Assembly Bill A10956

                                BILL NUMBER:A10956

TITLE OF BILL:  An act to amend the environmental conservation law, in
relation to integrated royalty owners in the New York Marcellus Shale
region

PURPOSE OR GENERAL IDEA OF BILL: To increase the statutory minimum
royalty for landowners in the New York Marcellus Shale region who are
involuntarily included in a natural gas drilling unit through
compulsory integration.

SUMMARY OF SPECIFIC PROVISIONS: § 23-0901, subsection 3 of
Environmental Conservation law is amended to increase the minimum
royalty payment for landowners who undergo compulsory integration in
the New York Marcellus Shale region from 12.5 percent to the highest
royalty in an existing lease in the drilling unit, but no less than
18.75 percent.

JUSTIFICATION: When a natural gas drilling company applies for a
permit from the Department of Environmental Conservation (DEC) to
drill a well, the company proposes a drilling unit from which gas will
be extracted. These unit boundaries may cut across property lines and
include land owned by people that have not, for various reasons,
signed a lease with a gas company for development.

If a natural gas company controls 60% of the acreage in a drilling
              

unit through leases or ownership, the DEC will schedule a Compulsory
Integration hearing which will give the driller the remaining
non-leased landowners' subsoil gas rights to that gas formation.

In this case, there are three options for compulsorily integrated land
owners offered by law. The first two include sharing in the
considerable costs and complexities of natural gas exploration and
well-drilling. As a result, the third option is typically chosen by
landowners and they enter into a contract to receive the
statutorily-set minimum royalty rate of 12.5 percent.

For years, this minimum royalty amount was consistent with what leased
landowners in the same drilling unit where receiving when They signed
a lease with a natural gas company. With technical advances in the
drilling industry and the prospect of exploration in the Marcellus
Shale formation, leased New York landowners have seen average royalty
payments increase dramatically and they are now are consistently in
the 18 to 20 percent range, with some lease agreements offering up to
30 percent royalties.

Given this positive change in market trends, landowners who are
involuntarily integrated into drilling units now are receiving
considerably lower royalty rates than their neighbors in the same
unit. This bill seeks to equalize royalty rates by increasing the
minimum royalty offered to compulsorily integrated landowners in the
New York Marcellus Shale region to be equal to the highest royalty in
the unit or 18.75 percent at the minimum.

PRIOR LEGISLATIVE HISTORY: New bill.

FISCAL IMPLICATIONS: None to the state.


EFFECTIVE DATE: Immediately.