Assembly Bill A9978

                                BILL NUMBER:A9978

TITLE  OF BILL:   An act to amend the environmental conservation law, in
relation to integrated royalty owners

PURPOSE OR GENERAL IDEA OF BILL:  The bill provides that  an  integrated
royalty  owner shall receive a royalty in an amount equal to the average
royalty of all existing leases within a spacing  unit  (rather  than  an
amount  equal  to  the  lowest royalty, that is not less than 1/8, in an
existing lease within a spacing unit).

SUMMARY  OF   SPECIFIC   PROVISIONS:      This   bill   amends   Section
23-0901(3)(a)(3) of the Environmental Conservation Law to require a well
operator to pay an integrated royalty owner a royalty equal to the aver-
age  royalty  of  all  existing  leases within a spacing unit subject to
compulsory integration.

JUSTIFICATION:  When an oil or gas drilling company  receives  a  permit
for  drilling  from the DEC in a spacing unit where the drilling company
controls the mineral rights of 60% of the  acreage  within  the  spacing
unit  by  negotiating  leases  with the owners of such acreage, then the
drilling  company  can  initiate  a  Compulsory  Integration  proceeding
through  the  DEC  to  determine how the interests of the "uncontrolled"
landowners will be integrated into the spacing unit. These  uncontrolled
landowners,  who have not signed a lease or voluntary agreement with the
drilling company, arc given a 30-day  notice  of  the  Compulsory  Inte-
              

gration proceeding and 21 days from the date they receive such notice to
choose  from  three  different categories at three different risk levels
for potential compensation for oil or gas  production  if  the  well  is
successful:  1)  a participating landowner, 2) a non-participating land-
owner, or 3) an integrated royalty owner (this is also the default cate-
gory if the landowner does not to make a choice).

Under current law, an integrated royalty owner (the least risk category)
would receive the lowest royalty of all the existing leases in the spac-
ing unit as long as it is not less than 1/8 (12.3%) of the value of  the
oil and/or gas produced and sold beneath the owner's property.

Since  drilling  companies  only have to control 60% of the acreage in a
spacing unit before requesting Compulsory  Integration,  there  is  less
incentive  for  a  drilling  company to negotiate a more lucrative lease
agreement with the remaining 40% of the landowners in  a  spacing  unit.
This  bill would allow property owners subject to Compulsory Integration
who choose to be integrated royalty owners to collect a royalty equal to
the average of all existing leases within a spacing  unit,  rather  than
the lowest royalty, to equalize and enhance the opportunity for property
owners  who, for example, where not the first to sign leases, or who may
have less land than others, to benefit from  drilling  activity  beneath
their property.

PRIOR LEGISLATIVE HISTORY:; New Bill

FISCAL IMPLICATIONS: None to the State.

EFFECTIVE DATE: Effective immediately.