Individual Rights/ Individual Responsibility

On Thursday Nov. 1 at 6:30pm there will be a public hearing in the Alfred Station Fire Hall. The Alfred Town Board will be seeking comment from citizens on the plan to extend the current moratorium on horizontal, high volume, slick water, hydrofracking for another year within the Town of Alfred. Since the announcement of this meeting I have been thinking about the importance of a moratorium and the idea that some have put forth that a moratorium is a threat to our individual property rights.

Rather than seeing the moratorium as a threat, I think it is actually quite the opposite. I take great comfort in the fact that our civic representatives are taking the time to study this issue and all of its possible effects and ramifications on our town and our way of life. I have travelled in some of the highly drilled communities in Pennsylvania and seen first hand the impact on individuals, families, roads, property rights, as well as the impact on the natural resources we too often take for granted such as clean drinking water and clean air. Since this entire industry is exempt from the federal clean air and clean water standards, I believe that it is unconventional gas drilling that is the threat, not a moratorium.

No matter how we feel about the extent of government regulations, I think we can agree that there are numerous ways in which the rights of individuals to do as they please are moderated by rules that protect the greater good of a community. Why not have an adult bookstore across the street from a public school?  That’s why we have zoning.  Why have regulations that protect human health? Why not dispense with septic systems? Why do we have a police force? Speed limits?

A moratorium on horizontal, high volume hydrofracking protects the public while this issue is being studied. This seems prudent. Many citizens recently attended the informational meeting in Almond where Scott Torrey of the Allegany County Soil and Water department illustrated how the Village and Town of Alfred, as well as Almond, are all intimately connected because we draw water from the same unprotected aquifer. Professor Ingraffea from Cornell then proceeded to explain from a scientific and geologic point of view just how vulnerable these resources are and the impacts that all the processes associated with unconventional drilling can have on them.

The Comprehensive Plan for the Town and Village of Alfred includes a study of water quality and management. Although commissioned in 1993, long before this type of drilling was an issue, it is particularly relevant today.  This is an excerpt from the study:

“A quick survey of remediation costs for contaminated groundwater supplies will show that prevention is well worth the effort. Corrective measures can rapidly escalate into the millions of dollars, not to mention yielding substantial inconveniences to those dependent on the contaminated water supply. There really is no such thing as being overly protective when it comes to groundwater protection, especially when it is a community’s only source of drinking water….While many of the suggestions provided in this guide may seem politically unpopular in the short-term, having contaminated groundwater would be even more unpopular. It is far easier to address threats and prevent contamination than to deal with the costs and other problems associated with crisis-type situations…. Groundwater protection efforts are most effective when done on a more regional level as aquifers and their recharge areas do not stop at jurisdictional boundaries.”

This last statement is particularly relevant because many of the issues associated with horizontal drilling do not stop at “jurisdictional boundaries.” Polluted water and air don’t recognize property rights and property boundaries. The fracking industry doesn’t either. Through compulsory integration, if 60% of individual landowners have leased their land in a well spacing unit, the other 40% can be integrated against their will and drilling will occur under their land whether they give their consent or not. So much for individual property rights. When I first read about compulsory integration I thought it was an article about China.

The same individual who is worried about his property rights has also stated that decisions should be made on facts, not emotion. Many have studied this issue for a long time now and feel strongly, emotionally if you will, exactly because they have studied the facts, including the dismal record of leaks,  spills, and methane migration. I am one of them. Furthermore, I have met people in Pennsylvania that have poisoned water, and who, from the industry perspective, are expendable. Not surprisingly, they aren’t any different from you or me; they simply had the bad luck to own a well that was polluted by a nearby horizontal fracking operation. They are, understandably, emotional.  

My family drinks from a spring whose recharge area does not obey property boundaries. I will do my best to protect it and I expect others to do the same. The community has to ask itself – are there threats to our town, universities and schools, our way of life, our water and health that are worth protecting ourselves from? Where do individual rights stop and individual responsibility to others begin? I would strongly suggest right here, right now.

As of early October, 234 communities in New York State have invoked home rule by enacting bans or moratoriums or are in the process of doing so, like the Town of Alfred. These 234 towns have decided that it is imperative to protect themselves from the threat of unconventional drilling and that clean water and clean air are essential, and need to be a protected right for all.

Photos from Pennsylvania

These are a few photos from the trip that I took with Freddy Fredrickson to Susquehanna County, Pa. They don't capture the scale of the fracked landscape. To see some really excellent (and devastating) photos visit this website. This is a huge archive of fracking sites in Pa. and West Virginia seen from the ground and the air. It is worth spending some time looking at what this site contains. And this site from West Virginia. This is a blog done by a student from Rochester Institute of Technology who spent time with the Manning family and this blog is from a follow up visit

The Mannings standing next to their "water buffalo"which is inside an insulated plywood box. Note stack on top of well that vents methane

Driving along rt6 east of Mansfield, Pa. Fracking site with windmills (hard to see) along the ridge in the distance.

Vera Scroggins , our tour guide

Fracking site

sign on Mannings " water buffalo"

The local swimming hole behind the Mannings house is now abandoned because of bubbling methane. Freddy attempts to light it.

Methane bubbles

Another "water buffalo"

Drinking water left on the Mannings front porch

water tanker

another "water Buffalo"

Halliburton fracking rigs.

we were told by a worker that each rig costs $1,000,000

Drinking water in the garage of Julie and Craig Sautner, Dimock, Pa.

Freddy Fredrickson and Craig Sautner, Dimock, Pa.

Methane exhaust chimney, Dimock, Pa.

another "water buffalo"

another "water buffalo"

No Billboard company in Pa. would post this display created by concerned citizens - now in the front yard of Dimock resident.

A compressor station that runs 24/7. They are extremely loud. There was a second one nearby that Vera pointed out to us that had exploded and burned

Nationwide

Earlier this summer Freddy Fredrickson and I traveled through Pennsylvania. We drove through Tioga County (where there are currently 1,076 fracked gas wells), through Bradford County (1,749 wells) to Susquehanna County (592 wells). Outside of Mansfield, Pa we stopped and took a look at our first fracking site. It looked like many of the photos I had seen, drilling rigs, tanker trucks, condensate tanks, all on a large leveled area where there once was a rolling meadow, directly across a small road from an occupied farmhouse. Across the valley from this installation was a long mountainous ridge and spanning the horizon were at least 30 windmills. This poignant image of fracking in the foreground and windmills in the background seemed to encapsulate our choices in the 21^st century – but that is for another column. We proceeded east along Rt. 6, experiencing even on a weekend, a large volume of truck traffic that made for slow going. Additionally traffic was often at a standstill because practically every bridge we came to was under repair. Many license plates were from Texas, Alaska, Oklahoma, Louisiana, Virginia, Arkansas, and Tennessee.

We arrived in the Montrose area of Susquehanna County and met our host Vera Scroggins who gave us a tour of the area’s fracking sites, and compressor stations, and introduced us to families who have had their water poisoned by nearby fracking operations. We saw the ubiquitous “water buffalos”; these are large plastic tanks stationed outside affected houses. They hold the water that is delivered regularly, and the large chimney like extensions on water wells are there to siphon off methane so it doesn’t accumulate and explode. We met the Manning family, a young couple with small children, who had saved to buy their first home and 15 months after moving into it, had their water turn grey and their well cap start hissing. Testing revealed high concentrations of methane as well as Barium, Iron, and Strontium. There are fracking sites nearby the Manning home, both cited for defective well casings. The Mannings don’t drink the water from the water buffalos and there is a constant stream of bottled water deliveries to their front porch, dropped off by friends and neighbors and visitors like ourselves. People with “water buffalos” have the added monthly expense of $150 in the winter to prevent the tanks from freezing.

We then traveled to Dimock, Pa and saw a fracking site that has been plugged and abandoned. The well casings had failed and polluted wells in homes downhill from the site. We drove through a community downhill from the closed well where there was water buffalo after water buffalo after water buffalo – about 30 to my count. The people we spoke with were traumatized, worried, angry and frustrated. Many are involved in ongoing lawsuits and seem lost in a legal maze of denied responsibility and official abbreviations…. DEP, EPA, PEMA. One tragic aspect evident were the tensions between people harmed by fracking and people benefitting financially from it. Vera described it as “ a civil war between the pros and cons” and added dryly, “ It hasn’t enhanced community relations”. When people heard we were from New York State they gave us the same advice over and over, “ don’t let them over the border, you have no idea what you are in for.”

 Recently, as reported by the Associated Press, National Casualty Company, part of the Nationwide Mutual Insurance Company, said it wouldn’t cover damage related to hydraulic fracturing — or fracking — for natural gas and oil.
Nationwide spokeswoman Nancy Smeltzer said that the company’s personal and commercial insurance policies “were not designed to cover any kind of fracking risk.”

Columbus, Ohio-based Nationwide says risks involved in fracking operations “are too great to ignore” and apply to policies of commercial contractors and landowners who lease property to gas companies, General Liability, Commercial Auto, Motor Truck Cargo, Auto Physical Damage and Public Auto (insurance) coverage. The company said any policies currently written with the exposure would be non-renewed
(following state requirements).

Among the prohibited risks involved in fracking operations listed by the company are contractors involved in fracking operations, landowners whose land has been leased to lessees with fracking operations, frack sand and frack liquid haulers and site prep (dump trucks, bulldozers) or leasing of tanks.

Nationwide issued the following statement “Gas and oil drilling has been going on in this country for many years in the west and southwest. Fracking is another variation of the gas and oil business.

Fracking-related losses have never been a covered loss under personal or commercial lines policies. Nationwide's personal and commercial lines insurance policies were not designed to provide coverage for any fracking-related risks.

From an underwriting standpoint, we do not have a comfort level with the unique risks associated with the fracking process to provide coverage at a reasonable price.

We encourage consumers to be knowledgeable about any risks to their property and assets. For advice, seek the help of financial and legal specialists who can discuss the unique nature of the risks associated with oil and gas exploration. We also advise consumers to talk to their insurance agent to understand what coverage is provided in their personal or commercial lines policies.”

What struck me when reading the statements about Nationwide’s policy was the abstract and couched language, the calculations of risk versus profitability that an insurance underwriter makes. I thought of what we saw in Pennsylvania. The people we met there were the real faces of risk, caught in the gap between theory and practice, between propaganda and marketing and the daily effects on their families and property values. It is clear to me, and apparently also to Nationwide, that high volume, slickwater, horizontal hydrofracking will always demand a sacrifice. That sacrifice might be the loss of someone’s water well, or liberty through compulsory integration, or peace of mind as the countryside is transformed into an industrial zone, or perhaps it will be an entire town’s aquifer system.

Current Events

On June 13 The New York Times published an article entitled “Cuomo Proposal Would Restrict Gas Drilling to a Struggling Area.” Although not official policy at this time, many felt the Governor ‘s office had floated the information to the Times to judge public opinion and reaction. The proposal was to allow limited, horizontal, high volume, slick water, hydrofracking in five counties of the Southern Tier: Broome, Chemung , Chenango, Tioga and Steuben. Drilling would be permitted only in towns that agreed to it. The Catskill Park and New York City watersheds would be protected. According to the Times, “since the announcement, the Cuomo administration has been deluged with tens of thousands of emails and letters mostly objecting to the process.” Reaction was quick and strong. A statement by biologist Sandra Steingraber of New Yorkers Against Fracking said in part,

"The pregnant mother who drinks unfiltered water from a rural well in the Susquehanna River valley has the same right to environmental protection as the mother in Manhattan who drinks unfiltered water brought to her from the off-limits New York City watershed….Partitioning our state into frack and no-frack zones based on economic desperation is a shameful idea, and we will actively oppose its implementation. Demonstration projects are another name for sacrifice zones.  And there are no children and counties in our beloved state that we are willing to sacrifice."

CPNY (Coalition to Protect New York) stated, “CPNY adamantly opposes the governor’s plan, which is undemocratic. Sectioning off parts of the state to use as sacrifice zones pits region against region and betrays a wonton disregard for the lives of people in more rural areas, as opposed to urban and suburban areas….. It gives all the power to town board members in the Southern Tier who, along with ‘landowner coalitions’ and industry lawyers, are pushing an agenda that benefits a few but will have far-reaching negative consequences for many,” said CPNY cofounder and spokesperson Jack Ossont.

Kate Hudson of Riverkeeper, an environmental group, commented, "Just limiting the geographic scope of fracking does not make it safer."

In the press release and map reproduced last week in this paper, some Town Supervisors issued an appeal for “ responsible gas drilling.” What disturbs me about this appeal is that there are many town board members across western New York that are also members of landowner coalitions looking to reap the financial benefits of hydrofracking. The above mentioned article in the New York Times featured one such supervisor from Sanford, NY. These dual roles strike this author as an unconscionable conflict of interest.

More than 100 New York State towns have passed bans and moratoria on hydrofracking and almost 100 more are in the process of discussion and consideration of protective laws. One might look at the attached map and ask – Why Buffalo? Why Rochester? Why is there so much ban activity north of the five aforementioned counties in the Southern Tier? This is because many concerned citizens across the State feel that drilling in the Southern Tier and the Marcellus shale is only a preliminary “foot in the door” for drilling in the Utica shale, a deeper layer that lies under all of western New York State – from the Pennsylvania border to the Great Lakes. The bans and moratoria are aimed at a much more far reaching protection than just the targeted locations over the Marcellus shale gas.

On June 18 Town Board members, Supervisors and other elected officials from across the State gathered in Albany to highlight the municipalities that have enacted home rule. Mayor Matt Ryan of Binghamton said his city used its police powers to enact a ban to protect its sole source aquifer after “determining that fracking, using current technology cannot be done safely." He called on the state legislature to pass legislation that will provide protection to all New Yorkers, and criticized the Cuomo administration for possible plans to permit drilling in a five county "sacrifice zone" in the Southern Tier. Town of Middlefield Supervisor, David Bliss, said his town was forced to enact a ban in order to protect vital economic sectors including tourism and agriculture.  This theme was echoed by James Dean, Trustee of the village of Cooperstown, who said hydrofracking "would bring incalculable economic devastation to our historic village.” Don Barber, Supervisor from the Town of Caroline, justified enacting a ban because "everyone experiences the effects of natural gas fracking, but only a few reap the benefits."

Adrian Kuzminski, moderator, opened the press conference by noting that, "In a little more than a year, an unprecedented, astonishing, and largely unreported grassroots resistance to fracking for natural gas has developed across NYS. In municipality after municipality,

citizens have organized to oppose fracking in their communities, and their elected representatives have responded by exercising their powers under

home rule to pass moratoria and outright bans on fracking."  Kuzminski also said that the movement "cut across party lines, bringing together Republicans, Democrats, and independents alike in defense of their

communities"

 Last week brought another interesting development regarding this movement towards home rule. Many readers will remember an earlier column in which I summarized the legal challenges brought against the towns of Dryden (Tompkins Co.) and Middlefield (Otsego Co.). Both towns used zoning to ban fracking within their jurisdictions and both towns were sued, each by different plaintiffs. In two separate decisions, two State Supreme Court judges ruled in favor of the towns, strongly affirming home rule. Both decisions acknowledged that state law regulates how the gas industry operates, but that it is the right of municipalities to determine land use and where the gas industry may or may not operate. Tom West, an attorney representing gas interests claimed that he had new legal information that showed in fact that New York State can indeed override home rule when it comes to the gas industry. He petitioned Judge Cerio, who ruled in the original Middlefield case to reopen the case. Judge Cerio ruled against Mr. West’s petition stating in the legal summary, “Upon a review of the submissions of plaintiff such do not serve to support a basis upon which this court may change its prior determination that local municipalities are vested with the authority to either permit or prohibit oil, gas, and solutions mining or drilling, within their geographical jurisdiction.”

I have recently returned from a tour of communities in Pennsylvania where hydrofracking has been occurring for a few years now. I saw many drilling sites for myself, experienced the high levels of truck traffic, and visited with a number of families whose water has been poisoned by nearby fracking activities. I will save the details for a future column, but one thing the trip made abundantly clear is that in light of the Governor’s proposal that drilling would be permitted only in the towns that agreed to it, home rule is an essential measure of self defense if the gas corporations are allowed to cross the border.

Leasing Part #3 - Joe Heath

This column concludes the three part series on leasing with comments made by attorney Joe Heath who spoke on “ Problems With Gas Lease Termination”. What he has to say will be of interest to all – not just leaseholders. Mr. Heath has practiced law since 1975 and specializes in Constitutional and Civil Rights law. He is the general council for the Onandaga Nation. He helps landowners with their leases and has reviewed over 500 different leases in the last year.  

Mr. Heath began his presentation by talking about the Landmen, the fleet of salesmen that convince landowners to sign drilling leases. He felt that a number of them attempt to get landowners to sign through dishonest means, creating false impressions, telling half-truths and obscuring the full and serious implications of fracking and the lease itself. “The landmen don’t reveal the nature of what you are signing, so I want to explain what is given away in a standard lease.” He emphasized that “ we are not talking about your grandfather’s gas well, we are talking about heavy industrial operations. The terms are very pro-company and unfavorable to a landowner. Most people do not read the document carefully or understand them. They are very complex business transactions with enormous environmental implications. They will impact your title, mortgage, and possibly your ability to get a mortgage and insurance. Many people have said to me ‘before I signed I asked my family lawyer about it and he said, ‘oh, go ahead and sign, it’s just a gas lease’. You have to find someone who knows the intricacies of these leases because the landmen are trained to defraud you”.

“Many people think that a lease just lets a gas company put a well on their property, but it’s a lot more than that: roads, power lines, compression stations, wastewater ponds, not things you want near your home. You give them the right to store gas underground, if the geological conditions are right, no matter where the gas came from. A lease also gives the company the right to take non-domestic water sources, meaning, they can’t take water from your existing well, but could drill their own well and take as much water as they want.”

“Another problem is how they calculate royalties. All the  company’s expenses, the cost of transport, marketing, treatment, compressing, are taken out before you would begin to see royalties. If gas is selling like it is now around $2 there won’t be any royalty payments because there won’t be any profit. The lure of the royalty payment is often an illusion.”

“The pattern I see is that the lease is structured to benefit the corporation as the lease progresses over time with clauses favorable to the company and harmful to the landowner. Ending the lease is not straightforward in New York and leases do not automatically terminate at their agreed end; you have to take very active and sometimes complex steps to terminate. There are automatic extension clauses – all the Chesapeake standard leases I have seen have them- and if you don’t cross them out when you sign, your lease will be automatically extended for another five years. Companies are invoking ‘Force Majeure’. This means if I am building you a house and there was a flood that prevented me from getting to the site – that is an act of God that has interfered with my obligations under the contract. Chesapeake sent a letter to all of their leaseholders claiming that New York’s regulatory situation – where they are not issuing permits during the time that the DEC is reviewing regulations – gives them the right to extend all leases under Force Majeure. I don’t think these claims will hold up in court but the problem is if a landowner has to take these large corporations to court it’s almost impossible. Additionally leases can be extended, by what in PA. are called ‘operations’. It should mean if there is a working well on your property and it’s producing, then your lease will extend, but the definition of ‘operations’ has been taken to a very different level of complication for the landowner. The language in the lease includes what companies call ‘clearing operations,’ construction of access roads, or the delivery of heavy equipment. Or anything similar – it’s very broad language to include just about anything. At the end of a five-year lease, a family in Pa. had had no activity on their land and thirty-one hours before the end of the term, the gas company staked out an access road and put a bulldozer on it. The bulldozer wasn’t even on their particular parcel of leased land – the company had created a large ‘pooling unit’ consisting of a group of properties and claimed 20 leases were extended by parking one bulldozer. Now they are in court.”

Mr. Heath ended his presentation by sharing the complex steps a leaseholder must take if they are near the end of a lease term and want to terminate. “Once people understand what these leases are doing to their real estate I recommend that you use this process because it is an encumbrance on your title. The New York State law starts off looking great, it states that once the lease ends in five years the Company shall send you a document that can be recorded and you go to your county clerk and that will be the end of it. Shall is the problem because there is no penalty or remedy if they don’t send it. If they don’t send you the recordable termination notice, you have to send them a notice letter. Not only to the original company but you have to notify any company that they have sold any portion of your lease to.” This is where it gets complicated because as Mr. Heath described, “companies like Chesapeake sell off collections of leases for profit, often to foreign companies. They can’t make a profit selling gas at low prices – but they can make a profit by bundling and selling leases to other companies in places like Norway, Australia, and China. They also sell the gas overseas at higher prices than they can sell it domestically. [For an in depth article about this practice read “The Big Fracking Bubble: The Scam Behind the Gas Boom”. You won’t know if they have sold your lease, or a portion of it. What Chesapeake did when they sold a third of all their leases is they went to the county clerks, filed one document that implicated 800 or more property owners per county. The property owners got no notice that a portion of their lease had been sold. Not only do you have to send a specific letter to the original company, you have to send a notice to all of them. None of this will be under your name – it will be under the company’s name like Chesapeake, Cabot etc. I’ve worked with leaseholders in Cortland Co. who had to send letters to 8 different companies. They have to be sent by certified mail, and they have to be very detailed with very specific information and particular affidavits. All the forms can be found on the GDACC website [Gas Drilling Awareness of Cortland County]. You send the required forms and wait thirty days. You then take the letters and forms to the county clerk and the lease is terminated. But this is where the landowner is in a catch-22 type situation. During that thirty-day period all the gas company has to do is file a simple letter with the county clerk saying  ‘we are extending the lease’. The dilemma is that by notifying the company of your intentions you have opened up a thirty-day window for them to take some action that they might have otherwise not taken. If this happens and your lease is extended you have to go to court and that is very difficult for an individual.”

The program concluded with Mr. Heath’s offer to look at leases and give advice. There was a long line of people with leases in hand waiting to speak to him.

Another in-depth resource for the landowner who signed a lease before understanding the full implications and the threats that hydrofracking poses is Fleased.org. Click on resources and there are videos of Joe Heath, forms for the leaseholder, and many articles on leasing issues.

Some other resources and videos:

Video of Joe Heath presentation on Leases 

Video - Gas Lease Workshop , Sidney, NY 3/18/12

Drilling Doublespeak- Gas Drillers Disclose Risks to Shareholders - But Not to Landowners

Signing Drilling Leases and Now Having Regrets - New York Times 9/22/11

Does Natural Gas Leasing Hurt property Values?

Brief Summary of Challenges for New York State Leased Landowners

Cortland Clerk Fights Abusive gas Leasing Practices

Residents with expired leases fight extensions

Leasing Part #2 - Elizabeth Radow

Note the proximity of drilling operations to residence. Photo by Robert Donnan

Recently, I attended a presentation about gas leasing and the many implications for the homeowner.  There were three speakers, two lawyers whose area of specialization is gas leasing and a bank official specializing in mortgages. In today’s column I will quote points made by attorney, Elizabeth Radow. Ms. Radow has 25 years experience handling real estate development and is a special council to the law firm of Cuddy and Feder. She chairs the Hydraulic Fracturing Committee for the League of Women Voters of New York State. She is the author of an article called “Homeowners and Gas Drilling Leases: Boon or Bust?” in the Nov/Dec 2011 issue of the New York State Bar Association Journal. I urge anyone interested in these concerns to read it. 

This is an excerpt from her article, and serves as a good introduction to her remarks that evening:

“ Residential fracking carries heavy industrial risks, and the ripple effects could be tremendous. Homeowners can be confronted with uninsurable property damage for activities that they cannot control. And now a growing number of banks won’t give new mortgage loans on homes with gas leases because they don’t meet secondary mortgage market guidelines….Also, New York’s compulsory integration law can force neighbors who do not want to lease their land into a drilling pool, which can affect their liability and mortgages as well.”

Like Greg May of Tompkins Trust, (see leasing part #1) who spoke before her, Ms. Radow emphasized that her remarks were relevant to all property owners, whether pro or con drilling:

“Think of homeownership as a bundle of rights that encompass the air above, the ground below, and the surface itself. This bundle of rights comes with expectations. When you buy your house you have the expectation that for the period of ownership you have the opportunity to build on the land, perhaps an outbuilding, perhaps a mother-in-law-apartment. You also want the opportunity to pledge that house as collateral on a mortgage loan. You might want to lease all or a portion of the property, or sell the property. You also have expectations of the basics – a roof over your head, and clean running water. Less tangible expectations are the things that make a house a home, peace and quiet, fresh air, a safe and secure place to raise your children.”

When a homeowner leases their land for unconventional drilling, they are, “giving away a very large percentage of these bundle of rights. The pre-printed leases that thousands, maybe tens of thousands of New Yorkers signed, without negotiations, or being told the true nature of the process, such as the surface operations, the on-site presence of hazardous substances, the drilling activity, the compressor stations, the surface right-of-ways, underground pipelines, and perhaps the underground storage of gas.

“In these pre-printed leases the gas companies are given the right to establish easements for roads and utilities and surface operations which are not specifically designated when one signs a lease. This is an important thing to think about. If you have not attached to that lease anything designating where they might put that easement, in effect you are giving the gas company an extensive right to put those easements wherever they want. And because they have reserved this unqualified right it may leave the homeowner vulnerable and limit where the homeowner can build on the property in the future, and jeopardize a home mortgage. Think about the fact that there are no provisions in these leases for maintaining these easements or for funding them. This means by default the homeowner will be responsible for upkeep or remediation for anything that might happen with respect to the easement that was granted.

“Greg May mentioned that if a person signs a gas lease after a mortgage has been entered into – you will be in technical default of your mortgage because mortgages prohibit the activities gas leases permit. But as long as you are paying your mortgage it is unlikely that the bank will call a default – because they will be unaware that you have signed a lease – because you didn’t tell them. There is one circumstance in which it is not a technical default – it’s an absolute default and that is if you are unable to maintain homeowners insurance on your property. When banks sell their mortgages on the secondary mortgage market it is the expectation that the homes are going to be insured for the full life of the loan. All residential mortgage lenders require homeowner’s insurance from their borrowers. But even the most comprehensive homeowner’s coverage excludes the types of property damage associated with the drilling lifecycle, such as air pollution, well-water contamination, earth movement and other risky commercial activity performed on residential property.

“There are thousands of people who have signed leases that do not have insurance in them – meaning in effect you as an owner have not delegated that right to the Gas Co. – which means that you have retained the obligation for an activity that you do not control and this is obviously something that is of concern. People who thought that signing a lease document would bring in royalties with no other worries have given away to the gas companies, for the price of an upfront signing bonus, an extraordinary percentage of the bundle of rights that I spoke of earlier, while potentially remaining legally responsible for the uninsured actions of their gas company tenant.

“Also the gas leases are and can be pledged as collateral for a loan, if they are not sold outright, increasingly to foreign investors. So in effect homes with mortgages and a gas lease have two sets of investors riding on the property – those in the secondary mortgage market and the gas investors. Secondary market investors – like pensions- want the value of the property in which their pensions are invested to maintain its value for the thirty year life of the loan. They don’t want hazardous activity, no explosive materials, they don’t want the risk that is introduced by industrial activity on residential property. On the other hand, gas investors would like to see a profitable bottom line. Avoiding risks directly undercuts the bottom line – so, for example, the more a gas company has to do to comply with environmental law the lower the profits. These two investors’ interests are potentially at odds with each other.

“So we have a mortgage and a gas lease on a single piece of property. This is nothing short of extraordinary when you consider that our home is our most valuable asset and we have to ask ourselves when we purchase our homes – did we intend to give away so much control to third parties? We are in the uncharted waters of heavy industrial activity on residential property, all on the backs of homeowners. As property owners it is our right to protect our private property from run- away financing schemes and from inherently risky, underinsured drilling activity. It is imperative that we keep our property safe. I feel we need to be risk averse, preserve our agricultural economy and our private property values for future generations. The loss of property value is a no-win situation for any New Yorker, whether you are in favor of drilling or oppose it.”

Additional Resources:

Elizabeth Radow - video of testimony in Albany and the text of her testimony

Elizabeth Radow - editorial in Buffalo News

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Second Thoughts About a Gas Lease? What You Can Do. – a presentation on Wed. May 23 at 7pm – Candor Fire Hall – 74 Owego Rd. Rt. 96B (North of Owego) presentation by Ellen Harrison – founder of Fleased.org and Joe Heath, attorney, discussing lease termination and how to clear your title.

Leasing: Part #1 - Greg May

There are many ways in which unconventional drilling i.e. horizontal hydrofracking, is different from the gas wells of the twentieth century: compulsory integration, enormous water usage, the toxic chemicals mixed with the water, pollution of the air, and the surface and underground water sources, constant truck traffic, the radioactivity brought up from the depths, and the wholesale transformation of the countryside into an industrial zone operating 24/7. All of these topics have been covered in past columns and are archived on this site. Each column has links to the primary source material used in my research.

This week’s column is on gas leasing and the many implications for the homeowner. Recently, I attended a presentation given by three experts, two lawyers whose area of specialization is gas leasing and a bank official. In today’s column I will summarize the points made by Greg May, Vice President for residential mortgage lending at Tompkins Trust Co., a man with 40 years of experience in the mortgage field. Mr. May prefaced his comments by saying that when it comes to hydrofracking he is neither pro nor con and that he was not there to debate the issues; rather he was there to discuss the conflicts between mortgages, insurance, and leases, so that people with existing leases or contemplating signing one can be informed. He also made it clear that his expertise is residential lending and that his comments would address residential mortgage issues. The following comments are paraphrased from his presentation.

 He started by stating that in New York State one’s title to real estate is called “fee simple”. What this means is that when you buy land, you purchase a wedge of property from the center of the earth to the heavens above. Some states separate surface from subsurface, but in New York State it is traditionally  “fee simple”.

Fannie Mae/Freddie Mac (The Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, nickname Freddie Mac) set standards for all residential mortgage lending in the US. These mortgages come with these restrictions and it is the same in every state: There cannot be any surface or subsurface entry or infringement into that wedge of property (fee simple) and there cannot be any encroachment within 200 ft. of residential structures and its outbuildings.  Every lender in the country uses these guidelines as a basis for their mortgage lending. Nothing can infringe upon your wedge of property, either on the surface, or underground. The current NYS regulations governing gas drilling allow a 100 ft. set back from wellhead to residential structure. This is a conflict, one that many homeowners were not aware of when they signed gas leases. This also becomes a conflict if someone is compulsory integrated

The FHA (Federal Housing Administration) and VA (veterans administration) have their own set of lending rules for mortgages and they are different from Fannie Mae/Freddie Mac in that their guidelines state that there can be no surface or subsurface entry within 300 ft. of a residential structure or out buildings or 300 ft. from the boundary of the property.

Section 18 of the standard Fannie Mae/Freddie Mac mortgage document prohibits the transfer or sale of any portion or rights in a mortgage property without the written consent of the lender. “ I have worked for Tompkins Trust for 4 ½ years, and not once has there been a request asking for permission, yet I am confident that there have been hundreds, maybe thousands of leases signed in that period of time. This is a technical default under the terms of the mortgage: you’ve broken the promise that was made to the lender. This is not particular to my bank – but any bank- this mortgage document is standard in the industry. It says you cannot pledge those rights without prior consent and if you talk to your lender they are going to say, no, we don’t give you permission to assign the rights.”

Section 21 of the same document prohibits environmental hazards, hazardous substances, and particularly gas to be stored, disposed of discharged, or released on a mortgaged property. When you sign a mortgage agreement this section states that you (as the owner) will not do this, or you will not allow anyone else to do this on your property. Typical residential usage is allowed, like gas for the mower or propane for heating, but this is talking about major industrial purposes. Some leases that landowners have signed with the gas company give the company the right to store gas on the property, or underground, and that is specifically prohibited in the mortgage document.

“If you have signed a lease after your mortgage was in place it is a technical default. Do you think any lender in their right mind will try to foreclose? No, – but what is important is that the gas companies are not letting you know that there are specific prohibitions to signing a lease. Landmen, when they come to the house, are not saying you better check with your bank first if you have a mortgage”.

“We are seeing a lot of refinance activity to take advantage of lower rates. I am finding that people have signed a gas lease that gives away rights to the gas company and creates an opportunity for environmental impact. People are being told it is not a problem, but it is a problem folks”.

“A unique problem with horizontal slickwater hydrofracking is that it is no longer like the old vertical wells, so even if you have increased setbacks you are drilling horizontally and entering into the wedge of earth that is “fee simple” in NYS. So even though you might have a proper setback on the surface, the drilling goes down and then enters the wedge of property underground. That’s the problem and it’s a challenge for NY State”.

Another problem has to do with a residential homeowner’s insurance. Traditional homeowners insurance does not cover any damages as a result of industrial operations. 

A local agent might say, “it is not a problem,” but you need to call the company, not the agent. And they will say, “absolutely not – it is not covered”. “I have gotten written confirmation from a number of large companies. For example Kemper Insurance said, ‘Basically our position is that we do not want to entertain risks where there is any type of gas drilling on the property. Our rates do not contemplate that exposure.’ Safe Company stated,  ‘we do not look to do these – too much exposure to explosion for our property as well as a liability possibility for damages done to other properties’. If you have signed a lease you might not have the coverage you thought you had and that is a problem.”

The problem is that a company insures your property and then at some point later a gas lease is signed and sometime in the future there is a claim because something happens due to drilling activities. Suddenly there are pipelines, roadways, compressor stations, drilling platforms. These are industrial, not residential endeavors and they will void your insurance. If your insurance is terminated, then your mortgage is in default.

Elizabeth Radow, one of the lawyers speaking the same evening put it this way, “If you are unable to maintain homeowners insurance on your property it is no longer a technical default, but an absolute default.”

Gas leases, mortgages and insurance are a complex issue that not many homeowners have thought about or have even known what questions to ask. Below are links to videos and written material by Greg May:

Here is an excellent video of a presentation by Greg May. 

Gas and Oil Leases as They Relate to Residential Lending - Tompkins Co. Council of Governments by Greg May and Carol Chock

Summary Points - Gas and Oil Leases as They Relate to Residential Lending by Greg May

County Work Group Urges State To Address Gas Drilling's Effects on Real Estate

Additional resources about Leases, Mortgages and Hydrofracking:

Learning Too Late of the Perils in Gas Well Leases by Ian Urbina , New York Times 12/1/11

Rush To Drill Creates Mortgage Conflicts by Ian Urbina, New York Times  10/19/11

US Officials Push For Clarity On Oil and Gas Leases - by Ian Urbina , New York Times 11/24/11

Video -Legal Issues for Landowners With or Without a Lease - a presentation sponsored by Cornell Cooperative Extension. Presentation by Randy Marcus, attorney is particularly excellent

Video- Landowners Rights Regarding Oil and Gas Leases - Mike Danaher- Assistant NYS Attorney General - Cornell Cooperative Extension.

Carol Chock - Tompkins Co. Legislator  "Comments on sGeis on Real Estate and Hydrofracking Conflicts"

Carol Chock - Letter to Gov. Cuomo on Real Estate and Hydrofracking Conflicts

The Truth Behind The Promises

Farmers Caught in Oil Giants Shell Game - MSNBC

Couple Denied Mortgage Because of Gas Drilling - WTAE - Pittsburgh

Ban and Moratoria update:

Moratoriums: Butternuts, Bristol, Caroline, Lincoln, Little Falls, Manchester, Olive, Oneonta (town), Oppenheim, Rush, Schoharie, Scipio, Waterloo.

Bans: Albany, Bethel, Oneonta (city), Skaneateles (town)