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Leasing of Natural Gas Drilling Rights on Public and Private Land in New York

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Abstract

The U.S. demand for natural gas, a cleaner-burning fossil fuel, is projected to rise over the next decade. The import supply of natural gas is tight, so the growing demand will likely intensify domestic production. Pressure to drill on U.S. public and private lands will continue to grow. Landowners and stakeholder groups will need to make informed decisions about whether to lease the mineral rights on these lands. Therefore, access to full information about drilling is critical. This paper uses New York State to illustrate the natural gas drilling process and to examine the issues surrounding drilling on public and private lands. Seneca and Schuyler Counties were chosen to represent the drilling situation in New York due to their mixture of private, state and federal land, including the only national forest in New York. Recent experiences of private landowners and stakeholder groups – the Bureau of Land Management, U.S. Forest Service, national and state forest managers, conservation groups and local citizens – are presented. The paper discusses the benefits of natural gas drilling, primarily landowner royalty payments, and the costs, which include soil erosion, noise, recreational, and aesthetic impacts, and added land management responsibility. For private landowners, the greatest uncertainties in the drilling process center on contract negotiation and the unpredictable nature of royalty payments. The paper provides a discussion of negotiable lease terms, and an explanation of how royalty payments are estimated, including the method for determining wellhead prices. The most difficult issues in gas leases involve siting: wells, staging areas, pipelines, and roads. On federal land, conflict between national energy policy objectives and environmental objectives creates controversy about drilling. Public involvement in federal land leasing can strongly impact the decision-making process.

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E.B. 2003-15

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2003-09

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Charles H. Dyson School of Applied Economics and Management, Cornell University

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