BILL NUMBER:  S7758

 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.