Norse wants to be 1st in line for NY gas permits

[March 12, 2012]  ALBANY, N.Y. (AP) -- While New York regulators wrap up a four-year environmental impact study of shale-gas drilling that has driven most energy companies to other states, a Norwegian company hopes to be first in line if New York starts issuing permits.

Dozens of permit applications for wells in New York's part of the lucrative Marcellus Shale were filed in 2008 and 2009 with the Department of Environmental Conservation. But then the DEC said no permits will be issued until the completion of its environmental review of gas production using horizontal drilling and high-volume hydraulic fracturing, or fracking.

Companies stopped applying.

The only exception is Norse Energy, which has submitted seven applications since November. The applications are for wells in central New York within 50 miles of the Pennsylvania border, the towns of Smithville, Coventry and Smyrna in Chenango County, and Sanford in Broome County.

That area is considered among the most gas-rich land in New York's share of the Marcellus Shale, which lies under southern New York and parts of Ohio, Pennsylvania and West Virginia and is estimated to contain 84 trillion cubic feet of recoverable natural gas. That's enough to supply the nation's gas-burning electrical plants for 11 years, at current rates of use.

Thousands of gas wells have been drilled in the Marcellus in the last five years, the majority in Pennsylvania, bringing new wealth to economically depressed areas, a bonanza of cheap fuel to the energy-hungry Northeast, and a great deal of political conflict arising from environmental and health concerns.

Norse Energy has hundreds of producing natural gas wells in less-rich sandstone formations in central and western New York, but shale gas is the real prize.

"We're incurable optimists," said Dennis Holbrook, executive vice president of Norse Energy Holdings in Buffalo. "While the big guys vacated the state, we've remained the most active driller in New York state over the last few years, trying to find other formations to pursue while waiting on high volume with shale."

In its fourth-quarter 2011 earnings report, Norse said it had received acknowledgement from DEC that all seven of its shale gas permits were accepted and await resolution of the environmental review.

"These wells are part of an aggressive development plan," the report said. The company has 22 more permit applications in the works, it said, and expects to attract a partner to help fund its shale drilling.

Norse has about 130,000 acres under lease in New York. The company is one of several trying to extend hundreds of leases that reached their original expiration date during New York's de facto moratorium. Many of the leases were signed for $2-$3 an acre; more recent leases have gone for $1,500 or more per acre.

DEC is reviewing more than 60,000 public comments submitted for its 1,500-plus page environmental study and proposed regulations. Gov. Andrew Cuomo and DEC Commissioner Joe Martens have said a decision on whether to allow fracking is likely within months, when the review is complete.

Michael Brownell, a Chesapeake Energy executive, wrote to Martens that the proposed requirements under consideration by DEC, coupled with low gas prices, will "effectively kill natural gas development from shale formations in New York state."

The price of natural gas is at the lowest level in a decade at $2.30 per 1,000 cubic feet. Relatively warm weather and the production boom have caused a market glut of gas.

Many environmental groups and several state legislators are calling for a complete ban on fracking in New York, saying accidents and waste disposal contamination issues in Pennsylvania and other states show that regulations have failed to ensure the safety of the process which injects millions of gallons of chemically treated water into a well to crack shale and release gas.

The industry says science backs up its claims of safety, and landowners and other advocates say the state needs the jobs and other economic benefits gas development will bring.

Besides Norse, two other energy companies have pending applications for Marcellus wells in New York: Chesapeake, based in Oklahoma City, and Talisman Energy, based in Calgary, Canada. With the current low price of natural gas expected to persist, both companies have focused their plans for 2012 on more profitable shale formations than that in New York.

Another factor is steering drillers elsewhere: While New York's shale gas is expected to be mainly "dry gas," with little oil content, some regions have "wet gas" containing oil that can be sold for a higher price.

Talisman told investors in February that it will reduce its rig count in the Marcellus Shale in Pennsylvania from 11 to three in 2012, while ramping up activity in liquids-rich regions such as the Eagle Ford Shale in southern Texas.

Chesapeake has said it will reduce its rig count in Pennsylvania and northern West Virginia from 26 to 18 in 2012 as it moves away from dry gas in the Marcellus to wet gas and oil in other regions.

Norse doesn't have the option of refocusing its efforts because all its leases are in New York, Holbrook said. And the company has taken a big hit financially while waiting out New York's regulators. It cut its New York staff, in Buffalo and Norwich, from 70 to 23. It negotiated an agreement on full bond debt refinancing, and sold off some of its central New York acreage and royalty interests for $26.7 million.

Norse Energy's stock price has dropped from $1.07 a share in June 2008 to around 4 cents for the past four months.

At a legislative budget hearing last month, DEC Commissioner Martens said there were some permit applications awaiting consideration and that he presumed they'd be the first ones processed. The applications would have to be updated to comply with new regulations, however.

"Applications already submitted would need to provide supplemental information to meet the final permit conditions," Emily DeSantis, DEC spokeswoman, said in an email. "If high-volume hydraulic fracturing is allowed to move forward, we will create and implement a process to review applications submitted."

DeSantis would not comment on any applications in the pipeline.

"Our reading is that if you are in the queue and ready to proceed, you'll be in line to be approved sooner rather than later," Holbrook said.

[Associated Press; By MARY ESCH]

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