now our dependance on foreign oil costs us $337 billion
dollars in 2010 to purchase 4.25 billion gallons of oil. That is setting approximately $640,000
per minute to foreign countries and we also know that our upstate economy and especially the
depressed people in Binghamton they badly needs jobs and they badly need an economic boost.
According to Penn State in 2010 Marcellus shale in Pennsylvania was to create 98,000 jobs and
$14 billion dollars into the state’s economy. Here in New York, however, we input over 95% of
our gas from outside of our state. We don’t have to do that. We can be self-sufficient with the
gas that we have in our state if we move forward in this process in New York. Now how do we
balance the rights of all the stakeholders in this process? There are many. The landowners that I
work with they come in and they say well I have these property rights. This is my land and I
have the right to market my minerals and I should be able to move forward with those rights.
That is a clear right that everybody in United States is entitled too and everybody in New York
state is entitled to as well. Then I also talked to other landowners, maybe they are farmers or
dairy farmers and they call me on a regular basis. We are about to go into bankruptcy. We are
about to lose our land. Is there something that you can do? Will we be moving forward with this
process in the state? This is something that will save us. I talked to people in the town of Vestal
has re-assessed all of their properties and now the landowners there are paying taxes on higher
evaluations with the expectation that this would be coming into New York State. It has not of
course. They cannot develop their minerals, but they are paying higher taxes on it. What has
happened to a lot of these landowners is that since they can’t hold on, especially in cases of the
elderly since they can’t hold on and pay their taxes anymore they are talking to people coming in
from outside of the area who are prospectors who now want to purchase their lands. From time
to time I hear people say you know what is the big deal? The gas has been there millions of
years we have time to do this. I understand that but I don’t understand the case where this
particular person I am thinking about in the town of Vestal who can’t afford her taxes any longer
now has to sell to someone who is a prospector from Oklahoma. That does not make sense to me
because I represent and work with the people of this state that are the best stewards of the land
and if they are not able to hold onto it then they are turning it over to prospectors, to business
people, to people who are coming here just for investment purposes and that scenario is not
something that is as good as allowing those landowners to maintain their land in our state. Now
on the other side of course I also talk to people who are very apposed to this process and they are
apposed for different reasons. I just spoke with a real estate agent a couple of weeks ago and this
agent was concerned that if this process comes to his town then he wont be able to market these
seasonal properties that he markets to people that come to his town from metropolitan areas and
so he is not going to be able to move forward from that. I, by the way, mentioned to him a case
that I have in Chenango county right now where my client’s purchased the property for $200,000
a few years ago and now because of the mineral issues the property is selling for $800,000. His
eyes twinkle a little bit, but he is still concerned. He doesn’t think that he will be able to go
forward in this business. So that is one. I talked to a brewer that doesn’t think that he will be
able to sell beer anymore if it turns out that there is drilling in his town. Or organic farmers who
come in and say we are not going to be able to market our products if there is drilling because
people who buy organic grown crops will be concerned that somehow there will be some
contamination of the crops and of their product. Then there are different environmental groups
that address these issues too. Some are simply just anti-industrialists. They don’t want there to
be any more development in New York State. They want theirs to be the status quo. To me the
status quo is not okay. New York is not okay. There are things that we need to do to change.
Then I talk to other groups that think well if we go down this road and get into natural gas
development, well that is going to take away from the focus of renewables. We need to be
working on renewables, or wind and solar and those sources so that we can get away from the
use of fossil fuels and I don’t have any problem with that whatsoever. I think we need to do that,
but what I see on a regular basis are problems with that too, because clearly renewables are not
enough for us to handle our energy needs. It is a very small percentage of the entire energy
needs that we have in our state and in our country, but then I will drive through Chenango
County on my way to the Adirondacks with my family and you know those windmills out on the
hillside they look pretty neat to us, but they don’t look so neat to the people in that town and in
fact people in those towns and towns across the country appose windmills because there is so
much of a surface disruption. The surface disruption that you have windmills is not anywhere
close to the type of surface disruption that you have from natural gas wells, that is small. In fact
there are natural gas wells in Tompkins County, many, but you don’t know where they are. If
you go to one of the busiest places in Pennsylvania, Bradford County where they are drilling
more wells than anyone else in Pennsylvania you would most of the time, you might be able to
bump into some, but you need to have a tour to figure out where those wells are. You have got
that initial drilling rig that is very high, but when that wraps up the property has been cleaned
and what is left is something that is small and again not nearly the disruption that you have from
windmills. That is not to say that I don’t think that we should be developing windmills, but what
I am seeing is that with wind energy there are groups that are apposing it. We don’t want our
countryside marred with so many windmills out there. We wanted to be able to see that hill the
way that it was in its natural states. Also another example is the New York Regional
Interconnect Line that was proposed a few years ago and that came in and there was tremendous
opposition to adding that additional powerline. So you got all these interests out there and I will
tell you that today this panel we are not going to be able to resolve which ones are most
important. I think the issue for this panel is that there are these competing interests and how do
we move forward in our country with an energy plan. That is what we are talking about in this
conference, an energy conference. If we are all looking at this individual interests and trying to
figure out which one is better. Is the person selling beer is that person’s interest more important
than the farmer who is about to go into bankruptcy. If we are looking at these positions that way
we will not get out of where we are. Since the days of president Nixon we have looking at
energy independence in this country. We know that we need to wean ourselves off of foreign oil
and we have not been able to do it. We now have an opportunity that is closer than ever to be
able to accomplish that. To be able to be self-sufficient in this country and in this state. We
need to move forward for the sake of our state and the sake of our country. Thank you.
Laura Underkuffler: Eduardo. You might move close to the microphone. Apparently in 290
they are having some trouble.
Eduardo Penalver: I am not an expert on hydraulic fracturing. I am going to talk about
property law and the possible interaction between property law, the common law property in
particular and hydraulic fracturing and now I think the process from a legal standpoint the
process of hydraulic fracturing is something of a newcomer even if it has been around for
decades. In preparation for this I did some searching through the lexis database and ended up
doing a nationwide of all the courts in the country, federal and state for the term hydraulic
fracturing and only found 44 pages and I expected to find hundreds and there are only 44 and in
many way the property law grinds slowly and the jury is still out because it is still trying to
figure out what to do with hydraulic fracturing. There are two traditional property causes of
accidents that I think are particularly relevant here. The first I am going to talk about very
briefly and then I will talk a little bit more about the second one. The first one is obviously
nuisance law. Nuisance law is the unreasonable interference with someone’s use and enjoyment
of their land and I think it is a way of grappling with property rights associated with hydraulic
fracturing. I hear property rights of people who want to engage in drilling and people who don’t
want their neighbors to engage in drilling. There are some pros and cons in the nuisance law. So
on the pro side I see three, one I think the nuisance traditionally has been and is well equipped to
deal with some of the harms we may be seeing in the hydraulic fracturing context once they
arrive and so localize pollution of groundwater and surface water, noise, vibration have all been
deemed to be nuisances in other contexts and the nuisance law seems well equipped again to
handle those at least on a small to medium scale. In the fracking context some of these are
unintended consequences in the sense that they are not expected but result instead from accidents
that occur in the process and others seem to be fully anticipated consequence of the process. So
were harms are unintended nuisances laws treats them the way the law treats normal courts. So
plaintiff’s that want to recover under a nuisance theory when the harms are unintended in the
sense of unexpected are going to have to show negligence, or they are going to have to show that
an activity is ultra-hazardous and therefore subject to a strict liability regime and the courts are
struggling with the question whether to categorize fracking as ultra-hazardous. A federal court
in Pennsylvania just last month allowing claim asserting that fracking is ultra-hazardous survived
a motion to dismiss by the gas drilling company, but it said that the question was unsettled by
Pennsylvania law. Traditionally the remedy, this is the third pro nuisance law, traditionally the
remedy for nuisance law was a junction prohibiting the harmful activity and from the standing
point of a plaintiff asserting the nuisance claim that that would be a benefit, but there are two
cons that I want to mention that kind of undercut the value of nuisance here. One is that the
courts are extremely reluctant to allow nuisance claims to go forward until the hard from the
alleged nuisance actually manifests itself and this limits the value of nuisance as a regulatory tool
or a tool for kind of avoiding harms before they crop up. Courts won't speculate as to whether
groundwater pollution will result from drilling a particular well. They will wait for the
groundwater to be polluted and then they will try to fix things after the fact and once the genie is
out of the bottle it is hard to put back in. In addition in recent years some courts have been very
reluctant to grant injunctions where nuisances are economically valuable or expensive to abate
and so they have opted instead for damage remedies. I think damage remedies are less valuable
to landowners. They don’t tend to be what people are looking for in this context, so that is
nuisance. The other relevant property cause of action I think is more interesting really and that is
trespass. Trespass prohibits the potential unprivileged entry onto the land of another. The intent
here in this context and the trespass context nearly means that you are sort of under control and
that it doesn’t require that you know that you are crossing somebody’s boundary. It just requires
that you mean to be where you are. The entry doesn’t need to be by your person. It came be by
inanimate objects, physical things. So causing a physical object to enter onto another’s land is a
trespass. Once a trespass is shown the injunction is the usual remedy. The landowner doesn’t
have to show any harm or damage caused by the trespass the injunction will issue and the entry
is invalid even if it occurs above or below the surface of the land, so overhangs can be a trespass,
also drilling. The sort of universal rule is that this kind of directional drilling onto someone
else’s property is a trespass. If the drill bit goes underneath their property line, you have
trespassed and that will be adjoined. Now the case law here is interesting and there is some case
law, especially in Texas concerning the status of hydraulic fracturing under trespass law and
despite these longstanding principals that I just went through the Texas supreme court in 2008
rejected a landowners trespass claim against a neighboring gas producer who engaged in
hydraulic fracturing very close to the plaintiff’s property line. This case is Coastal Oil and Gas
Corp versus _____*12:22:18 (Garsa) Energy Trust and there the defendant summed a well
approximately 450 feet from the plaintiff’s property line and the defendant when he did this or
when it did this anticipated that the hydraulic fluids and the fractures would travel horizontally
approximately 1,000 to 1,500 feet underground and this means that there was a near certainty
you know, in fact _____(s/l Santy) and after the fact that hydraulic fluid and the propend would
cross the property line and now if you did this on the surface it would be a clear trespass. So if
you took the _____*12:22:58 (s/l propets), which they pump down into these well boars to hold
the fractures open and you just deposit it on (B’s) land right, on the surface right that is a trespass
and so it would seem that if you were to extend the principals that we were talking about and the
prohibition of directional drilling and things like that, that if you did the underground, if you
push the _____(s/l propets) underground under their property you are also trespassing and the
Texas supreme court seemed very skeptical of that. Now the parties agreed, this probably
happened, they agreed that the hydraulic fluid traveled across the property line and the _____(s/l
propet) probably traveled across the property line. They did disagree about whether the neighbor
was actually drawing gas from under the neighbor’s land. The case was complicated by the fact
that the plaintiff, the landowner in this case had leased its mineral rights, it turns out to the
defendant and so the court held that it could not assert a trespass claim unless it established
damages and the court’s holding was actually narrow. It was that the plaintiff could not establish
damages because of the rule of capture which deems mineral resources, fugitive resources to be
owned by the person who can first bring them to the surface and consequently the court held that
it didn’t need to definitely pass on the trespass issue, although it left little doubt I think about
how it would rule on that claim if it had too and the opinion of the court here is really a tour de
force in results oriented judging. The conquering opinion by Justice _____(s/l Vallet), in
particular, is extremely brazen in this regard and I command you to it. He just says well
hydraulic fracturing is economic important and so we can’t possibly find it to be a trespass. I am
not exaggerating. I think the Texas supreme court went wrong here on two fronts. First I think
the fact that the plaintiff had leased out its mineral rights didn’t matter. The mineral lessor
retains the right to possess their property and therefore interest even against I think harmless
trespass, but more importantly I agree with the dissenters on the Texas supreme court that the
rule of capture does not mean that a landowner does not suffer harm when someone captures
fugitive resources by physically invading their property. The rule of capture is thought to
immunize those who capture fugitive resources that migrate to their own property from a
neighbors land on the theory that while the resources is sort of owned in a sense by the
landowner while it is on or under his land. It ceases to be his when it wanders off onto the
neighbor’s property. So for example by drainage, but the rule is usually understood to prohibit
intentionally trespassing onto another’s property to grab the resource while it is still there. This
is why hunting on someone else’s land is illegal. If the deer wanders onto your property you can
shoot it, but you can’t go onto your neighbor’s property and shoot it and you can’t shoot across
the property line while it is still on your neighbor’s property. So that is the analogy to wild
animals is what drives the rule of capturing and this is why directional drilling is wrong, right?
While not withstanding the rule of capture directional drilling has deemed to be invalid and in
violation of the neighbor’s property rights and so another words the courts cannot avoid reaching
the trespass claim, even though it did try to and thought it did and once it was confronted with it
I think the strength of the claim is hard to dispute. The court has a few different reasons for
rejecting the notion that fracknig New York property line could be trespass and I don’t think any
of these hold water. As long as we continue to think that the property lines extend above and
below the property, as long as we accept the prohibition on directional drilling which the Texas
court wants to accepts. So the court gave few reasons; one the court analogized to airplane over
flights and which have been held for a long time not to constitute trespass unless the airplane if
flying very low and interfering with the use the owners makes of his land and says well we have
decided a long time ago that the airplanes overflights are not trespassing and this is the same
thing deep underground and again that would apply to directional drilling which they want to
retain. So that is sort of truncating the property rights deep underground maybe proves too much
there. In addition you know the analogy is not really out because airplane overflights don’t
change the land in the way that hydrofracking does. So they don’t deposit profits under the land
or on the land. They don’t remove anything from the land, right? They just cross over and they
are so high up and they don’t have any impact and where they do have impact courts have found
trespass. The second thing that the courts says is that the fracer doesn’t know precisely where
the fracks are going to go so it is not intentional, but that sort of conflicts with some of the
comments that the engineers make about how under controlled the process is, but engineers have
a good sense of the range of fracture lines and so exert some control of the process and they can
offer at least a reasonable probability, as assessment of the reasonable probability that the
fractures are crossing property lines. In this case they knew that the fracture lane was about 1,00
to 1,500 feet and they located the well within 500 feet of the boundary. So they knew with a
reasonable certainty that they were going to cross the property line and that should be enough.
Most courts for example has said that golf balls can constitute trespass, even though the golfers
hitting them don’t fully control where they will land. So the courts motivation in this case seem
to have been to bend over backwards to avoid making it possible to engage in fracking. I think
because of the economic importance of the process and I think there are really two answers to
this concern. One is that trespass would only affect fracking near property boundaries, so if you
were move than 1,500 feet away and you didn’t anticipate that the fracture would go more than
1,500 fee then you are not going ton be found that you intentionally trespassed on your
neighbor’s property, so this is really a boundary question and second there are a lot of
mechanisms legally to overcome the kinds of transaction cost problems that arise from having to
deal with multiple property owners and the property rights associated with multiple property
owners and you know the primary tool in this regard is compulsory integration which is
extensively used in Texas and so it would seem to mitigate the court’s concern about the impact
of enforcing trespass law against hydraulic fracturing. So that is all I have to say and then we
can talk more about this.
Laura Underkuffler: Helen.
Helen Slottje: Hi. My name is Helen Slottje. I am attorney here in Tompkins County that
works with community environmental defense counsel. We are a pro bono law firm that is
working on sort of ways of various communities, municipalities and residents can protect their
property rights. So as we have even heard today what we often here is it is my property and I
have the right to do whatever I want with it and if you tell me that I can’t do what I want with it
then you have to pay me and so then those of us who are interested what can or cannot be done at
the federal state or the local level of hydrofracking are suddenly immersed if not mired in basic
concepts and debates about the very nature of property rights and for a time the scope of
governmental powers was construed quite narrowly, mainly to preserve private property rights
from domestic crime or foreign invasion, but war time and rapid industrialization lead to a break
in this very limited role in government and lead to the more expansive view of government
intervention in deciding among competing or incapable land uses. First evident in early zoning
cases, New York City adopted zoning in 1906. The very first case on zoning was in 1926 at the
supreme court level and comminuted in the _____*12:31:15 (s/l Valtar) case which the supreme
court decided in 1974 where it again found that the concept of the public welfare was broad
inclusive that the values that it represents were spiritual as well as physical, esthetic as well as
monetary and that it was within the power of the legislature to determine that a community could
exclude industrial uses entirely in an effort to be beautiful, as well as heathy, spacious, as well as
clean, well balanced, as well as carefully controlled. But it should not be news to landowners
that their property rights do not include the right to commit a nuisance, as we've just heard and
that they have no right to use their property or their land in a manner that unreasonably inters
with another person’s reasonable use and enjoyment of their property. Property rights are not
entirely one-sided. They concern as much as what you can do with your land and what your
neighbor cannot do with their land because each adjoining property owner has the right to the
quiet enjoyment of their property. So because there is no right to adversely impact your
neighbor with noise, migrating dust, diesel exhaust, fossil organic compounds and the other
negative impacts that come from unconventional intensive gas drilling and as our knowledge of
______*12:32:39 disrupting chemicals, groundwater hydrology and other science expands we
begin to understand how ground level ozone can impact the increase and result in decrease crop
production and cause asthma in children. We can turn to the law of nuisance as a basis for the
prohibition of activities that unreasonably interfere with adjoining landowners property rights
through the use of zoning and police power to implements these prohibitions at a local level so
that you can avoid having to bring a speculative case after the land use starts you can use zoning
and police power because you see a nuisance is coming to preserve your property rights. So our
property owners is entitled to compensations for such prohibitions. In the supreme courts
_____(s/l Lucas) decision, Justice ______(s/l Skalia) tells us that property rights are subject to
the background principals of property law, which includes the principal that there is no right to a
nuisance unless there is no requirement for compensation for a property right one never held,
moveover _____(s/l Skalia) acknowledged that these background principals of property law are
not static and that they change with circumstances and new knowledge and this may make what
was once previously permissible under common law principals no longer so. Additionally in this
______*12:34:08 company case in 1984 supreme court decision, they announced a rule which
read broadly would suggest that reasonable investment backed expectations which are an
important component of taking these cases cannot exist in activities that the government may
declare contrary to environmental protection and resources conservation goals. In _______(s/l
Monsanta) the court held that when parties engage in area that do know is a public concern and
regulated by the government. They are un-noticed that the government may regulate in the
future unless they do not complain that their investment has been negatively impacted by the
subsequent regulation. So it would appear that landowners both may be prohibited from
engaging in a nuisance and have no rightful claim for compensation if they are prohibited from
engaging in land uses because these uses would negatively and unreasonably impact their
neighbors. So that ignores for the moment the issue of pre-emption whether or not a local town
would have the ability to prohibit high impact industrial uses such as unconventional gas drilling
as previously addressed by Anthony here talking about how these sort of prohibitions based on
land use and nuisances principals are not found to be in regulation of the operation in process of
an industry. So then we can turn to a couple of other issues so what about compulsory
immigration. We have heard a little bit about that. That is a process whereby if a drilling
company controls 60% of the acreage that it intends to drill that the rest of those properties can
be forceable integrated which turned out to be 256 acres can be forceable integrated into a
spacing unit and so here to we can look to property rights for some insight and first in New York
as we have heard, as with many other cases methane gas is subject to this rule of capture. In fact
in New York they found that until natural gas is captured there is no property right in the natural
gas. So no one owns it. So again on the takings issue you can’t exactly take something that no
one owns and on this compulsory immigration side it makes sense when you have this sort of
pool or reservoir and smaller acreage and you (A) are in Eduardo’s example where you have a
pool underlying two properties, (B) drills the well and the gas is going to naturally migrate
without hydraulic fracturing, (A) is not going to get anything. Compulsory integration and
concept of _____*12:37:07 rights would suggest that providing some compensation to (A)
makes sense. What it doesn’t work for in the case that we have here is a solid rock formation
and the only way that (B) can extract gas from (A) property in this compulsory integration sense
is to physically invade (A) property with a well bore and then also leave behind the sort of
various property fluids and chemicals. So while they were able to say in the past that
compulsory integration did not involve eminent domain. Now compulsory integration involves a
physical trespass onto the integrated properties and there is no compensation in the compulsory
integration statue for that physical trespass and the compulsory integration hearing is not run as
an eminent domain proceeding. So here there is a physical invasion and that gets to a very
fundamental property right is this right to exclude. So you both are left without the right to
exclude and this toxic chemical left behind and then furthermore you don’t even receive market
compensation for you gas, let alone the trespass because you got the minimum of anyone in the
unit received as a royalty and furthermore we hear tales of how control horizontal drilling is and
there would seem to be unlike the reservoir situation an ability to horizontally and directionally
drill around landowners that do not desire to be liberated. So again, this isn’t a case where you
have limited reservoirs. There is only one here, one there and one somewhere else. This is a
blanket formation underlying all of New York, a large portion of the northeast. There are similar
formations throughout the United States as well internationally. So the sort of final thing that I
will touch on is the right to travel on the roads, what are the various rights of people in that sense
and the court of appeals is the highest court New York State and in this Bakery/Salvage case in
1969, the court affirmed a local law that prohibited access to industrial site where there had been
substantial investment even in that industrial site because the only access was through a
residential street and they found that corporation's claims to their right to profit could not
override that the rights of the safety of the residents. Furthermore the third department which is
the appellant courts here divided up has found, one level down are more equivalent on the
supreme court have held that there is no right to use a highway in an unreasonable manner, or to
enter the highway in an unreasonable manner and render the highway impassible and highways
are intended for the convenient passage of traffic. Ordinarily to be expected under present
conditions by vehicle in common usage. So again here that there is the idea per say right to high
impact serious industrial trucks on residential roads that were constructed for resident purposes
that are used by residential users that some can come in and even if they are willing to pay to
expand the road, put in a four lane highway to get submission to support the industrial nature of
that site. New York law seemed to imply that communities can say no, that this is a residential
area. It is not an industrial area and you cannot use our roads for this purpose. Sort of a bit of
focus sometimes in these discussions you find out we are starting in a point where we think and
we have been told that we cannot even negotiate, the starting point of negotiation is road use
agreement. It is not whether or not that traffic can be prohibited in the first place and it would
appear that in New York certain traffic can be prohibited on certain streets, particularly at the
county level, but also at the town level, as well as this issue of if you are going to tell me that I
can’t do it you have to compensate me. There is no right to do this. In fact if you go all the way
back and start looking at this from the very basic principals of property rights you will find that a
lot of sort of what is taken for common knowledge or the way it must be is in fact are not true.
So we've heard that the pendulum you know we see that the pendulum has swung from the 70s
where we had the advent of comprehensive environmental regulations to now where there is
increased gutting and _____*12:42:19 the substance and enforcement capacity of environmental
regulators. We are turning back to these legal concepts that had been overshadowed, but where
the fundamental basis in providing legitimacy to the environmental regulatory scheme. People
accepted and the regulatory scheme worked because it was based on these fundamental property
ideas. So nuisance and trespass are returning to the four, along with this increasing call for
common rule authority because we are concerned that federal and state regulatory schemes are
guided by policy decisions in which cost to the public in terms of degraded natural environments
and negative health impacts are traded for cooperate profits and often transitory and illusory
promises of jobs. So there is hope that there is capacity and opportunity in the common law and
local governments to provide the protection that the federal and state governments do not seem
to have the political will to provide.
Laura Underkuffler: Thank you we will begin with a question from upstairs in room 209. This
question is directed to Scott. It states the industry always claims that hydrofracking has never
caused groundwater contamination; however, the industry never mentions the impacts of surface
water is caused by the process necessary for the hydrofracking to happen, such as construction to
access roads, increased storm water runoff, sedimentation and erosion and also large water
withdrawals and discharges. Can you speak to these issue and how drilling on one person’s land
can in fact affect the entire watershed?
Scott Kurkoski: In an hour?
Laura Underkuffler: In five minutes or less.
Scott Kurkoski: You know what we talk about is what the scientists say, what the VA says, the
U.S. Geological survey say about hydrofracking itself. So we hear that criticism all the time.
The process of hydrofracking is going to really damage our aquifers and I think really is not what
is being proven out by the experts in this industry. The question about surface use is one that we
address all the time, but we address it in every impact that we have, every industrial impact that
we have. So if we know the building and then there is the potential that there will be hydraulic
fluid that is spilt. There is potential that obviously trucks will be coming in from the building.
There is the potential that a worker might fall off of a scaffold as that building is being built. So
we have those types of impacts that are clearly there for this industry, just like they are from
every other industry. You will never ever hear me say that this industry is without impact and
without risk, because it is and there are examples of those things happening along the way. I
think what has happened down in Dimmick, Pennsylvania is a great example. That is a case
where in my view the company in that case did not proceed as cautiously as it should have and
you will never hear me make an excuse for that, but what you will hear me say is you've got to
look at those issues and put them into context with what we've got going on throughout, in this
case, the state of Pennsylvania where it is well less than 1% of all the entire operations that are
going on within the state and ______*12:45:44 part of what has been gong on throughout the
entire country. And so will that one incident prevent us from moving forward with our energy
policies in this country? I would like to think that we would be able to put that into perspective.
So if you live in Dimmick, Pennsylvania what I just said has no comfort to you whatsoever and I
think I see people in here who do. We have got to look beyond those individual issues to that
bigger picture and then make decisions of where we are going to go from there. With respect to
affecting another landowners property I think there were some questions that came up with
respect to the nuisance issue. Generally the courts have held if you are proceeding in a lawful
basis then that typically is not going to be a nuisance and in New York you have got to keep in
mind that it is in the public interest and this is right in the environmental conservation law, it is in
the public’s interest to accomplish a greater ultimate recovery of oil and gas and that is where
this discussion starts in New York proceeding from that basis.
Laura Underkuffler: Here is a follow-up question I guess addressed to any of you. What is in
this fracking water that is injected and later discharged? Do we know and does our ignorance of
it, if that is the situation, affect the legal rights of either side in these discussion?
Helen Slottje: I will take a stab at that one. We certainly have determined what some of the
constituents are in fracking fluids. Initially companies were very hesitant to disclose what they
perceived to be their trade secret formula. _____(s/l Theo Kovern) went out and did some
testing of various founding areas of fracking fluid discharges and did some testing and came up
with a relatively comprehensive list of any number of chemicals. Thereafter given this push of
questioning about exactly what was in the fracking fluid some companies have made disclosure
about the general range of chemicals might be, although they are still reluctant to say precisely
what got injected into any particular well and they are even more reluctant to put any kind of
marker on those chemicals so that when they are found other places one can trace them to who
might have actually injected those and where they came from. That does affect property rights
because it is very difficult when you are trying to prove trespass you have to show where so you
can show that access in your water, benzine or methane or some sort of 2B2E or some other
chemical. You have to not only, you can’t just say well this is in my water. You have to show
that it wasn’t in your water before something happens, so you have to have done testing, but you
have to know what to test for because you can’t show the absence of the chemical unless you do
a $10,000 chemical test that shows that you know that that's clearly not there. So you have to do
testing ahead of time to show what the baseline was and then you have to show causation which
is very difficult, especially without these chemical markers and companies have gone in the case
in Dimmick and said well it really wasn’t us. Lets tear up your yard and look and see what other
petroleum contamination there might be. Did your car leak? Did you have propane delivered?
Did a truck roll off the road in your front yard. So all of these make it very difficult to prove the
actual trespass. So those two things can interrelate.
______*12:49:39 (Panelist?): This question about what is in the frack fluid has been coming up
a lot and a lot of people have said the industry is keeping this a secret. That is not the case
anymore. I think if you go on ever single oil and gas company that is out there operating you
will see what the constituents are of the frack fluid. But the frack fluid changes depending upon
where you are drilling because drilling here in one town might be different than another town. It
is certainly different from what we got in the Marcellus and what we have seen in the Barnett.
Under New York law, you have to post on the material safety data sheet what chemicals you are
using on that site. So every single site has got that and I think ______*12:50:20 has a web site
that really shows the frack fluid on each well that they have got and each consistent with the
frack fluid that goes into that. Could the industry do better? Yes I think that they could, but I
think the industry is also attempting to be as up front and honest about that. The argument has
been for a long time that the drilling companies have a trade secret because some drilling
companies do it better than others and that is why we should not disclose it. That information
has always been available to the state and now more and more it is available to the general public
as well.
Linda Underkuffler: Any questions from this audience? Yes. Three rows back, the gentleman
with the yes.
Audience member: This question is for Scott. You said that the experts believe that
hydrofracking is safe, yet the EPA being our public experts not been able to study this due to
Bush/Cheney Administration since 2005, so I was curious to know who are your experts?
Scott Kurkoski: I think there is a couple of parts to your question. First is that the last EPA that
was done on hydraulic fracturing was done in 2004. Now I have heard some people say that
there wasn’t much hydrofracking gone on back then, but hydrofracking has been happening for
60 years and I think that most people will say that alright it wasn’t really the high volume that we
have now, but the high volume hydrofracking has been going on for at least 15 years that wasn’t
studied by the EPA study and the EPA study did not find significant impacts to any water tables
from that study. So that is one. If you go on a, there was a senate hearing done by Senator
Inhoff December 8th of 2009 and in that senate hearing there were people there from EPA,
director of water resources and another person from U.S. Geological Survey and a third expert
from the government and all three confirm that there are no cases of groundwater contamination
from the hydrofracking process. So those are the types of experts that we look to and in addition
with you know the ____*12:52:49 (s/l Joy Lander's) coalition, I've got experts that we work with
on a regular basis who have been involved in the industry. I got a guy who is a retired Exxon
Mobil petroleum engineer who has drilled throughout the world. I have the benefit of all of his
knowledge and he will tell me whatever I want to know privately when I ask him these questions
and so that is where I come out with this confidence and other people I have got another guy
Robert Williams who has been an environmental consultant for 40 years. Those are the types of
people that we go to. You can look at these questions on a national level and hear these experts
and find that kind of information.
Audience member: This question if for Scott Kurkoski. You said that Clean Air Taskforce, I
wondered if that was a peer review scientific study and who was on that funds and who funds
that project?
Scott Kurkoski: That is a lot of inside information. I can’t give you that but you can go onto
the web site and take a look at it and find out everything. Maybe you know the answers to that
question. If you do tell us. If that study is flubbed then we would like to know that. I will tell
you that the basic concept of the fact that coal burning in this country really hurts our greenhouse
gases, creates more carbon emission then all the other fossil fuels. I don’t think that is a far
reach to reach that conclusion and that is what that study is saying. Many of us live in
communities with coal fired power plants. You know we don’t see those harms coming at us and
maybe that is what makes it a little more tolerable, but we know that they are there.
Audience member: If towns do have the authority to either restrict or zone out heavy industrial
use either ______*12:54:33 or in a permanent build introduced into the New York assembly and
senate. I know _______ does clarify that you have home rule putting that into construction.
Would trustees who sit on town boards who may have the way adoption of an ordinance be
considered to have a conflict if they already signed a lease or if they are part of the landowners
association or would they need to accuse themselves?
Scott Kurkoski: I can answer that question because I have had that question come up a number
of times. Who should reuse themselves from these issues? You know what we all have an
interest in this, every single one of us. It doesn’t matter. I know that there is a case out there
where someone was going to sell the windmill lease and then there was a town board they
shouldn’t go forward because they had a financial interest, but this is what I have said in the
beginning, we all have an interest in energy in this country and I don’t think any one of these
town boards no matter what their interests are whether they are in a linear coalition, whether they
are in a group that apposes drilling in this state. I don’t think anybody should be excluded from
that discussion. How do you have an exclusion where you say okay you are a landowner with a
lease you don’t participate in the discussion and by the way every other town board member that
is left is someone who is in a group that apposed drilling in our state. That is not right and so
this town issue is crucial because it is another example of how we are in this gridlock. One more
attempt to try to keep us from moving forward with energy in this country. Because it is not just
that one particular town that might say alright we have decided that all the residents in this town
don’t want to move forward. That impacts the entire state. When the industry looks at that and
they say look that town that is up there in Middlefield for instance in Oswego county decides to
do that well I am not going to make an investment in New York because another town where I
decide to operate may decide to do the very same thing and we go back to that public interest. If
it is in our public interest and we move forward we won't be able to do that if this is allowed to
happen.
Audience member: I wasn’t asking policy. I was asking if we assume that we have home rules
we may be able to do either through additional ruling or through what is currently sitting in front
of the senate and the assembly of the state and since some people will have a financial interest
and benefits I'd like to know from the other municipal councils?
Anthony Guardino: I agree with Scott here. You know we do all have an interest in this and
quite frankly I guess the issue might come up if there was an applicant before the board and one
of the trustees had a lease with that particular applicant I think you may end up with a situation
of conflict, but I don’t think you have a conflict with the industry per say and the activity per say.
I think you know the conflict would have to be a conflict with a specific person that is coming
before the board.
_____?Panelist *12:58:06:
What law governs the conflict of interest?
Linda Underkuffler: Mark, you want to speak into the microphone so we can...
_____: I was asking him to general municipal law, so it is specifically directed to the land use.
[cross-talk]
Helen Slottje: Well there is a general municipal law that does limit conflicts of interest to
purely financial contracts in front you know with applicant in front of that board, towns,
municipalities are directed to come up with their own code of ethics. Each town is supposed to
have adopted one. Many of those town level code of ethics which have the force of law require
the avoidance of even the appearance of impropriety and there is also a requirement and there is
a clear distinction between sort of a fundamental policy type position that one might take. There
is not supposed to be a chilling affect upon politicians articulating and happening a public policy
decision. That is the basis upon which they run. That is an entirely different interest than a
financial monetary interest and those two things are very distinct and the AG’s office has come
out and said that someone who has expressed a particular opinion prior to hearing all the facts
and who clearly had not made an effort to listen to the facts and made a reason decision when
they are acting in a quasi judicial sort of role like on planning board, that person must be excused
simply on the basis of their policy decision, but for legislatures working on town decisions,
policy decisions the actions of the financial interests would allow them to proceed with the
decision but someone with a very strong financial motivation that is considered a non-waivable
financial conflict in my opinion.
Audience member: This question is directed to everybody up there. One voice that I really
haven’t heard from in any of these discussions is with one of New York states biggest industries
and that is agriculture, what do farmers who are opposed to fracking on their property what
rights do they have if a neighboring property leases their land for gas and this farm incurs losses
to their infrastructure, livestock crops as a result of surface water runoff damage etcetera?
____*1:00:57 (Panelist Scott Kurkoski?): You've got the rights that we all have. I mean if
you have got a claim against a neighbor. If you have got a claim against someone in the industry
that has an impact on your property then you have got that common law right to pursue that way.
So you don’t lose that at all.
Audience member: There is no mitigation for any type of revenue loss or?
_____(Panelist Scott Kurkoski?): That is all part of it. I think if you can really document the
damages that you got including the loss of revenue then those are all part of potential claims.
Audience member: Comment for Mr. Kurkoski and then I guess for Mr. Guardino and Mr.
Kurkoski a question. I assume you weren’t in a previous session where we had quite a bit of
discussion and new data on the life cycle analysis and the true carbon footprint of gas versus
conventional versus unconventional gas and both of those compared to oil and gas. I think the
oil and coal. The science in that is changing right away and the scientist is right in front of you if
you have a question later. You probably want to look at that. My question is a lot of the
opposition in New York state comes from the question compulsory integration and also from
leases that people sign without knowing anything about hydrofracking. The land that came
around. I am a county official. They came around and asked does Tompkins County want to
lease their land and there was no intimation at all about this new process which is a new process
and we said no not really knowing anything about, thank goodness we did. The question so
leases are now expiring and the people have learned a tremendous amount about what is actually
involved. Would the industry consider essentially backing off of compulsory integration because
the fact that your drills can be directionally, you can drill directionally and go right around
somebody’s property and also in terms of renewing leases? It seems that at least some of the
injustice that is felt would be mitigated if people could re-negotiate those leases based on actual
information that we have now.
_____*1:03:37 (Panelist? Anthony Guardino): My office is in the process of commencing a
lawsuit against at least one of the major companies, Chesapeake, for extending those leases.
There were leases that were signed some ten years ago and at $3.00 an acre and it has expired
and that company has said that we believe those leases should be extended because of
______*1:03:54. We can’t drill in New York State and so that is a legal concept that allows us
to extend the lease. We disagree with that. So on behalf of landowners, my firm and another
firm in Broome County we are pursuing those issues. In fact there was a case recently because
of failure to obtain the _____ rental, there was a group of landowners that were able to have their
leases terminated in court by a court decision and so those landowners in some cases they want
to do that because they don’t want to go forward with drilling anymore and when they first
signed that lease they kind of didn’t expect that this was going to take off the way it was. Ten
years ago I don’t think that anybody could have. And in other cases they want to be able to
really be able to participate in what is happening. In Broome County we are expecting $5,000 to
$6,000 per acre in leases. We were expecting 20% royalties instead of 12.5% and we were
expecting to negotiate leases that are far better than the leases that were negotiated ten years ago
and that is crucial for the landowners that I work with. On the compulsory integration side, I
have got mixed feelings about it. First there is pending legislation by assemblywoman, Donna
Lupardo to have the royalties for compulsory integration be not the lowest royalty in the unit that
goes to someone who elects that royalty option because typically that is going to be 12.5%. But
if market rates now are up at 20% why should they be stuck with 12.5%. I don’t think that they
should. So assemblywoman with part of the legislation is that we are proposing that those
landowners who chose that royalty option have the ability to get the highest royalty in the unit,
that is one. I have a lease property directly across the street from my property in the Town of
Union. I live in the country. I've got acres and ponds and if I'm integrated, I will chose
compulsory integration. Isn’t that a surprise? And I will do that because of other opportunities
that will come a long that way in that process and I don’t think people really understand how that
works. There are three options in compulsory integration not one. That royalty option that
comes up all the time is just one option, but there are other options where you could become a
participating owner in that well and so the recovery for you might be far greater. There is no
circus operations either under compulsory integration. So you don’t have worry about anything
coming out of your property under compulsory integration. It will happen somewhere else and
you will still receive that benefit. If you are that royalty you are also protected from liability. So
there are some good aspects about compulsory integration in that one. The one where I might be
a participating owner or non-participating owner. Let me just explain something real quick.
Lets just say that my percentage share in the entire unit is 10%. If I am a 12.5% royalty owner
then I receive royalty of 12.5% of my 10% share. If I am an participating owner in that unit I
receive the entire 10% share, not 12.5% of my 10% but 10%. I talk to landowners all the time
who would like to pursue that option instead. The other thing about compulsory integration is,
you know in other states where they are strictly looking at the rule of capture people are having
gas stolen from them without compensation so that can happen, but it can’t happen here in New
York. We have a rule of capture that is modified by this compulsory integration rule. _____(s/l
Senator Bill Partman) has talked about this issue and says we made a huge mistake. We never
should of called it compulsory integration because no one wants to be compelled to do anything.
We should of called it beneficial integration because the concept is to give people the benefit that
they would not have otherwise had and I agree with that. I also see people landowners in
Pennsylvania who do have units drawn around because Pennsylvania does not have a good
compulsory integration law and so we see these donut holes going on and landowners who have
all this operation going on around them with no benefit and there is many downsides to that too.
So there are some issues that go back and forth.
______*1:07:59 (Panelist Scott Kurkoski?): Can I jump in on the legal point? The only way
you can, I think with this research I think this is something that Helen’s comments brought out.
This is something, compulsory integration here really is a quick pro quo because the only way
you are going to be able to drain from someone’s property with shale gas is by actually invading
their territory. It doesn’t just flow the way oil does. So you are drilling around people but still
getting their gas, then you are trespassing. So I really think it is the benefit you get back, which
you are pointing to some of the benefits in exchange for losing your right to exclude.
______*1:08:37 Anthony Guardino?: But in New York you can’t drill around. That's what the
compulsory integration has done.
_____(Panelist Scott Kurkoski): No, no, you can. That directional drilling example doesn’t
happen in New York. If you are directional drilling and you are being drained then you have to
be compensated. I am just saying that piggyback is on the underlying trespass right.
______Anthony Guardino?: And you are right about the fact that someone is coming on your
property, but it's a minimal, but you are talking about someone. I am not talking about the
surface. I am talking about someone who is compulsory integrated who has a pipe that is mile
below the surface.
______Scott Kurkoski?: I agree with you. I think the harm I think is the loss of the gas. You
are not too worried about the loss of privacy or something two miles underground.
Laura Underkuffler: One question here that has come from upstairs which is related to what
you are discussing now with this compulsory integration number one isn’t there a cost to the
landowner to participating in this joint venture option, going into partnership option isn’t there
some obligation that the landowners share of the upfront drilling and maintenance costs of the
well which many people may not be able to afford and the second question is, is a landowner
liable if a well on his property causes pollution to an adjacent landowners property whether he is
a participating co-venturing under the compulsory integration scheme or not?
_______*1:10:15 (Anthony Guardino?): The answer on the money up front is that there is two
options to become a participating landowner, one is that if I have my percentage share of the 3.5
million that it costs to produce to that well I can put that percentage share up front and I can start
receiving royalties immediately as soon as it goes to market. On the other hand there is a nonparticipating option which does not require me to put any money up front. It just gets hits me
with a 200% penalty. So I pay a 100% of the share of my cost and I pay the 200% penalty and as
soon as that is paid back then I am receiving that royalty just like I was if I put all the money up
front.
Linda Underkuffler: But is there an exposure of the landowner of the fact that these drilling
activities affects someone else’s land or potential legal liability?
_____*1:10:54 (Anthony Guardino?): Over those three options that is the downside of those
two participating, those participating in other options they do have liability that goes along with
them and if I am the lease landowner my leases have insurance provisions of 12 million total, a 2
million dollar policy with a 10 million dollar umbrella, but if I am a participating partner I don’t
get the benefit of that insurance. I am not going to be additionally insured on the drilling
companies insurance policies, but I should go out and get my own insurance and I can do that. I
have talked to companies all the time that will issue it.
Helen Slottje: I just wanted to quickly add there is sort of a non-advertised fourth option where
you could try to sort of combine both a quicker payout and a reduction in at least personable
liability which is basically being treated like an industry insider leasing either to someone else or
to a related company that you have set up to own the mineral rights and then you don’t have to
wait for this whole 100% plus 200% penalty to get that penalty was really designed for hit or
miss drilling, unlike Marcellus drilling which presumable has 100% success rate and so you get
paid the minute the royalties start getting paid, a lesser percentage starts out at like 6.8% and
then an increase is twice after that and then you get a royalty that is sort of 12% of your ten acres
and then after the payout is made their costs then you get your whole percentage of the unit. So
there is this additional option and that option to you lease it to an LLC whereby you have at least
limited the concept of personal liability for this and some of the added benefits of compulsory
integration over actual leasing are that you are only participating in that one formation that is
being drilled and you have obtained your rights to the other formations so that when other, you
know if they go after one of these so-called stacked plays you are only integrated for the
Marcellus. When they go after the Utica it is a different deal and you can negotiate and make
different decisions unlike a traditional lease whereby often if even a portion if there isn’t a
severance clause even a portion of your property if you own 200 acres they put 10 acres in a unit
your whole property is tied up in production with that smaller thing, the smaller unit. If they are
only drilling to one formation you have no right to sort of proceed or force drilling on the other
formations. So there is generally to the extent compulsory integration stands. The best advice
that I have seen people get, as Scott said he is going to do for himself is to not lease and
preferably wait to get the benefits of compulsory integration.
Linda Underkuffler: I think unfortunately our time is up. If you wish to have additional
questions answered you can send them to this e-mail address and we will try to answer it. Thank
you very much.
***END OF PANEL THREE***
*1:14:22