NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A3628
SPONSOR: Crouch TITLE OF BILL: An act to amend the environmental conservation law, in
relation to integrated royalty owners
PURPOSE OR GENERAL IDEA OF BILL: The bill provides that an integrated
royalty owner shall receive a royally in an amount equal to the average
royalty of all existing leases within a spacing unit (rather than an
amount equal to the lowest royalty that is not less than 1/8, in an
existing lease within a spacing unit).
SUMMARY OF SPECIFIC PROVISIONS: This bill amends Section
23-0901(3)(a)(3) of the Environmental Conservation Law to require a well
operator to pay an integrated royalty owner a royalty equal to the aver-
age royalty of all existing leases within a spacing unit subject to
compulsory integration.
JUSTIFICATION: When an oil or gas drilling company receives a permit
for drilling from the DEC in a spacing unit where the drilling company
controls the mineral rights of 60% of the acreage within the spacing
unit by negotiating leases with the owners of such acreage, then the
drilling company can initiate a Compulsory Integration proceeding
through the DEC to determine how the interests of the "uncontrolled"
landowners will be integrated into the spacing unit. These uncontrolled
landowners, who have not signed a lease or voluntary agreement with the
drilling company, are given a 30-day notice of the Compulsory Inte-
gration proceeding and 21 days from the date they receive such notice to
choose from three different categories at three different risk levels
for potential compensation for oil or gas production if the well is
successful: 1) a participating landowner, 2) a non-participating land-
owner, or 3) an integrated royalty owner (this is also the default cate-
gory if the landowner does not to make a choice).
Under current law, an integrated royalty owner (the least risk category)
would receive the lowest royalty of all the existing leases in the spac-
ing unit as long as it is not less than 1/8 (12.3%) of the value of the
oil and/or gas produced and sold beneath the owner's property.
Since drilling companies only have to control 60% of the acreage in a
spacing unit before requesting Compulsory Integration, there is less
incentive for a drilling company to negotiate a more lucrative lease
agreement with the remaining 40% of the landowners in a spacing unit.
This bill would allow property owners subject to Compulsory Integration
who choose to be integrated royalty owners to collect a royalty equal to
the average of all existing leases within a spacing unit, rather than
the lowest royalty, to equalize and enhance the opportunity for property
owners who, for example, where not the first to sign leases, or who may
have less land than others, to benefit from drilling activity beneath
their property.
PRIOR LEGISLATIVE HISTORY: New Bill.
FISCAL IMPLICATIONS: None to the State.
EFFECTIVE DATE: This act shall take effect immediately.
STATE OF NEW YORK
________________________________________________________________________
3628
2011-2012 Regular Sessions
IN ASSEMBLY
January 26, 2011
___________
Introduced by M. of A. CROUCH -- read once and referred to the Committee
on Environmental Conservation
AN ACT to amend the environmental conservation law, in relation to inte-
grated royalty owners
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subparagraph 3 of paragraph a of subdivision 3 of section
2 23-0901 of the environmental conservation law, as amended by chapter 386
3 of the laws of 2005, is amended to read as follows:
4 (3) "Integrated royalty owner" means an owner who has either elected
5 to be an integrated royalty owner or who does not elect to become either
6 a participating owner or a non-participating owner. The integrated
7 royalty owner shall receive a royalty equal to [the lowest royalty in an
8 existing lease in] an amount equal to the average of all existing leases
9 within the spacing unit, but no less than one-eighth. The integrated
10 royalty owner shall have no obligation to the well operator or any other
11 owner for any charges, taxes or fees associated with the operation of
12 the oil or gas well and, notwithstanding any other law to the contrary,
13 shall not be liable by reason of the owner's status as an integrated
14 royalty owner for any claims for personal injury or property damage
15 suffered by any person relating to the drilling and operation of the
16 well.
17 § 2. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD04884-01-1
