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Commissioner's Follow-Up Letter Dated December 9, 2008

Commissioner's Response to Questions from the Assembly Environmental Conservation Committee

Commissioner Pete Grannis testified before the Assembly Environmental Conservation Committee about Marcellus Shale drilling on October 15, 2008 and provided supplemental information in a letter dated November 13, 2008. In another letter to Assemblyman Robert K. Sweeney dated December 9, 2008, the Commissioner responded to further questions from the Committee.

Honorable Robert K. Sweeney
New York State Assembly
270-B North Wellwood Avenue
Lindhurst, NY 11757-3708

Dear Assemblyman Sweeney,

Thank you for your letter regarding my testimony at the October 15 hearing of the Assembly Environmental Conservation Committee.

Just before receiving your letter, I sent you some other supplemental information to more fully address issues that were raised at the hearing. In response to the questions in your letter, I hope the following information helps to fully flesh out the record.

Test Wells

Although DEC was not a party to the environmental community meeting you referenced in your letter, we have no plans to authorize the drilling of, or issue drilling permits for, horizontal test wells prior to the finalization of the Supplement to the Generic Environmental Impact Statement (SGEIS) on the oil, gas and solution mining regulatory program. No drilling permits will be issued prior to completion of the SGEIS unless the applicant conducts an appropriate individual supplemental State Environmental Quality Review assessment addressing all material issues.

You should be aware that we recently received an application for a vertical stratigraphic well in the Oriskany formation in the Town of Hancock, Delaware County. The sole purpose of a stratigraphic well is to collect geological information about subsurface formations, including retrieval of rock samples from the Marcellus Shale. DEC staff have begun review of this application, which will be subject to standard review procedures as it will not involve hydraulic fracturing and will not be completed for production.

Well status and location information is available in the Department's online searchable oil and gas database. (Conduct a "Wells Data" search and reference hole number 23788).

Supersedure

Environmental Conservation Law §23-0303(2) and §23-1901(2) expressly provide that the State Oil and Gas and Solution Mining Law supersedes all local laws or ordinances relating to oil and gas drilling and related activities, laws enacted by local governments or agencies that impose fees. There are two notable exceptions to this broad prohibition; local governments maintain full jurisdiction over local roads and their rights under the real property tax law; and, localities may tax oil and gas production in their towns under procedures developed by the Office or Real Property Services (ORPS). The ORPS website at www.orps.state.ny.us/sas/oilgas.cfm provides additional information on this provision.

State Land Leasing

Title 11 of Article 23 of the Environmental Conservation Law provides authority for DEC to lease state lands for oil and gas exploration, development and production. Leasing for natural gas is not permitted in state parks and the lands under Lake Ontario and along its shoreline. New York has been leasing state land for oil and gas development since the 1930s. Currently, over 63,000 acres of state land, primarily DEC lands, but also including lands of the Department of Transportation, State University of New York, Office of General Services, Office of Mental Health and Office of Mental Retardation, are under lease. New York has received revenues from these leases totaling over $30 Million since 1999. The process for state land leasing is carefully designed to ensure protection of environmental and recreational resources on state land. Land managers of parcels proposed for leasing are involved in the decision to lease and in the development of lease stipulations to protect sensitive environmental and recreational areas, including special restrictions, such as mandatory setbacks from trails. High use public recreation areas have typically been excluded from oil and gas drilling. In some cases, parcels are offered for leasing with no surface entry allowed. The DEC website at www.dec.ny.gov/energy/1528.html provides additional information on the state land leasing program.

Variances from Spacing Requirements

Dec approved 36 variances from 1982 to 1990, seven from 1991 to 2000, and 15 from 2001 to the present. Mineral Resources currently has 20 variance requests in house that have yet to be noticed for public comment or approved. Operators submit variance requests due to their inability to acquire leases in the proposed unit in compliance with the drilling setback provisions of Mineral Resources Regulations found at Part 553. Local governments, including school districts, may also seek variances under ECL §23-0503(8) for wells that produce natural gas for their exclusive use. Since May 2007, DEC has received this type of variance request from two school districts for four wells; two orders have been issued for three of the wells, while the fourth has been referred for a hearing. The long from EAF is not required to be submitted with variance requests but is required for all shale well applications, applications to drill within 2,000 feet of a municipal water supply well, waterflood and/or tertiary recovery projects, new underground gas storage projects, new solution mining projects and applications for wells which DEC has identified that may have the potential for significant environmental impacts. DEC has received approximately three dozen long form EAFs in the last ten years, most of them recently for shale gas well applications.

Disposal Methods

Permit applicants are responsible for determining the disposal methods they will use for used hydraulic fracturing fluids and other well by-products. These methods, however, must be in compliance with DEC requirements for the disposal of drilling, completion and production waste fluids. Operators must use a licensed Part 364 hauler to transport waste fluids for disposal. The Part 364 permit requires that the destination be specified and that the waste is the type that the hauler is authorized to transport. Approved fluid disposal sites include publicly owned treatments works, disposal wells and commercial treatment facilities. Treatment facilities used for disposal must be properly equipped to treat the waste in compliance with DEC requirements.

School Districts

Staff review of the compulsory integration hearing data has shown that no school properties have been the subject of compulsory integration since integration hearings began in the spring of 2006. To date, 11 county, village and town properties have been subject to compulsory integration (six in 2006 and five in 2007). These lands are typically integrated on a royalty basis with no surface entry allowed. As noted above, school districts and other local government units may also seek variances from natural gas well spacing units, without regard to correlative rights, if such wells are likely to be economically sound and will be used for their own exclusive use. DEC must also determine, after notice and opportunity for public hearing, that the resources would not be developed by any other entity within 12 months of the close of the hearing.

Please call me at (518) 402-8540 if you have any questions.

Sincerely,

/S/

Alexander B. Grannis