Delays on fracking turn off energy companies

ALBANY -- Drilling companies that once planned to make New York an energy capital increasingly are pursuing opportunities in other states because of uncertainty about when the state might issue final rules for high-volume hydraulic fracturing.

Democratic Gov. Andrew M. Cuomo, who took office in 2011, initially had praised the controversial natural gas drilling technique known as fracking as a cure for upstate's economic blight.

But regulations that Gov. David A. Paterson delayed in 2008 have stalled several times under Cuomo, most recently for a review of studies of possible water or air pollution and health effects on residents who live near drilling sites.

Small companies and energy giants such as Chesapeake Energy and Exxon Mobil, through its XTO Energy arm, have invested hundreds of millions of dollars in property leases and exploration in New York's share of the Marcellus Shale -- fruitlessly so far.

"We've paid a tremendous price for believing in New York; we spent over $100 million in the last six or seven years and what we have to show for it is -- we're in bankruptcy," said Dennis Holbrook, executive vice president of Norse Energy Corp. USA.

"New York State has turned off a lot of the gas companies," said Robert H. Wedlake, a Binghamton-based lawyer who represents landowners interested in leasing properties for drilling.

With environmentalists squared off against job-hungry upstate residents, Cuomo's decision on fracking poses political hazards.

The energy industry or environmentalists could hurt a possible Cuomo presidential bid in 2016 if they mobilized against him, political experts said. Anti-fracking groups already have run an ad in Iowa -- where party caucuses kick off the presidential campaign every four years -- warning Cuomo against allowing fracking.

"Upstate people want the jobs but downstate environmentalist activists won't be happy with him," said Hank Sheinkopf, a Democratic political strategist based in Manhattan. "It's high risk because he [Cuomo] loses and gains at the same time."

Mounting uncertainty

The Cuomo administration has missed several self-imposed deadlines for reaching a conclusion. Adding to the uncertainty, the Democrat-led Assembly this week approved a two-year fracking moratorium. But the measure is largely symbolic at this point because the politically divided Senate has shown no signs of backing a moratorium.

Cuomo and the Department of Environmental Conservation are waiting for the state health commissioner to finish reviewing a drinking water study by the U.S. Environmental Protection Agency and two Pennsylvania analyses, including one just begun of health records for respiratory diseases, accidents, injuries and birth defects.

"I'm comfortable with the process we have under way now and let's see what the health commissioner says," Cuomo said late last month.

Cuomo denied on Monday that his former brother-in-law, Robert F. Kennedy, an environmentalist, has influenced him to postpone a decision until the environmental studies are finished.

"That we were about to go forward and then I talked to him, that's not accurate," Cuomo told reporters. Kennedy, vice chairman and chief prosecuting attorney for Riverkeeper in Ossining, did not return a call for comment for this story.

Environment vs. jobs

High-volume fracking blasts shale with huge amounts of water, chemicals and sand to free the natural gas trapped within the rock. Conventional fracking, which relies on shallower wells and uses far less water, has been done in New York and other states for decades.

Environmentalists have raised concerns about whether high-volume fracking could contaminate drinking water and release methane gas, and about the large volumes of chemically laced water that are produced.

Fracking supporters say environmentalists' concerns are unfounded and overstated. They note that President Barack Obama supports natural gas as a clean fuel that has lowered energy bills. Supporters also say consumers and manufacturers have benefited from the plunge in natural gas prices created by the fracking boom in other states, which has lifted their economies.

A study done for New York's Department of Environmental Conservation estimated fracking would create thousands of jobs and increase personal income tax collections by $31 million to $125 million a year, depending on how swiftly production developed.

Missed opportunities?

With the debate showing no sign of subsiding, some say New York already may have missed its chance to become an energy hub.

A number of companies that had planned to expand their New York headquarters already have relocated to Pennsylvania, taking their geologists, attorneys and accountants with them, industry experts said.

Patrick Henderson, the Pennsylvania state energy executive, said the state has seen an "infusion" of national and multinational companies.

Pennsylvania and its localities reaped $507 million in taxes and fees from energy companies last year, state officials said. About 29,800 people work for its energy companies or specialized contractors.

In New York, the regulatory delays have caused property values in the key Southern Tier drilling areas to tumble, according to companies, lawyers and landowners.

Also, a handful of localities have passed local laws barring fracking.

Some fear lucrative leases might be a thing of the past.

"The days of $5,000 to $6,000 an acre are gone for now -- if not forever," said Nicholas Schoonover, chairman of the Tioga County Landowners Group, which negotiates with energy companies.

"The price [of land] right now is zero," said John Holko, president of Lenape Resources, an energy company that has sued the town of Avon in Livingston County for $50 million for blocking fracking.

Enticing firms back to New York might require landowners to accept lower upfront bonuses and royalties than were offered just a few years ago, said Michael P. Joy, a Pittsburgh lawyer who advises energy companies.

With Yancey Roy