With all the talk about budgets, debt ceilings, credit rating downgrades and default many missed some very big energy news last week. Chesapeake Energy announced a major discovery in southeast Ohio after discovering natural gas and shale oil deep within the Utica Shale. Ohio Governor John Kasich recently asked, "Did you hear about the revolution that's coming to Ohio? Folks this is huge."
Chesapeake noted successful results from six horizontal and nine vertical wells drilled in its Utica shale holdings, and based on its proprietary geoscientific, petrophysical and engineering research during the past two years, said its “industry-leading 1.25 million net leasehold acres in the Utica Shale play could be worth $15 - $20 billion in increased value to the company.” Analysts at Baird Equity Research say the results constitute an implied acreage valuation of $12,500-$16,667 per acre.
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In what some may see as most compelling about the report is the direct comparison to the much publicized Eagle Ford Shale. The company believes the Utica Shale “will be characterized by a western oil phase, a central wet gas phase and an eastern dry gas phase and is likely most analogous, but economically superior to, the Eagle Ford Shale in South Texas.”
The Utica Shale occurs in outcrops in New York and in the subsurface in the provinces of Quebec and Ontario in Canada. It is also found in the states of Pennsylvania, West Virginia, and Ohio.
One estimate puts an estimated 20 trillion cubic feet of natural gas in the Utica Shale, and while it offers some unique challenges—a higher carbonate content and lower clay mineral count than the Marcellus as well as significant depth and a lack of information surrounding the play—producers are cautiously optimistic that advances in technology utilizing multi-stage hydraulic fracturing and horizontal drilling techniques can unlock the play’s potential.
The potential of the Utica Shale in New York is immense and opens areas to drilling in the state not covered by the Marcellus. With the DEC now lifting the hyrdraulic fracturing moratorium in the Marcellus look for the the environmental lobby to redouble their efforts to shut down drilling in New York all together. With the Town of Otsego as the standard, pressure is building in communities across the state to enhance land use laws and zoning restrictions in an attempt to usurp state law.
This plan of action doesn't seem particularly well thought out though as there are significant potential legal ramifications to such action and in the town ofDryden, New York, the town board has been put on notice. The towns of Otsego, Springfield, Middlefield, and Cherry Vally would do well to take notice so as to not put the citizens on the hook to defend positions that turn out to be indefensible.
In conclusion, the Town should affirmatively anticipate that federal and/or state court action against it is highly probably, if not virtually certain, on one or more of the above cited or other claims. You cannot extinguish hundreds of millions of dollars of property values held by thousands of residents and separate mineral rights held by both in and out of state people without anticipating legal actions. The energy industry has its own causes of action and may also sue.
It is highly probable that this overly broad ban, as written, will have unforeseen or unintended consequences. For similar reason, the County Legislature deferred action on a road law.
The more sensible alternative and responsible fiduciary response is to defer any action on a ban until ban challenges elsewhere are litigated. Certainly, the State is far from ready to begin permitting wells, so there is no need for haste. You have at a minimum into 2012, if not longer.
The Town should take notice that a ban is inconsistent with environmental advocates’ position favoring the development of natural gas under the Kyoto protocols. It is also inconsistent for the Town and individuals to use energy from elsewhere while refusing to allow its regulated development locally. And, failure to develop domestic energy means foreign energy dependence, foreign wars to protect vital energy interests, and the sapping of revenues the government could use to pay debt and provide programs.
DSEC’s mission is to offer balanced, data driven information on safe energy development, to logically and numerically evaluate benefit-to-risk ratios, free of emotional bias or ideology, and to bring together people interested in an analytical approach to energy issues. A ban does not serve to meet this mission. It does not allow for a “middle way” in which there is lawful, safe, regulated energy development. Legally, we believe a total ban is an unnecessary high risk strategy for the Town and which in its uncompensated takings is unjust.
The Board is now on notice. It is DSEC’s hope the Board will do the prudent thing and recognize there is both division of opinion in Dryden and significant large scale dollar risk. Both drilling without regulation and refusal to drill are equally extreme solutions. We oppose both. Please opt for deliberate moderation and do not adopt in haste this radical total ban.
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