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How Homeowners Who Say No to Gas Drilling Companies' Propositions Still Get Screwed Thanks to NY State Law

New York State's industry-drafted 2005 'compulsory integration' law makes resistance to drilling companies pointless -- here's how.

The natural gas industry made Joe Todd an offer he couldn’t refuse.

He told them no, but New York State’s industry-drafted 2005 “compulsory integration” law made resistance pointless.

Todd had turned away a landman who tried last year to convince him to lease his property to a Denver-based gas driller. Then he received an official letter in January that said he had to surrender his subterranean property rights for a financial stake in the same Colorado driller’s new well operation less than a mile from his home in Big Flats, N.Y. He ripped up the letter and threw it in the trash.

The drilling started up anyway.

In September, Todd’s neighbors, Donetta and Paul Morey watched their well water turn black in their sinks and toilets. When they tried to test for methane by lighting a match near the well, a flame shot into the air, singing Donetta’s eyebrows and setting her hair on fire. She quickly pulled away and patted out the flames.

Two days later, the well water Todd and his family had relied on for 22 years suddenly turneddoes murky and smelly. So had the well water of at least seven other households in this stable, middle-class neighborhood just north of the Elmira-Corning Regional Airport. The residents suspected that their water problems were linked to the gas drilling, but state and local officials dismissed those suspicions.

Realizing that the burden of proving a connection was on their shoulders, Todd and the others started meeting regularly with an eye toward hiring an attorney and a water tester. Some members of the group, including the Moreys, had signed leases with the drilling company, Anschutz Exploration Corp. Several others, like Todd, had declined.

But the state’s compulsory integration statute cancels their right to refuse to deal with a gas well driller.

The legislation was a product of the Independent Oil and Gas Industry of New York, according to Christopher Denton, an Elmira attorney who has represented landowners in dozens of compulsory integration cases.

“This is IOGA’s statute,” Denton said of the industry trade group. “They drafted it, introduced it, got a sponsor for it and pushed it through with no legislative hearings whatsoever.”

The law "does some good” by improving on previous integration statues, Denton said, establishing a much-needed orderly procedure for assembling land for drilling. “But the substance provisions screw the landowner,” he added.

Legally, compulsory integration is similar to eminent domain, where a government can seize private property for a general public purpose such as a highway or a school. In compulsory integration, the government-supervised seizure of private property benefits a mining company.

In theory, both types of seizure are supposed to provide fair compensation for landowners. But Denton believes New York’s law is a miserable failure when it comes to compensation. “It’s really worse than eminent domain, where at least you get paid at 100 percent,” he said.

When Todd received his compulsory integration notice, he had three choices. He could have decided to invest in the well and assume the financial risks of a “dry hole” or expensive accident -- what Denton calls the “J.R. Ewing” option. Under the second option, Todd could have chosen not to invest, but rather to have his share of well costs taken out of his future earnings. Instead, Todd by default took the third option. He has no responsibility for the well’s costs and is entitled to a royalty payment.

Denton calls the default option the “ostrich” because it requires the lowest level of commitment. The royalty rate typically paid to the ostriches is 12.5 percent -- far below market.