Compulsory Integration – Hydrofracking in New York State

so he had so sorry I think David put that together I don’t know if he knew what the purpose was for ordinarily I try to keep it to like one sentence an introduction but thank you guys so much for having us here for all the work you’ve done in your community Kirkland has really just done a terrific job so we’re very happy to be back here no all right oh the AC okay well this should keep things short but time we get hot well I want to run out of here all right so so what we’re here to talk about today is compulsory integration and actually before I started one thing I had wanted to mention in the discussion of these two cases middlefield and Dryden there had been a rehearing in the middle field case the lawyer said oh wait we found a new document that gets to the legislative history of what was really meant by this preemption statute and would like another bite at the Apple judge would like you to consider this new evidence that we’ve found Tom West’s referred to it the lawyers for middle the lawyer for the middle field plaintiff as this smoking gun and today the judge came out with the decision he said there was nothing new in this memo and that his previous decision upholding the middle field right to ban fracking and gas drilling stood so so that was not unexpected but it’s a nice victory yeah well just put you in this little rock into your facial oh so and and also as david points out on the 13th when talking with some reporters tom west again now he’s representing both dryden end middle field and the industry appeals said that their chances were not good that he was not optimistic about their appeals so which again it’s not surprising to us but I feel like a people on our side in particular always worried and because you think people tell the truth and so when they say they’re on the other side they’re like we’re going to beat you in this appeal he’ll really like they’re going to beat us and so no they’re not going to beat us and even their lawyer is telling people that he is not optimistic about his chances so that’s just a bit of good news to start this off so one thing we hear a lot about is landowner rights and you can’t tell me what to do with my land if I want to drill I should get to drill but the flip side of that in New York is the compulsory integration statute and what this statute says we’re going to go through it probably well in some areas more detail than you’d like it in other areas perhaps not enough detail because that’s the way it seems to always work but that’s the flip side of someone being able to go ahead and drill in New York is that the industry can rope in up to forty percent additional acreage into a unit so people who have decided to lease have this right in the state of New York to make people who don’t want a lease who don’t want minerals extracted from under their land to participate in this process which we think is pretty unamerican in this particular application and it’s very violative of land owner rights the forty percent have just should have just as many rights as the sixty percent here so so what I’m going to briefly talk about here is the history of well the history of compulsory integration and then why compulsory integration does not work in shale plays in particular and and challenges that we believe can be made to compulsory integration so a very long time ago when people were first trying to figure out how to determine property rights back in Roman times even this is part of Justine Ian law very very old english common law people one of the things that they tried to figure out who owns that were wild animals because they ran around all over the place and how did you decide who owned a wild animal so they came up with this concept of the law of capture which is going to be very important in

compulsory integration so the theory here was that nobody owned the animal until it was captured that it was unknown daz it ran about in the wild and then the first person who killed it or captured it and my took it home with them and made it into a pet if you didn’t kill it like brendan here but the first person to kill the animal owned it chasing it wasn’t enough and in many cases wounding it wasn’t enough and in New York back in 1805 in a case where to where one guy was chasing a beaver through the woods to get the pelt another guy came on he had been working at it chasing this beaver for a while and some other guy came in and captured and killed the beaver right before the sky had been working at it was was ready to pounce and the court said you know we’re going to have too many disputes if just chasing a wild animal gives you ownership you’ve got to kill it and or take it home and make it your pet collar it put a name tag on it so so there’s this general concept very back going back to you know very early in new york state that if you capture you’re a wild animal that’s what it takes to own it so they had the same process oh when they were trying to figure out who owned oil and gas they said well we don’t know when we look underground we can’t see what’s there we don’t know where this gas comes from we don’t know where this oil comes from underground and it’s not fixed in the earth like a like copper or gold or silver it moves around and so we can’t we don’t know how are we going to decide who owns oil and gas so the court this is a 1902 case so a hundred years after figuring out the rule with wild animals they said well we’re going to say that it’s the rule of capture that’s going to apply here we’re going to take this rule that we apply to wild animals and we’re going to apply it to oil and gas because it moves around and we don’t know where it comes from so when you drill a well you don’t own the gas until you it actually comes up at the surface and you capture it and we’re not going to inquire where it comes from so if you build a well right on the edge of your property and it sucks up oil from the neighbor and one neighbor over we’re not going to we can’t get into that question we’re just going to say if you’re well captured it you own it so this so that was the theory and that was the theory in New York State for almost you know enough for many years after that and so and this other case here this 1960s case talks about it they understand oil and gas a little bit better at this time but they still say basically this is how oil and gas works it’s just the way of the Wild West as it were you put a drill in the ground and whatever comes up you own it so this rule I think of it as Finders Keepers led to a plethora of wells and because the only way you could preserve your rights to whatever gas might be under your land was to drill your own well and for your neighbor to drill their own well and for the other neighbor to drill their own wealth and maybe for you to even put three or four wells on your property at the corners of your property to try to suck up your neighbors gas and oil so everyone agreed except for some of the people in the oil and gas enters but everybody agreed this was really not a particularly good idea so and this is the concept one of the area’s you hear a lot about waste and what in the challenges and municipal authority that if we can’t go and drill the gas there there’s going to be this waste because we’re going to leave the resource and the ground you know we have to have only a particular number of units etc so this did come from this sort of very heinous activity this here is in Ohio this is what Texas looked like this is what parts of Pennsylvania looked like parts of California very much like this so it ultimately became very clear that this rule of capture was not a really great idea so so again this is another case

here that just talks about how this rule of capture is designed and is applied to migratory gas because the gas is going to move when I drill a well on my property the gas and your property is just going to move over to my property this will talk about is not really the case in shale but this was very much the case with traditional pools and reservoirs of gas you might recall the movie there will be blood drainage drainage and Daniel day-lewis explains to the neighbor he had he was trying to put together a huge a bunch of parcels of land to build an oil well and there was one pc forgot to get and in the beginning it was really focused on getting that piece but then he wound up getting all the land around it and that neighbor came to him and said wait you forgot to get my permission and he said to the guy well I drank your milk shake you know I basically my well took out all your gas I didn’t need your piece I got enough other things you know you’re out of luck so this was so as I mentioned this was perceived as unfair wasteful and the lake so the very first place that had the idea of limiting the number of wells that could be drilled was actually to Kansas towns and then through the 30s and 40s additional States act enacted what were called compulsory pooling where you had to they didn’t necessarily have the concept of forced integration but they required the drillers to get together and make a plan for drilling a specific area that say there’s only going to be one well per 40 acres here’s the 40 acres you guys go figure it out if people didn’t lease they weren’t in the in the pool but they made people get bigger and bigger groups of land together and only drill one well so in 1941 New York adopted the interstate compact to conserve oil and gas and then in 1963 they did sort of a reboot and did a reenactment of really this model law with some modifications and so what happens and what New York did which many states did not do New York said not only we’re going to tell you you can only drill one well per X number of acres we’re going to say if you can’t get everybody to agree we’re going to make them agree and that is somewhat unique Pennsylvania as you may have heard they don’t they still don’t do that Texas still doesn’t do it many many states do not have compulsory integration if you aren’t in the unit they just have to build a you know around you they can’t come under your land with horizontal wells and if you if you don’t want to participate in a traditional reservoir you don’t have to so so New York does that in 1981 they enact some more modifications and then in 2005 a serious package of reforms to the compulsory integration statute was enacted and we’ll talk a little bit about that but the main idea with the this compulsory integration or the forced pooling when you’re not compulsorily made to join but you’re still participating is that there’s this idea of correlative rights that in exchange for not being able to drill a well we will let you participate and be compensated so you can’t draw your own well but you’ll get a piece of the action we’re not going to not let you drill and not what you have a piece of the action so so that’s this modification to the rule of capture that we have and and again all of this works and makes sense with migratory pools of gas and that’s sort of going through this long boring history because this gives you some idea as to why this statute in its application in 640 acres square mile well thank you for asking so I’m going to have some diagrams later to talk about this but the idea is that

historically when gas was easy to both find and drill for there were there were literally underground pools and the gas was in these these serious pools vs. and shale where the gas is locked into the rock and is not moving around at least not very much so so now we have so we have the concept of capture we’ve moved to qualitative rights where we say we’re not going to drill as many wells as everybody wants to we’re going to have limited number of wells but we’re going to let you share in the well so that all really came into being with this 1963 amendment that I talked about where they said it’s in the public interest we don’t want to have too many wells and we’re going to try to have this policy of correlative rights then I mentioned the 2005 amendments and I’ll have there will be copies I didn’t print out copies of this but I’m going to have a CD that these guys will have and then anybody who wants it can contact your organizers here and get a copy of this program so you don’t have to try to take furious notes so in 2005 they change the compulsory integration law from these small units of 40 acres 60 80 acres where it was not great if you were the forty percent getting pulled into that but it was a small it was at least smaller number of people and acres that were getting pulled in they changed the law in 05 to say in a square mile you only had to have sixty percent of that and you could pull in the whole rest of the forty percent of that’s 640 acres so a really big game for industry some serious ability to leverage what they did lease to get land and the access to land that they didn’t have to leave so had that happened while it was written by industry for industry bill Fisher who’s down in the Pompey type area he did a foil request for all of the email traffic between the Dec regulators about the amendments to the compulsory integration statute and it there’s hundreds of pages but what it shows is industry wrote it it’s that’s why it reads the way it does so I’ll skip that so alright come back to these in a minute so this is what David was asking about it and so there are some so with that sort of background of compulsory integration is this idea of being forced in so what’s a pool or a field and there are statutory definitions they talk about a completely separated zone being a pool so what might that look like so here you can see where the well is drilled down there’s a little might be hard to see here but they’re drilling through various limestone and shale formations and they’ve found a pool of gas and it’s it is separable you know it’s sort of a distinct identifiable pool with sort of 3d seismic testing in the light they can look at this because it’s not really round like the industry always likes to use cartoons and everything’s just looks like a cartoon underground is not really like that it’s not these very distinct prettily colored layers so this is from an actual integration order and this is this here is a pool but it’s relatively distinct it’s separated you can generally identify where the gas is so that was traditionally what looked like a pool so if you go back to their definitions so you have those zones above and below and you have a distinct pool and a pool is not the layer itself they talk about these zones and if you go back to the lair so the pool isn’t supposed to be the whole line of the Syracuse formation or the Hamilton group the idea isn’t that that’s a pool that’s a zone and then the pool is a little part within a zone so when so for the statute that’s what they’re talking about pools of gas there are no pools in

the Marcellus Shale it’s just a rock so so here so this is one picture of you know the shell it’s it is a rock and here again you know you’re talking about like a whole rock so what the so when they very first started to have these compulsory integration statutes people challenged them and said we’ll wait I have a right to drill a well if I want to drill well on my property I should get to drill that well right now today no questions asked and the Supreme Court said well no it’s reasonable for the state or whatever municipal o’cl control or County control it’s reasonable to try to prevent waste and to be equitable with migratory gas and oil and so again when people have challenged this and the basis of compulsory integration again is for migratory gas the sort of gas let me just go back here bouncing around with these pictures but when so here typically if you have a gas well and you’re sucking gasps about of this common cooler reservoir that’s going to draw gas towards that well the other well withdraw gas towards it that’s the nature of you don’t have to send in and you don’t well doesn’t go horizontal here it just by its very existence like a milkshake you just suck up on the well and it it you get the whole pool underground and that’s not the case with shale gas that’s why they say they need the 640 acre spacing units because the gas won’t move with shale because it’s the entire layer that is the pool and the pool is not remotely migratory when they go and they just do a vertical well they get very little gas it’s not economic for them to do it so they say we have to send out this horizontal wellbore a mile underground hydro frak and then we can release the gas well when now that you’ve learned a bit about the rules of capture and this idea of migratory gas compulsory integration forcing people to lease by saying that you are the quid pro quo is that you are allowing them to benefit when they otherwise would not because they would have just lost the gas makes no sense and has no legal support in shale formations so so this idea when they based the concept of compulsory integration which in and of itself is not terrible for for these regular traditional pools of gas it just you don’t have a cool and it’s not migratory gas so the legal arguments that were used to make this acceptable and a fair trade don’t exist in this instance so so that’s the not going to talk about voluntary pooling so so how do they do this so who decides what these spacing units are I talked a bit about 640 acres spacing units and the like the gas company decides the Dec doesn’t go out and look at New York State make a map of where they think we should drill or we’re going to start here and we’re going to go east or we’re going to start north and we’re going to go south we’re going to start south and go north it’s totally up to the gas drilling companies and so the the Dec is supposed to set the spacing unit and generally does set these spacing and it’s up by law so there’s this that law that got amended in 2005 says well if you have a shale formation a spacing unit should be 640 acres and so that is just a made-up sort of number it’s supposed to have some scientific basis or some relationship to reality we’ll get there you’ll see that it doesn’t and if it didn’t you couldn’t even find out that it did or didn’t so here’s a sample space in unit this is just an 80-acre unit so you’d have multiple times bigger than this but you don’t put in they don’t have to put in

an entire why so you could be parcel 6 here say that’s a hundred acres you signed a lease yeah so this is six here so sorry so you your farmer you want this whole parcel you lease this whole parcel they just take a corner than equipment ask where the face moves on your whole property and just say that’s where they’re going to drill but instead they shift it up a bit and they just take a quarter of your property and then they put in other people and some of those people may have leased and they generally is generally acknowledged that they make these spacing units up to try to hold as many leases as they can because what Elise tends to say is that you have to drill or it expires and and almost all these is in New York State so if you lease any if you drill or put any part of my property in one of these spacing units you get to keep all of my land under lease even if you haven’t drilled and aren’t going to drill any time soon in any of these other portions of my land so it’s very and then when you start to multiply this and make it you know several times bigger than this 80 acre parcel here you can really as a gas company uses to your advantage you can both hold these leases that you might want to save for later I won’t get into the whole economics of how gas companies work and how important it is for them to keep leases land under lease so that they can have their reserves and the like but it’s and not have to pay new bonus money and not have to pay delay rentals but the shorthand version is it’s really good for them if they can take just a small pc Earl and put it in a cooling unit and get to keep the rest of your land without doing anything that’s good for them bad for you and then they can take that small piece that you had and try to leverage that to suck in as many other people as they can the forty percent instead of it’s not as if they to not have enough acreage you could have 3,000 acres under lease enough to make your own 640 acres spacing unit but you can shift and move the square around to pick up as much other land as you want so so the hole spacing unit thing is really pretty questionable of me so the question is don’t you on your mineral rights so that gets to this rule of capture the rule is yes you own minerals like true solid in the earth minerals but you don’t own the oil and gas you only own the oil and gas if you capture it and someone else can come along and sink a well right on the border of your property and suck out all your guests they’re not supposed to send a horizontal wellbore like let’s say you’re trying to catch a wild animal the part of the wild animal capture that I didn’t get into is you’re supposed to have a right to be on the land where you do the killing so you’re not supposed to go on to your neighbor’s land whose posted as land no trespassing and go kill a deer and be like why captured it No so the idea is you suppose we had an open land or land that’s available for hunting to do that the equivalent of horizontal directional drilling is basically your neighbor has this land posted for no drilling and you use like a bow and arrow with a chain on it and you shoot the deer over in his yard then you drag it over to your yard it didn’t just wander over wasn’t you didn’t even just put out a Salt Lick or somethin and get it to come hang out in your yard to set of your neighbors like you shot it while it was in his yard and then you just dragged it over to your yard so again that’s why sort of this it’s a complicated subject and sort of trying to wrap your head around how does this work and what are my rights and what are everybody else’s rights and and so the idea is the sort of other part of this is you’re supposed to be able to exclude even if you don’t own the gas nobody should have the right to send a wellbore under your land shoot hydro fracking chemicals and other things blow things up under your land and then then they exert the negative pressure so look it just came over here they had it they had a trespass and physically enter your

land they didn’t just put a well over in their yard and you know sucked up all the milkshake so so it’s very int’l in this instance and so that was the whole sort of beginning of this was about sort of that and why this idea doesn’t make sense in shale so but even if somehow it did make sense the the way they get to use these spacing units is really tricky so here’s the mother here’s another sample spacing unit and often there there’s a number that Norse and you can go and look at some of the proposed spacing units on the Dec website and Norse has proposed a number has applied for a number of drilling permits in Chenango County and so they’ll say well the it’s supposed to be oriented north-south well though oriented east west and say well we needed to do that or they’re supposed to be generally backing up to each other and they’ll leave you know a portion of land even if they’ve released it in between two spacing units and so it’s really it’s really a tool that is not designed with the rights and interests of any landowner at heart so what does the statute say about this the statute says that they’re supposed to be uniform in size they’re supposed to really have a plan here unless industry asks to do it some other way and so what happens when someone contests one of these spacing units so here was a this is a case of 2004 case in a regular pool where some land owner said we don’t we think we’re getting a bad deal in this and so the DC issues its order but they try to explain themselves and they said look when we went and arrived at this spacing unit we looked at the operators data that’s proprietary and confidential we’re not to share it with you trust us we swear this this is a good idea and before they even have the hearing at which you’re not a party as a integrated landowner which I’ll get to so you’re not an interested party in this unless you can make some very serious showings with your own geological data which is tremendously expensive to obtain but before you before they have this public hearing you know you’re due process they will enter into a stipulation with the operator as to the size and location of that spacing unit you don’t even get a vote on what that triangle or semi circle or square looks like they’re going to decide how much of your property goes in and you don’t even get to talk about it so this is small print I apologize but I thought this was great Michael joy is a geologist out in the Buffalo area he went to law school right at the time of this case he wasn’t yet admitted so he was appearing as a geologist not a lawyer but he was working on behalf of unhappy landowners in this case so he said this was unfair this is a guy who’s now a fracking proponent like you wouldn’t believe he thinks nobody should have any say in this industry will lead us you know two streets paved with gold if we just listen industry but back in 0 for Michael joy said that that in this particular instance the spacing unit was unfair and he couldn’t even begin to evaluate it looked unfair to him but he couldn’t begin to evaluate whether it was fair or not because all the information was being protected as a trade secret and he thought that the department should have to at least let the landowners who were going to be part of the spacing unit see how the company came up with what it was doing and he said you know no one’s had an opportunity to review this this this really seems unfair they lost the court said we’ll get to what standard has to be for this but they were not listen to and the well spacing here continued as it was so typically when you’re in one of these spacing units they’ll say you know if it’s a 640-acre spacing unit 40 acres of yours goes into it you’re going to get 40 / 6 640 acres so that’s generally how it goes although the Dec can change that if the company gives them evidence that you

can’t see that tells them that they should do it another way yes but on the wall is an overlay map is black mat on the door it’s a metric ton of purple those rectangular images which CRC plots they should be a little man is actually perfect you could pick up your clock and see exactly where that why then although that again assumes that industry is going to use a complete this is what you imagine and when you hear about this and it’s described it sounds like there’s going to be a block they’re going to take the whole town they’re going to divide it up there’s going to be some rhyme or reason to how it works and as it turns out one operate because not somebody’s not going to come in and ask for every 640 acres spacing unit in the whole town first operator is going to come in who’s has enough you know I don’t know sometimes there’s multiple operators usually they have these treating things where before they go in and drill one operator takes over an area so they don’t have to compete with each other but they’ll come in and that they will do one or two wells maybe in a town to try to hold some leases and they’ll pick they’re not like they’re going to pick three over and two down and said we want that one they’re going to pick one in the middle shift it turn it you know make the edges funny so that it gets them the biggest bang for their buck and then they’ll come back and they’ll do another well maybe in the corner of the town and then the third one down here so the Dec makes it sound like there’s going to be this checkerboard somewhat rational rollout but that would mean the DC was in control of the process and they’re not it’s entirely dependent on operators coming in no you don’t have to i could lease a million acres in new york state and never apply for drilling permit presumably if i’m a regular business i’m going to because that’s how i make money but there’s no obligation to drill and there’s in to the state so the state can’t say hey wait you have hey you exxon you just bought a hundred thousand acres you know of lease land when are you going to drill it’s none of the state’s business exons going to decide where and when and if it’s going to drill yes so yes if so over a period of time and that period of time has gotten longer many leases were for five years now many leases are for ten years or five years with a five-year extension but the companies are using force majeure claims to say so let’s say and many of the newly written leases will say not just they have to if there’s a moratorium or something they can’t get a permit if they can’t get a permit fast enough so the DC goes ahead with this five County 50 permits in the first year program that was proposed last week so you’re you don’t get one of those 50 permits the way the new force majeure clauses are written your lease just every lease you own it’s just extended that has the sort of new force majeure provisions that are basically if we can’t get a permit and even if we didn’t apply for one but we sort of kind of wanted one your lease is extended and that’s literally the language has been changed to be very pro operator pro extension and the AG’s office you might have read just entered into a settlement with Chesapeake because Chesapeake was obviously and wrongly claiming force majeure and leases that had no support for claiming that the inability to get a high volume horizontal hydrofracking permit was the reason why they weren’t drilling so so just because Lisa’s they say you have to drill within five years or your lease expires period end of story no you know except for acts of God you know you’re about to drill your well and lightning strikes will give you a few extra days that’s all the leases set Chesapeake wrote to all these landowners and said well we have a covenant in the lease that says and there aren’t any covenants really there’s a covenant in the lease that we’re supposed to pay you once we start drilling a well and we can’t comply with that covenant to pay you once we start drilling your well because we haven’t thrilled well yet so we can’t perform our covenant under this lease and we just feel terrible about that so

we’re going to extend your lease and literally this is what they did people complain to the AG’s office e AG’s office at first like we’re not going to hit involves all these people want to do is sign a new lease for more money that’s not our bailiwick there were actually lots of people who didn’t want to lease at all but the AG’s office spent some time negotiated with Chesapeake and instead of saying dad Chesapeake that was terrible you have to tell all these landowners they’re out of their leases they said well 450 Lisa’s out of 4,000 out of these 50 leases 50 people get to go home and these other 3960 they have to go out negotiate with someone new for a new gas lease and then you have the opportunity once they’ve gone out done all this work negotiated this new lease then they have to send it to you and you get to decide if you want to match those terms or not and if you do then you can sign the lease with them otherwise they have to lease to this new company and there’s no option to just say you want out of your lease and that’s what the AG’s office while working with the landowner coalitions that was their solution to the fourth measure problem so there is not much hope for and there are some court cases pending but they’re very expensive and for a single landowner to fight these oil and gas companies because they have so many leases at stake you have your one lease you’re going to fight the gas company to get out of it your lease is one of 10,000 the Chesapeake has if you get out of your lease 9999 people that they have a big incentive you’re you know a farmer you can’t you don’t even for seeds and you’re trying to pay your lawyer to fight Exxon they’re going to bury you and so it’s been very expensive for the landowners that are trying to fight this in court so many you know to air that they’re not fighting and continuing to fight it in court the reaching out-of-court settlements so nobody else gets the benefit of the litigation so the idea so it’s really my thinking is once you’ve signed a gas lease you’re never going to get out of it like they will find a way they will lie cheat and steal to keep you in that lease and your chances is an individual unless you have millions of dollars to fight getting out of that lease you’re never going to get out of that lease because they will just say it’s still your you’re still in it and you say no I’m not yes you are you like you know you’re never going to win that fight so well many are five years traditional older leases were for five years then they started the original very earliest gas leases you’re supposed to drill right away because the idea was you know sign a lease get out and drill and then it was like well we need to you know especially with these spacing units we got to get some other people involved we need a little bit of time so there were three year leases than five year leases and five year leases with five year options and people mistakenly thought that both sides had the option but that’s not how they worked it was if the gas company wanted to extend it they could extend it so there are many of these and now most of the leases are for ten years because the gas companies realize that once they you know they really want to have these on their books for a long time so many leases now have a primary term of ten years with these force majeure clauses that basically say if we don’t drill but we said we wanted to drill your lease just keeps going so it is a very and they can and again with these spacing units you could have a thousand acres that you lease and without what’s called a severance clause in your lease they put five acres of the corner your property they scooped up a bunch of other people they get to keep your thousand acres without ever drilling on the other nine hundred ninety five acres yes can you change I don’t believe I mean I sure that they could go back and change it with a DC’s permission no because they know it’s filed and it’s part of the records and most leases say even if they don’t drill they get that the permit with the spacing unit will say you have to start drilling within such period of time but if they don’t start drilling within that beer they let it go so now you’re in a space being in

a spacing unit extends most leases when you get a spacing unit approved you don’t have to drill right away so you can go out and futz around for another two years or so come back and say oh you’re still in my spacing unit your lease didn’t expire you know now I’m going to drill or now I used to have an 80-acre speaking you knew you were and now I’m 160 acre spacing unit so I’m going to change the spacing unit and then they’re not going to drill for another two years but your lease is extended because you’re in a spacing unit so it’s a very I’ll get to the parties on this party status as a landowner you’re not even a party to the to the spacing unit hearing so like wait do I have you Oh most well it will be binding against those it may not the spacing unit itself is not a matter of public record so the only thing that’s on the public record is the lease which is supposed to put people on notice if they see that you have an oil and gas lease or there’s an oil and gas lease previously in the chain of title that’s supposed to put the purchaser on notice that they’ve got to go check this out so right there was so here now suck it well it wouldn’t show up in a title search so and i don’t know i mean there are our endorsements the tight lakes oftentimes off record items aren’t covered by title insurance or this wouldn’t be a mad like that there’d be an exception in the policy for this kind of thing i haven’t read a homeowner’s New York title insurance policy in a long time but but that is I had not mean i know in tompkins county the form purchase and sale agreement that all the brokers use there is a disclosure for oil and gas matters but that’s just a voluntary the end if you lied once you’ve closed on the property all that got all your promises and those pre certifications that aren’t required by law are you know they’re merged into the contract the deed which so yeah that’s the problem what do you think there may be an obligation to tell people what you know your son’s business what you’re selling real estate or whatever that’s how i pointed out their special rules when you’re dealing with real estate what you’re selling real estate whether we sing real estate when no special rules generally say the company’s the second thing they say starting first second thing they say is when the deal is done so when I will talk about the sale is over there’s an e every promise that you made as the cell when they really made it more so any real promise you made it’s what’s called merge into the D so you don’t put it in writing you say our water is crystal clear you don’t write that in the deep in it quite advanced you know right into the contract you say all the water is so sweet here we don’t want what they sell it the new people water is good and it turns out your water’s back the story you could not sue anybody even though you say well wait at the closing let you sign a contract we’ve got great water knowing that you did once that all those promises the bosses are merged into the deep which means the only at that point even your purchase and sale agreement doesn’t exist any the contractual relationship between the parties is in the deep and obviously that he doesn’t say and it’s about the water or in this case to mention your question is going to say anything about neighbors or spacing it’s ramping up less than general but it also the general rule historically when you’re selling something was a real estate or anything else is it up to the wire to do her own but the way it’s called to bilities in other words to check out anything you want I’m going to sell you this properly de Sade’s property I’m going to you know sell you

whatever it is you know except for the best we saw the best in the world but in a good way like the lost representations or warranties you have to do your own due diligence over time especially in most in california now in new york state the law has involved so that certain things the law saying even though we expect the purchaser to do her diligence certain things are so important that if knew or should have known that something was important to somebody you have an obligation to tell them about that’s the definition of materiality when you have to figure out whether where I’m going to tell it or not the definition of West material is whether they knew about it it could conceivably change their purchase decision so in everything except real estate the law has moved to this concept of materiality and this notion generally that if there’s something out that you know could influence somebody’s decision generally they’re made obligation to tell this product a joke real estate has always had these separate literally since I think it’s 1534 statute across is where it goes back I might be off by 10 years but but it was bad literally that long special rules in real estate last month however somebody did a very very very sophisticated attempt toys r us or somebody got over what but it was like a big big big company may see through somebody soon Santa 30 pounds yeah but I gotta assume the landlord the least there is a monitor Marshallese real estate sophisticated parties normally when you got sophisticated parties all bets are off renew your own racks or warranties in this case even though each set as it heal I’m not met entirely in this case of landlord and not making any rats or warranties to be the same position to seller you do your own due diligence the this very sophisticated tenant is so assumed this landlord for millions and millions and millions of dollars saying this was in a floodplain and it got flooded by this was an eclectic playing the space you knew or should have known that if I didn’t know that it was in flood flood plain I wouldn’t I much madam please you didn’t tell me and therefore I want here out of my reach I want to go into battle to them up until just explain but but the point is that even though different difficult if you apply the real estate about what you have to tell because you can sort of get away with it you might be able to get with it once the deal is over there’s movement to change that and so when I’m trying to say is i would recommend not saying i recommend you tell you disclose anything without knowing your circumstances but I wouldn’t want you to walk out of any way to walk out of this room thinking it’s ok not disclose because you’d like that if I get five my question is what yeah you have a job you know well had a minimum I don’t know the answer I’m in the audience listening because I don’t know this stuff you know this is going to do it three in myself but saw the further on that but certainly one thing you would do you what in your purpose of sale agreement doesn’t get this way get an answer you’re southerners so you want every weather / graphic representation and warranty at least whether they know about that they’ve got knows better what’s that record yeah I mean otherwise and they’re not perfect there are various community groups that have gone out and made maps of Lisa’s you know so you could take a look and see if something was on the map or not but the problem those people have with these maps is that they can’t tell if a lease has been extended or not if it should have expired by now who’s in the spacing unit it’s fair I think it’s with the Dec but I don’t believe it gets filed in the registry of deeds whatever they come so in other

words when you’re tired for you can search on the lawyer is a title policy they’re only going to look at the county recipe right so great right that’s why i would think that that’s well the leases are with the county clerk’s office like as part of the title record so finding your neighbors leases and going back because it mayn’t even if you know my neighbors Joe Smith I’m going to search in the record for Joe Smith well Joe Smith might have bought it from Mary Allen and Mary Allen might be the one who signed the lease so some count every county is different some counties have records that are very good and are organized by tax parcel so you can type in a tax parcel number and so whether it was Mary Allen Joe Smith or farmer you know Johnson from 20 years ago it’s going to show up otherwise it’s this very complicated process where you have to let go and find out who owns all the neighboring property and then start going backwards because even if they didn’t do anything you have to look and see who they bought it from and today and the way you manually search these records when it’s not all computerized and there are counties that are not computerized you have to go get the books so you’re like okay Mary Smith bought it from this person then you have to go looking for Mary Smith going forward buy some well yes and there are legislative proposals that the status of leases should have to be filed these sort of pooling orders should have to you know spacing should have to be filed so the people know the status of property but presently there’s no and you don’t have to file at lease the point of the filing and many leases they just file a memorandum not the whole leaf so you can’t see what it really says and they don’t have to unify you’re a purchaser trying to get Lisa’s out of places and they divide up its like the securitized mark they buy and sell these things pieces and slices of leases all over the place so trying to find out who owns your lease can be very difficult if you buy a property with a lease so there are movements and legislation out there that says look like this is just a disaster we need you know this is so many parcels now if this really is going to be this blanket roll out you know we need to have a system of knowing what’s going on and there is no system but that hasn’t them it’s Albany whether they’ll do anything I don’t know yes yes yes so you get a notice that says you’re in it and here yes so you would know that you the first person to be in it wouldn’t know it sometimes when especially I mean I’ve talked with people and it was you know their grandmother’s farm and you know the grandmother died and they’ve been off in California and they come home and they’re trying to go through grandma’s boxes and they can’t figure out what’s going on and there’s no she’s not there to say yes you know this is what happened or no this is what didn’t happen and they have a very difficult time even figuring out what’s happening yes their horizontal right correct they’re not supposed to go more than 300 something feat tour to the end of it right correct so as you can see this whole concept of spacing units is very difficult another point I wanted to just sort of quickly touch on was this idea so you think like okay I’ve gotten that notice I’m going to be you know I didn’t lease I’m going to be put into a spacing unit there’s a hearing i get to go to and what’s important in the law sort of who’s a party to a particular hearing or jus dication like this so what the Dec says is that the industry is a party and they’re a party and even if you’re a person who’s going to get put into that spacing unit you’re only a party if you can make a substantive and significant contribution to the discussion so and

you can ask any questions first let would like to find out the information that would help you decide if you could make a significant or a substantial issue yeah what’s the legal basis so yes the do prop but historically they have set you don’t own the gas anyways we’re just doing you a favor so so that’s why this whole you get all sorts of due process issues once there they’re going to actually drill under your property and trespass and they’ve said well no we don’t need to go through eminent domain proceedings we’re not actually taking anything from you we’re just giving you something this is like a bonus you should be thanking us for this which which does make sense with oil and so cool guess we can migrate back before reason this doesn’t make sense here again because this gas is blocked on your property can share so everything every single thesis underline why they do this has no application as a matter of blood in the context of shale gas as opposed to the vibratory gas cool gas whatever L is going and so these things make sense and not with respect so I just love this one last slide here so and then we can just move straight to questions so the so this issue of substantive or substantive is that you have to it’s a really high bar and back to that Michael joy case he said well if I’m a geologist if I could see the seismic work if I could see the geology that they’re working with I could make a substantive comment I could tell them whether I thought this was right or wrong I could at least give my clients some satisfaction in knowing that they weren’t not getting the right percentage of you know what was there do here and the DC said well no you should just go out into your own geology do your own seismic testing and then you can come in and you can show that to all of us will decide if that evidence is any good or not and then and only then will you be an actual party to this hearing and get to have any say in it other than but if you don’t make those showing you’re just a part you’re just an observer at this hearing even though it’s your land pretty sure we can all count on an easy so so this so I didn’t get into the DC has brochures and there’s information on the web you know what if you get one of these notices how long do you have to act no time what are your options they all stink so I didn’t get into that sort of procedure here I wanted to talk more about why we think this whole concept is the definition of violative of landowners rights there’s no due process there’s no compensation even when they provide you with your royalty interest you know if the default provision for being integrated there’s no compensation for having somebody run this well bore under your property there’s no consideration of what happens with all this stuff that gets left behind that they say they leave behind you know they say eighty percent of this ninety percent of this doesn’t come back so they’re leaving things you know it’s like in the deer thing you know they start shooting lead pellets over into your yard to try to you know get the deer and then they want to reel it back with some you know they can leave the lead pellets in your yard they can shoot the deer with the you know the laser gun or whatever and so there’s just no the whole concept of applying this procedure this compulsory integration procedure in shale it makes no legal sense like it’s not just illogical or unfair like the legal underpinnings are completely it doesn’t make any sense so so that’s and this is one of the things we have a lot of things on our plate with them moving forward on this idea of municipalities being able to say no but another area where we were planning to get involved with is challenging compulsory integration and the first permits that are going to be issued in the hopes that that will be another sort of negative for the gas industry so so that’s sort of this overview of compulsory integration and why it’s terrible and you should not like it and so now we can go on to question yes so so if we believe that it should be

treated as eminent domain we believe that the state would have a right to say we’re going to do this through eminent domain but in eminent domain you’re at party to the hearing you get to the other side has to present evidence on how they valued your interest you get to participate you get to see the other side’s documents it’s not this in a black box confidential you’re not even a party you should just thank us for this gift we’re going to give you and it would be a whole different a that have to rewrite the statute which would take some time and doing since its Albany and to proceed through eminent domain would a would be much more fair it’s not that you could totally stop this process but people will be compensated you get to talk about what’s what do you have to pay me for the fear that I live on my property and I’m worried that this stuff is going to these chemicals and things that you’ve left are going to seep up into my land I want to be compensated for that I want to I want health monitoring I want water monitoring I want you know I don’t just want to be paid the 18 you know less all your costs and everything I want to be paid X or I don’t want to sell it now that doesn’t make sense for you it’s not in the public interest to do this right now there’s no market for gas there’d be a whole lot of questions that if they had to treat this is eminent domain would be very interesting to get answers to that they totally sidestep because they say no this isn’t eminent domain because we didn’t we never took anything from you you never had anything so we didn’t this is only a benefit to you we’re just good guys here that’s their that’s their position we don’t agree we are going to be suing and very very confident c is looking out for our best interest if you wander through the BBC website there’s an actual setting in there in regards to what if you get a notice of compulsory and integration what should i do and if you print it out it’s about four and a half pages of their dialogue is what you should do and by the end of reading that born half pages you’re actually glad that you got compulsory integrated your Landsman taken from it really has a flavor to in that then you want to thank you Jesus that I got that I got bought for this and it really did it it’s meant to portray this entire action as almost a positive something positive is happening in your life avenir land thanks for getting this to me you know where was i before this applet and and it’s an amazing it’s amazing how this has been coached by an organization as we all know are looking on for our best interests but how how they how they actually put this in writing for us to believe your property now when you get integrated they’re supposed to not use any of your surface so they can’t they that’s not to say that they can’t put depending on what kind of pipeline it is that they couldn’t put a pipeline or a compressor station or some other sort of regulated facility on your lamp they could not put gathering pipelines or they can’t put the well itself on your land so that’s part of again why they say you know we’re really not you know we’re just sending you a check you know mailbox money yes to go to start talking in these terms well practice odd and not cracking place because those places that don’t want our here have their water contaminated pillar roads torn up all of the negatives that go along with this are going to be visited well even beyond that that’s really important with respect to be agree with respect to the places that quote don’t want your

you’re speaking from but the other thing we need we think we need to do all of us as far as training and what we’re talking about is that first of all nobody knows what it means about the places of wine there is no place that we’ve been anywhere in New York State where a majority of natural people as opposed to be you know when / David where a majority in anytime he knows you know southern tier counties where majority wants so in any better we’re really talking about is perhaps majority of acreage in a particular County they talked about everything they focus on is landowner rights plan or rights landowner writes these poor people they can’t pay the dairy farm taxes you know this is unfair leaving that aside the fact of the matter is this is the biggest it’s a it’s it’s people on this forty percent and that’s sick to do what you’re talking about under the guise of land protection of land order bright to support 20 years not going to say the word but where you’re taking advantage of those forty percent and forcing them in that’s what we think we have to talk about on a landowner rights what about the rights of forty percent a gas company a big landowners are you willing to say you’re going to do this you know you’re absolutely right you can spectral the outside places but even within the talents and suppose we want it are you willing to say that you’re going to have nothing to do that nobody’s going to use compulsory integration on these forty percent people and then they get real quiet because they don’t care about land over once they care about their own price in fact many landowners and then we need to throw that in there face night not that we’re militant aggressive well it existed before but they made it really big and changes camilo they could they could to keep in touch we’ll leave you up and it just hasn’t been when we don’t get involved in legislation and particularly Albany it it just seems like they’re people that focus on that and I find it to be alison wonderland like and what happens there and what doesn’t happen there but Barbara liftin is a serious proponent of sort of everything good you know about trying to fix things in albany on fracking in the lake and she has opined that the chances of getting anything done on compulsory integration are zero oh well I’m not set well I don’t we don’t ever call for action on anything but she just as a political reality that the people didn’t understand the problem here it was passed a sort of this technical amendment there they have so many things to worry like that this just isn’t the trying to get something done on this was going to be really difficult and granted that was about a year ago that I heard that visit in things you know things are always moving and shifting so whether or not it makes sense you know we’re not the people we don’t call for any sort of action on these matters we don’t love rc3 the other side those whatever they can to attack us they can tap anymore when we say the rulings not say they can’t that all that stuff so all they got because personally I was to say we buy and then if they can say the lobbyists and they can try to take away our 501 C 3 guess what they do we’re still going to do this but honestly we don’t want that so what my bride is very nicely telling me not to do is tell you to do anything that somebody else could say you know that we’re Bobby what is between the lines Bobby two in the back yeah I mean they’re really trying to

figure out what the rules are going to be about mortgages and the like and so it certainly can’t help in any of those things how those rules change how you know oftentimes if there’s no surface impact on your property they’ll say that’s okay although other places say if you’re within if you’re adjacent you know so if you were three Lots away from where the well was that might be looked at differently than if the well was next door because you could be integrated in the well could be next door you know 330 feet away or whatever the setback is actually could be closer you know 100 feet from your front yard you know at your border that would not be you could even not be integrated into you and have something like that right next to you that’s going to create a lot of problems and that’s the other component of this is New York is the only state this is per the sky William Fisher who’s done a lot of research on this he’s a forensic kind of investigator but according to him New York is the only state that uses compulsory integration against residential property owners that it makes Morrison you could sort of see you’re out in the desert in Utah and it’s this big expanse and you’ve got some peace that isn’t you know that would make more sense than integrating you know your local school or you know a property owner on a on a half acre lot gets put into one of these that’s you know that’s that’s a lot different than some scrub brush in Texas so I don’t have any and that’s changing all the time it seems anyways and when they come out with the agriculture what a HUD or some there was that report that the agricultural Agra mark is some sort of mortgage that they were guaranteeing there was this news release that you know they weren’t going to be issuing mortgages anymore with drilling properties and then the there was all this hullabaloo and then they were oh just kidding you know we didn’t really mean that we can’t and and they were like we can’t possibly actually adopt that policy because then all of our mortgages would be in default already and that would be like a big problem so we’re just going to change the policy rather than fix the problem it’s like if we change the definition of it then it won’t be a problem anymore yes in terms of the the venue for the bat on this is the courts as compared to the legislature well the legislature could fix it too so but we’re we’re planning yet since we don’t do legislation both because we don’t get it and when that’s not our area of expertise and I don’t think it’s possible and when you look at what comes out of albany it’s like always ugly like a deformed baby you know everybody have a little piece of it and so it we’re focusing on a court challenge but there certainly are trying to fix it legislatively it’s another option that’s just not one we know anything about how to do uh yeah I mean there yeah we’re still working on the details and sort of will be in Chenango County somewhere so but once we have more details and I’m sure that there will be a combination of strategies you know including people I mean I see all sorts of things happening as people as this actually begins to materialize presently we’re very lucky that this is all sort of theoretical and we’re waiting for the Dean sees still but they’re going it seems like they’re going to start issuing permits sometime maybe it’s not the summer maybe it’s not this year but nobody seems the message out of albany does not seem to be you’re right bad idea we’re just not even to do this Sarah theater most people have no I really don’t really hear clarifying the most people have no idea compulsive integration works I think when we bring these suits at work we’re focusing on the plaintiffs are right now on to that and stuff that you want to have perfect when you do this you’re going T it up exactly right way when you’re unlike by the way the whole issue with the lawsuits on your ability to do your local we didn’t care about that he needs hawt tdawg because that’s the existing law you were not making the ball when we said to you guys

you know you can you can do this in your town we didn’t have to come up with you ought to do that to you literally hundred four hundred years old concepts to do that that’s not a change as long this will be in one sense a change in law because we’re basically attacking the constitutionality we’re not making you go on the center using the old Constitution but we’re going it’s going to be chan but but nobody understands what happens here will be understands the bad things that can happen less ain’t nobody you know you guys helped me do in this room now I learned a lot tonight but that the public doesn’t and we do need to go out and make sure the public understands how taro disc involved with this compulsory integration is through the forty percent because that debates been hijacked by the other side they are able to say this to sound said where we r sports were doing this for you just writing your chest that’s nonsense but the questions about the mortgage if that’s all the stuff insurance it impacts all these other things yeah when we as part of the rollout we definitely you know through the activist community we need to really publicizes and to those who are comfortable dealing with it all and yet we need to make sure people understand what’s going on as they done they don’t into one of these and then it’s probably a hybrid article 78 declaratory judgment where the DC issues he’s much better at this than I am so right so article 78 is an expedited specialized legal procedure in New York where you can challenge an administrative agency decision you have short timeframes you have to usually bring it sometimes 30 days usually four months and you get a quick hearing because it’s just the court basically there’s no new evidence no witnesses the court just looks at the record from the administrative decision and decides if it was legal or not right so you would so our claim would be that this process this hearing violated people’s due process substantive and procedural due process rights that it’s a taking because there’s physical trespass there’s no compensation that’s violative of the fifth and fourteenth amendments of the United States Constitution violative of the corollaries to that in the new york state constitution and that the the order needs to be both that order so you have so you’d have the article 78 per contest on that particular thing and then now that you were sort of had a case in controversy we would bring a declaratory judgment action that’s where you’re seeking basically the court to say yes or no or this is what the law is so it would seek a declaration from the court that the compulsory integration statute itself was unconstitutional needed to be struck down you can’t just go we can’t just go now and bring a case and say we think the statute is unconstitutional because you have to have an injured party and you don’t have that injured party until you have the integration case but if you have the integration case and you don’t contest it then you weren’t injured so you had to be integrated fight the integrate so you can’t go back and get people who are already integrated because they didn’t fight it or if they did fight it they lost and they didn’t appeal quickly enough so you have to have a current integration case a current plaintiff you have to appeal it within its own little process fight that then when you lose that because the court will say well if since you’re not arguing when they’re just looking at the agency action they say the agency fall at all its rules then you say you know now you have your injury that you can go and say this statute right so in that window there that they haven’t issued any horizontal hydrofracking permits yet so no one has been integrated in this way yet so there’s all these cases that say in look at the old way and say though that’s constitutional you know passes muster because it wasn’t in shale and we we have plenty we’re just trying to figure out the the right you know sort of the right people there there’s there aren’t any actual plaintiffs yet because all the permits out there are just pending the DC isn’t issuing any permits yet but

but we’re looking at the permits that are in queue that the Dec some people you know you don’t know what’s going to happen if the do you see going to look at those permits and let those people go first are they going to wipe the slate clean have a lottery you know so we we don’t know who those first permits are going to be with but we’re looking at the ones that are on deck at least and they’re all from north as the ones that are likely in Chemung County and trying to figure out you know you want plaintiffs that don’t want to be integrated in the like so two yes then they well they wouldn’t even be able to do it with eminent domain without some sort of there have to be some kind of presume I don’t know enough about this I’m presuming there would have to be some sort of statute that said you can use eminent domain in this fashion federal estate by tonight what they’re giving so they got us thrown out which be and I say yet very very confident that this is unconstitutional strategist so when instead of it gets thrown out they can’t just go down to make me have to pass a new statute that would call somebody to DC or somebody with the authority to do happening to me is other what like you you have to have like I can’t just go out and get eminent domain against you like you have to go through people have been able to use it for private parties where economic development corporation takes away you know you’re a lot and lets me build a hotel on it because the hotel is going to be better for the community than the junk shop that you had that people don’t like that but that’s the law now but there has to be some sort of the DC would have there have to be some sort of statutory or other authority that said we’re going to treat the gas companies in this instance as some sort of public entity that has this right because we think gas is so great you know we’re going to let them do this but without that yes if they lose compulsory they think if they lose compulsory integration they say they say they’re cooked if they lose the municipal law suits they say they’re cooked if they can’t have compulsory integration they don’t have it in Pennsylvania and they still proceed but they don’t have this spacing unit business that we have so New York would have to both rescind it spacing units and let them do whatever spacing units they wanted you know or have a different spacing unit law and so it would be very complicated would definitely throw a monkey wrench in the whole process that’s we’ve sort of are trying to pick things that we think are the biggest they are winnable and B are the biggest headache for indus her gasser told us three weeks ago sort of a senior guy in the industry and yes I called a gasket to his face he said he didn’t want us to bring the other we explained to him the theory behind the sea optic chiasma degree attack he got a smart guy and he all but pleaded bad for us not to do it in certain counties this before they now five counties that were down to the paper but this was before that is announced a few weeks before that this guy’s plugged in he knew what was coming and he begged basic waiting us not to do it but he said at least let us do it in those counties if you do the CI in those counties he said he will kill I really roll this out expand it can’t do this like it goes again and when we’re talking about landowners rights will be talking about without really you know I only for only one word comes to mind they don’t want to use it but without really doing bad things to that forty percent they can’t do this well well that’s Chenango County is chinito counties one of the five counties in chenango counties where were working on getting this frantic but they’re not in shale is but right vertical the the issue is this sort if they can do it vertically without having to trust me the idea is this horizontal trespass is we want to bring the winter and vertical is more complicated than this idea of actually drilling under the integral drill we will 16 vertical wells

that means the DC they could say they can those are those spacing units are set up by law so they can threaten let the legislature and they’d have to get their act together but the legislature could just change the law so the present law would have those facing units so they would be able to put in if we won this case they could go with 40 acre spacing where they had or 80 acre but they don’t make end they say they’ll do that they don’t make any money doing that then they don’t gas is not profitable enough for them to go out and build those wells and get cooked financially a special thanks to hell Oh