More than 4,400 landowners in New York have won the right to seek more favorable oil and natural gas leases, thanks to an agreement between the state attorney general and a subsidiary of Chesapeake Energy Corp.
New York Attorney General Eric T. Schneiderman heralded the deal on behalf of state landowners.
“Make no mistake about it, this agreement will provide a safety net for thousands of landowners by allowing them the opportunity to negotiate fairer lease terms, both financial and environmental, regardless of their existing contracts,” Schneiderman said. “For landowners across the state, this deal literally will provide a new lease on life.”
The leases had been subject to a “force majeure” claim from Chesapeake Appalachia LLC, which tried to extend their terms amid an ongoing environmental review of natural gas development in New York.
Such claims typically involve uncontrollable circumstances such as natural disasters.
Chesapeake admitted no wrongdoing in the settlement, but the company will pay $250,000 to reimburse the attorney general's office for its investigation of landowners' complaints.
“It is unfortunate that we have been in this situation in New York since 2008, where landowners and their mineral lessees have been unable to develop mineral rights in the Southern Tier despite a robust drilling program being undertaken in neighboring Pennsylvania,” the company said in a statement.
Chesapeake has leased more than 600,000 acres in New York, but the bulk of its holdings in the gas-rich Marcellus Shale are in Pennsylvania and West Virginia.
Most of Chesapeake's current operations in the area are focused on liquids-rich areas in southwestern Pennsylvania and northern West Virginia, as well as the Utica Shale in eastern Ohio.
“We look forward to the day when safe and responsible drilling will be allowed in New York and all residents can benefit from this valuable natural resource,” the company said. “When that occurs, New York will be able to compete for investment with other shale producing states and all residents will have the opportunity to benefit from this clean, abundant natural resource.”
Chesapeake has indicated it is not economical to develop New York's natural gas resources under the state's proposed regulations.
“Chesapeake is deeply concerned that the proposed requirements, if adopted in their present form, would effectively kill natural gas development from shale formations in New York state,” Michael G. Brownell, the company's senior director of state environmental and regulatory affairs, wrote in a January letter to the New York State Department of Environmental Conservation.
Such concerns could limit the market for natural gas leases in New York, where state officials appear willing to allow hydraulic fracturing of horizontal wells in only a handful of counties.
Landowners will be able to negotiate leases with other energy companies, but Chesapeake retains the right to match those terms.
The agreement covers leases that have expired or would have expired before Dec. 31, 2013.