Exhibit A

Exhibit B

Exhibit C

Exhibit D
Alex Bissell SUNY Oswego Words in the World Intern Neighbors of the Onondaga Nation interview with Bruce Ross Auburn Wastewater Treatment Plant ... Me: What kind of pre-testing do you do on the fluid you receive? Bruce: What we do is, as part of our industrial pre-treatment program, were required to characterize the waste prior to accepting it. However, in this case, we have been accepting for years simply as brine. And uh, really much to the surprise to us who are involved in the engineering department, and who handle, uh, I handle the industrial pre-treatment program, so what we had to basically do was back out, or back into that procedure. We received lab results from each of the well developers that were developing, or discharging to the plant at the time. This was back in 2008. And this came to us from a call from DEC, inquiring as to whether or not we were taking this fluid. Well, actually, we didnt think we were taking any of that, and, personally, I had no knowledge of it. So, when I asked the people at the plant, they said, Well, we take brine, but they didnt know any difference and neither did anybody else at that time. So, what we did is we had each of the developers, the well developers, at that time send us lab results for what they had. And, uh, we basically did some calculations, we compared those results to our headworks (?) analysis, that was revised in 2000, and at that point considered what we had taken and what we had experienced at the plant, which was really nothing. However, there are two considerations at the plant that you have to think about, and one is passthrough, and another is interference. And so, up to that point no one at the plant had experienced any interference, and had they experienced interference they probably would have said, Hey, were taking something thats not right. And none of our discharge monitoring reports ever indicated a problem. So, thats pretty much it in a nutshell, but when we looked like things like chloride and dissolved solids that are in this material, as well as BTEX p-tex, oil and grease (?), and iron, any kind of metals, that might be in it and found that our plant removes anything that is high enough in concentration to be concerned about. And again, the results of our monthly discharges were clean. And when Im thinking of that Im referring to iron, because iron tends to be periodically in this water, uh, quite high. So that being the case, the DEC told us Well, we will allow you to continue to take what water you have taken, but no more. And so, at that time, we were probably taking anywhere from, uh I dont know, it might have been 100-200 thousand gallons a day. After that, as things became a little more public on the matter, I think some of the well developers began to back on their production. And so we began to get less water. What DEC required of us was that we

permit each of the developers under the pre-treatment program, and thats all thats been done. And so right now Im waiting for the sampling results from them. So what we did was we permitted them, theres probably 6 or 8 that are permitted, and I think weve only had one that has discharged this year, this first quarter, in February. Other than that, weve looked at chlorides and one of the interesting things that goes into this whole topic about wastewater, the wastewater side of this matter, because you know you have what you see in the public all the time is the potential for groundwater contamination and the potential for surface-water contamination. And infrequently, but more frequently now, whats being discussed is the wastewater treatment. Thats a whole different issue, when people get alarmed with the whole issue, they hear toxic contaminants and thats really. . . Its a matter of concern, especially when youre talking about groundwater contamination and surface-water contamination, because I think there are a few states out there that have had claims on both. ... Me: Do you do any tests on radioactivity at all, do you know? Bruce: I believe we tested once, and we got a very, very low. . . almost a. . . so low, it was not. . . it was at least an indication of what might have been happening, but we dont do it on a regular basis. Me: As far as pretreatment, what do you treat for exactly? Bruce: Well, actually, when we refer to pretreatment, the pretreatment program, according to federal regulations, is a program that municipalities are required to manage and institute as part of their entire infrastructure program, but the pretreatment program requires that industry pretreat their waste prior to discharge into the sewer system, or prior to discharge into the receiving stream. So, theres some confusion out there about that, I believe. So, what we do at the plant, is we do. . . nothing to pretreat wastewater that comes into our plant. The industrial pretreatment program requires that we permit individual industries that are tributary to our collection system. Do you understand what I mean? Me: Yes. Bruce: So, what we do is we issue them permits based on federal regulations. Based on the 40 part 403 regulations, if you wanna take a look at that, in the code of federal regulations. So, we have an EPA approved pretreatment program. And as a matter of fact, a couple of years ago the New York State DEC was recommending the City of Auburn, as well as anyone else with a pretreatment program as receiving points for this water. But obviously what theyve done is ratcheted that way down. And were one of the only plants, if not the only plant, that takes it in the state now. Me: Have you ever rejected any wastewater haulers?

Bruce: Um, we have rejected wastewater. And again, its because we were told we cannot take any more than what weve already taken. And again, one of the things thats made it difficult is the game of musical chairs that the developers have been playing since this started, and the controversy all hit the fan. Some companies have bought other companies, some companies have stop discharging, some companies have pulled out of New York State. And so, you know, youve got a whole variety of scenarios happening with these companies. One I spoke with recently had discharged any of the water they said they were going to take to us. Me: As far as hydrofracking waste, have you ever received any from Pennsylvania? Bruce: Yes, and we do right now. But we restrict water from the Marcellus formation, we do not take water from the Marcellus formation. And we do not take water from horizontal fracturing, we only take water from vertical wells. Me: Can you give me an idea of what months, or around when, youve been accepting the drilling fluids? Bruce: Up until this year it had come every day. However, it varies. I couldnt tell you off the top of my head how often it comes from Pennsylvania and how often it comes from New York. Me: Is there an agreement that they have to sign, saying that they are not giving you horizontal fracking waste? Bruce: We put that in the permit, that theyre not to bring horizontal well water or anything from the Marcellus formation. Thats whats built into the permit, anything that we restrict them is in the permit. It appears that they have cooperated for the most part, um, we had some problems with collecting the quarterly reports, because theyre not used to doing that. Theyre trying to work now to tank their water because one of the problems with the water, the contents of the water, is that they change over the life of the well. So, when they start, from start to finish, the water is more dilute to more concentrated. So, youre gonna have more chlorides, and more dissolved solids by the time the well is at completion. And so, we have limits on that we have calculated, that we are trying to limit our plant. However, its a matter of constantly varying with the well water, the volume that comes in. Its very tricky, and I think the reason most places dont take it is because its a nightmare to try and control.

Exhibit E

FAQs - Earthquakes, Faults, Plate Tectonics, Earth Structure

http://earthquake.usgs.gov/learn/faq/?categoryID=1&faqID=1

Exhibit F
Earthquake Hazards Program

FAQs - Earthquakes, Faults, Plate Tectonics, Earth Structure

Previous FAQ | All FAQ's | Next FAQ

Q: Can we cause earthquakes? Is there any way to prevent earthquakes?

A: Earthquakes induced by human activity have been documented in a few locations in the United States, Japan, and Canada. The
cause was injection of fluids into deep wells for waste disposal and secondary recovery of oil, and the use of reservoirs for water supplies. Most of these earthquakes were minor. The largest and most widely known resulted from fluid injection at the Rocky Mountain Arsenal near Denver, Colorado. In 1967, an earthquake of magnitude 5.5 followed a series of smaller earthquakes. Injection had been discontinued at the site in the previous year once the link between the fluid injection and the earlier series of earthquakes was established. (Nicholson, Craig and Wesson, R.L., 1990, Earthquake Hazard Associated with Deep Well Injection--A Report to the U.S. Environmental Protection Agency: U.S. Geological Survey Bulletin 1951, 74 p.) Other human activities, even nuclear detonations, have not been linked to earthquake activity. Energy from nuclear blasts dissipates quickly along the Earth's surface. Earthquakes are part of a global tectonic process that generally occurs well beyond the influence or control of humans. The focus (point of origin) of earthquakes is typically tens to hundreds of miles underground. The scale and force necessary to produce earthquakes are well beyond our daily lives. We cannot prevent earthquakes; however, we can significantly mitigate their effects by identifying hazards, building safer structures, and providing education on earthquake safety. Previous FAQ | All FAQ's | Next FAQ

Share this page:

Facebook

Twitter

Google

Email

1 of 1

11/28/2011 10:38 PM

Exhibit G

Exhibit H

Exhibit I

c/o Marie-Lorraine Pipes, President 323 Victor-Egypt Road, Victor, NY 14564 pipesml@aol.com (585) 742-3185

New York Archaeological Council

DATE: TO:

November 28, 2011 Mr. Joe Martens, Commissioner dSGEIS Comments NYS DEC 625 Broadway Albany, New York 12233-6510 Derrick (Dirk) J. Marcucci, RPA Chair, Ad Hoc Committee-Marcellus Shale Well Permitting, dSGEIS New York Archaeological Council (NYAC)

FROM:

Revised Draft-Supplemental Generic Environmental Impact Statement (dSGEIS) on the Oil, Gas, and Solution Mining Regulatory Program-Well Permit Issuance for Horizontal Drilling and High-Volume Hydraulic Fracturing to Develop the Marcellus Shale and Other Low-Permeability Reservoirs ___________________________________________________________________________ The New York Archaeological Council (NYAC) is a statewide association of New York State professional archaeologists with over 100 members. Membership is primarily comprised of professionals involved in cultural resource management. As cultural resource professionals, we are concerned with protecting and managing New Yorks cultural resourcesarchaeological, historical, architectural and visual resources. On behalf of NYAC membership, we wish to offer the following comments on the revised dSGEIS (dated 7 September 2011) for well permits to develop the Marcellus Shale gas fields throughout the Southern Tier of New York State. In 2008, NYAC outlined concerns of this industrys effect on cultural resources in regards to well permitting (see attached comment letter). Our review of the 2008 dSGEIS document determined that it did not adequately address adverse impacts to cultural resources, nor did it identify a process compatible with the State and National Historic Preservation Acts that would identify and protect cultural resources representing our Nations and States heritage. Given that none of our 2008 comments were integrated into the present revised dSGEIS, there are identical, and serious, shortcomings with the 2011 revised dSGEIS. The current revised dSGEIS only focuses on known (visual) cultural resources, it does not acknowledge the direct impacts (large scale earthmoving) that will threaten cultural resources, nor does it identify a clear process for well permitting that ensures protection of New York States cultural resources as a result of the industrys undertakings.

SUBJECT:

A serious omission in the revised dSGEIS is its failure to explicitly identify how compliance with the State Historic Preservation Act (14.09 State Regulations, Part 426) of the Parks, Recreation and Historic Preservation Act of 1980, Section 14.09 will be executed. The Act requires state agencies to consult with the Office of Parks, Recreation and Historic Preservation (OPRHP) if it appears that any projects being planned may or will cause any change, beneficial or adverse, in the quality of any historic, architectural, archeological or cultural property that is listed on the National Register of Historic Places or listed in the State Register or that is determined to be eligible for listing in the State Register. Furthermore, it requires New York state agencies, to the fullest extent practicable, consistent with other provisions of the law, to avoid or mitigate adverse impacts to such cultural properties, to explore all feasible and prudent alternatives and to give due consideration to feasible and prudent plans that would avoid or mitigate adverse impacts to such property. The revised dSGEIS incorrectly subsumes all cultural resources under the category of visual resources, only considers those historic resources listed or eligible for listing in the State/National Register of Historic Places (Section 2.4.12), and fails to identify earth moving/land clearing as an adverse impact to significant cultural resources. While cultural resources that are significant because of their visual qualities or aesthetics and cultural view sheds are a legitimate concern during in the impact analysis, the revised dSGEIS fails to identify and consider buried archaeological sites. A major omission in the revised dSGEIS is its failure to consider the potentially disastrous impacts earth moving/land clearing activities associated with Marcellus Shale development will have on buried and unidentified archaeological sites. According to the revised dSGEIS, earth moving/land disturbance(s) associated with this industry will include the construction of access roads, well pads, and utility corridors. Other potential impacts discussed in the revised dSGEIS include cuttings pits, reserve pits, fresh water storage impoundments, and waste disposal. The average total disturbance associated with a multi-well pad during the drilling and fracturing stage is estimated at 7.4 acres and a well pad for a single vertical well for the drilling and fracturing stage is estimated at 4.8 acres (Section 5.1). The significance of archaeological sites and other cultural resources important to New Yorks history and people are unrelated to site size and sites can range from a several square feet (the size of a human grave) to multi-acre prehistoric villages or historic hamlets. The industrys land disturbances estimates of 4.8-7.4 acres are large enough that entire sites could be obliterated during land clearing activities required for hydraulic fracturing mining and installation or construction of related infrastructure needs. Only a very small percentage, estimated at less than one percent, of New York has been surveyed by professional archaeologists or by other cultural resource professionals. As a result, only a small number of New Yorks known significant cultural resources are officially recorded and/or listed in the State/National Register of Historic Places. Most New York archaeological sites that could be affected by this industrys undertakings are buried, encapsulated in sediments and soils below the ground surface, and as of yet, undiscovered. Because they have not been identified and are buried, archaeological sites can be destroyed easily by heavy mechanized equipment movement and land clearing activities, both of which are undeniable impacts linked to Marcellus Shale mining and associated infrastructure needs. 2

Many archaeological sites in the Southern Tier are at serious risk of destruction from this industrys actions because: earth moving/land disturbance is a routine and unavoidable part of this industrys activities; not all significant archaeological sites have been identified and they can exist below ground; and there are no proactive measures in the revised dSGEIS that outline how archaeological sites will be identified and protected in the permitting process. To resolve this threat, we strongly urge NYSDEC to incorporate measures into the permitting process that comply with the State and National Historic Preservation Act directives to identify and protect cultural resources by professional archaeologists (36 CFR 61 qualified) before permits are issued for the industrys undertakings. Considering the important issues discussed above that are critical for protecting New Yorks significant cultural resources from activities associated with Marcellus Shale mining, we recommend that the following be included in the final dSGEIS sections: CHAPTER 1-Introduction, Section 1.2 Regulatory Jurisdiction Protection of cultural resources needs to be included in this section. manage natural and cultural resources to assure their protection and balanced utilization; CHAPTER 2-Destription of Proposed Action, Section 2 Visual Resources All cultural resources are incorrectly subsumed under a category termed visual resources. This section needs to renamed Cultural Resources and include a comprehensive list of the resources that are commonly associated with New Yorks history (archaeological, historical, structures, traditional cultural places, commemorative and traditional cultural places, objects, districts, objects, artifacts, etc.) , that could be adversely affected by the activities associated with Marcellus Shale mining and related activities. As written, the revised dSGEIS only considers cultural resources already recorded/listed. The final dSGEIS should explicitly state that all cultural resources, known and unknown (i.e., undiscovered) need to be considered and protected. Earth moving/land clearing needs to be explicitly identified as a potential adverse impact to cultural resources. CHAPTER 3 SEQRA Process This section needs to discuss compliance with the State Historic Preservation Act (14.09 State Regulations, Part 426) of the Parks, Recreation and Historic Preservation Law. Specifically, the well permitting process must include coordination with the NYSDEC Agency Preservation Officer and OPRHP to determine which impacts, direct and indirect, that may be significant in terms of cultural resources. CHAPTER 6 Potential Environmental Impacts A separate section is needed to consider all potential impacts, direct and indirect, to all cultural resources/cultural properties including buried archaeological sites. Earth moving/land clearing needs to be explicitly identified as a direct and potential adverse impact 3

to cultural resources. Direct impacts constitute all earth moving/land clearing activities required for well drilling (e.g., well pads, access roads, lined pits, injection pits, etc.). Indirect impacts (e.g., vibration, soil compaction, chemical contamination, etc.) also need to be listed in this section. Indirect impacts have great potential to diminish the integrity of known or not yet discovered archaeological sites and need to be considered in the permitting process. CHAPTER 7 Existing and Recommended Mitigation Measures, Section 7.9-Visial Mitigation Measures As written, the revised dSGEIS only takes into account visual (above ground) resources. A separate section needs to be added under Mitigation Measures to address mitigation of archaeological (below ground) resources. In most cases, high volume hydraulic fracturing operations and related activities would not result in significant adverse impacts on visual resources. However, even a small amount of earth moving/land clearing can severely impact buried archaeological resources. Mitigation measures related to earth movings effect on (buried/below ground) cultural resources (e.g., prehistoric and historic archaeological sites) and other types of cultural resources needs to be explicitly stated. CHAPTER 8 Permit Processing and Regulatory Coordination, Section 8.1.1.1 SEQRA Participation In Table 8.1: Regulatory Jurisdictions Associated With High-Volume Hydraulic Fracturing (Updated August 2011), OPRHP involvement only is listed for well siting and new industrial treatment plants and only listed as role pertains in certain circumstances which are not defined. Again, compliance with the State Historic Preservation Act needs to be part of the permitting process. OPRHP involvement should be listed for all earth moving/land clearing activities shown on Table 8.1, since these are the most likely to have adverse impact to significant (below ground) cultural resources. The NYDEC should consult with the OPRHP to determine the sensitivity of construction areas proposed for mining and associated activities and assess the need to conduct cultural resource investigations before permits are issues. CHAPTER 11 Summary of Potential Impacts and Proposed Mitigation Measures, Table 11.1 Summary of Potential Impacts and Proposed Mitigation Measures Cultural resources need to be listed as resources that will be affected by this industrys activities. Potential mitigation measures for cultural resources would include: A phased approach to identify, evaluate, and mitigate significant archaeological sitesi.e., Phase I archaeological identification surveys, Phase II National Register of Historic Places (NRHP) archaeological site evaluations and Phase III archaeological site mitigations; architectural recordation; and consultation with OPRHP and Native Americans, or other groups, who have interest in property or places that are rooted their community or cultural groups history.

We appreciate the opportunity to comment. NYAC would welcome any questions and will be happy to provide any needed additional information to assist the NYSDEC if requested. Sincerely yours,

Derrick (Dirk) J. Marcucci, RPA Chair, NYAC Ad Hoc Committee-Marcellus Shale Well Permitting, dSGEIS Attachment (1)

cc: John Bonafide, OPRHP Charles Vandrei, NYSDEC Agency Preservation Office NYS Assemblywoman Donna Lupardo NYS Senator Thomas Libous NYAC Board

Exhibit J

Oil and Gas Leases Signed within One Mile of the Onondaga Nation, January 2001 - February 2010
Properties Where Hydrofracking or Associated Activities May Occur

Exhibit L

Syracuse Onondaga

De Witt

Otisco

Onondaga Nation Territory

La Fayette

La Fayette

Interstate Highways Water Bodies

1 Mile Radius Tax Parcels with Hydrofracking Leases

February 2010 Map created by Syracuse Community Geography Data collected by volunteers of NOON

Exhibit M

What the experts have to say about ...

DELAWARE

RIVERKEEPER

NATURAL GAS DRILLING & AQUIFER PROTECTION

Groundwater quality throughout the Delaware River Basin is at high risk of being degraded by methane, uranium, radium, radon, chromium, lead, arsenic, barium, benzene, bromide, sodium chloride, H 2 S, 2 - b u t o x y e t h a n o l ( 2 - B E ) , 4 N i t ro q u i n o l i n e - 1 - o x i d e ( 4 - N Q O ) a n d o t h e r p o l l u t a n t s . The sealant materials (cement and steel) being used to line boreholes to isolate and protect aquifer waters have a short design life. In places, these materials are already failing.

Life of Aquifers Through geologic time, layers of sediments were deposited and compacted into bedrock. The land was subsequently uplifted and then eroded for over 1,000,000 years by the Delaware River and its many tributaries. In response, fresh groundwater flow now moves slowly from upland areas towards valleys. These freshwater aquifers are physically isolated and far above deep, saline, waters and gas-rich bedrock formations. C B Wells tap the pure freshwater aquifers we drink from. Gas wells pose a real threat to well water quality because they provide unA natural pathways for contaminants to rise under pressure from deep within the earth and to mix with potable water. If saline and freshwater zones remain disconnected, our aquifers will continue Methane released to provide pristine water to our children and their grandchildren under pressure from failed cement for another 1,000,000 plus years. If the two become connected, sheaths and casings follows fractures to home- the results would be devastating for future generations - robbing owner wells, water bodies, and the land surface. them of needed groundwater. Life of a Well The gas industry considers the life of a well in
terms of its productive life, which typically ranges between 4 and 20 years. This is the time period when isolation of gas-rich formations from the overlying freshwater aquifers matters most to them. Loss of zonal isolation equates directly to loss of profits because the gas is not captured. When a gas well is no longer profitable, it is plugged and abandoned. Plugging involves removal of an inner steel casing placed during well construction and then cementing of the open borehole to seal off gas bearing and saline geologic horizons from the overlying freshwater aquifer. To provide long-term protection, the cement sheath, casing, and inner cement plug must remain fully intact for the life of the aquifer (999,980+ years).
microannulus missing cement bedrock channel within cement sheath

Casing

gas or mud cut channels

cracks

channel alongside bedrock

Types of cement channels in annular spaces that may permit upward methane migration. Modified from Newhall (2006).

Corroded and pitted casing (Shutterstock). Steel and cement subjected to harsh, corrosive, downhole conditions can degrade in a matter of years, thereby resulting in an explosive, contaminant, and health risk to nearby landowners. .

Life of Cement & Life of Steel Long-term protection of freshwater aquifers from deep, contaminant-laden, bedrock formations breached by gas wells relies completely on the durability of the materials used to physically isolate them. Water quality protection must be viewed relative to the life of aquifers. Therefore, sealant materials must also have a design life equal to the useful life of aquifers. Extensive research conducted by the gas industry and others reveals that cement failure will occur in less than 100 years due to numerous factors that include shrinkage, debonding, and the development of channels that allow gas and fluid migration. Debonding occurs at the casing/ bedrock and cement/casing interfaces. A micro-annulus of 0.001 inches is sufficient to allow gas flow. Similarly, research shows that steel casing also has a design life of less than 80 years - in some cases far less due to exposure to saline water and acid gases (i.e., < 4 years). Thereafter, material failure and groundwater degradation are assured.

Analysis of hydrologic data reveals that gas well array (i.e., multiple horizontal boreholes stemming from a single well pad) setback distances of less than 2,100 feet from water bodies (e.g., reservoirs, lakes, rivers, streams, wetlands) and homeowner wells may pose a significant water quality risk. DRBC draft gas drilling regulations propose a setback distance of 500 feet between vertical boreholes and water bodies. This distance appears to lack the empirical data needed to document that it will protect water resources. One key hydrogeologic factor involved is whether cement sheath failure coincident with hydrofracking events and well decommissioning will result in rapid transmission of 1) pressurized methane, Light Non-Aqueous Phase Liquids (LNAPLs), and other pollutants to homeowner wells and water bodies, and 2) free and dissolved gas flow through leaking well annuli and fractures during gas production. Pumping tests and analyses of known contaminant incidents provide a means of assessing this. Pumping tests that stress groundwater within fractured bedrock aquifers provide a rigorous means of assessing fracture interconnectivity. The hydrograph of a pumping test (below) conducted in the Delaware River Basin documented the effects of turning a pumping well on and off in less than five minutes in observation wells up to 2,100 feet away. Because this documents longdistance hydraulic connections, it is likely that contaminants driven by high pressures during hydraulic fracturing events and after well decommissioning will adversely impact wells. There is also evidence that methane is released from fractures and wellbores at far greater distances. In addition, some fractures naturally release methane. Because hydraulic fracturing within gas well arrays may interconnect these fractures, it would, from a water quality protection standpoint, be prudent to expand the setback distance beyond the well array. Pumping test data provides solid documentation for mandating minimum setback distance to at least 2,100 feet as measured from the outer boundary of well arrays to all water resources and homeowner wells.

Setback Distances From Water Bodies & Homeowner Wells

2500 2480 2460 2440 2420 2400 2380 2360 2340 2320 0

Elevation (ft msl)

Pumping - Aquifer Test East-West Branch Delaware River Watershed Base of Major Stream Drawdown Recovery

-C -B

Pump On 1 Days 2

Pump Off 3 4
Schematic showing minimum setback distance from a gas well array and well A, B, C orientation. Homeowner wells should not be within the array.

Hydrograph showing rapid hydraulic response between a pumping well and two observation wells

Fracture Sets Are Connected Over Thousands Of Feet The above hydrograph documents the hydraulic response of observation wells B and C from pumping well A. The schematic set-up of the orientation of these wells relative to themselves and a major stream is depicted on the figure above. Well B is 2,100 feet NW of Well A and Well C is 1,000 feet to the west. Observation Well B is situated on the opposite side of a valley, beyond a major Delaware River tributary that hydrologists might have considered to be a significant groundwater divide (see also front page figure). This test demonstrates that pressurized methane-rich waters can impact water supplies across major groundwater divides in different watersheds - anywhere along open, permeable, portions of fractures. Rapid Contamination of Homeowner Wells Methane excursions from gas wells constructed
along the same fracture set as homeowner wells will contaminate drinking water supplies. This will occur when zonal isolation sealant materials fail, in a time frame ranging from days to 100 years. Delaware Riverkeeper Network tel: (215) 369-1188 www.delawareriverkeeper.org June 2011

Exhibit N

Methane contamination of drinking water accompanying gas-well drilling and hydraulic fracturing
Stephen G. Osborna, Avner Vengoshb, Nathaniel R. Warnerb, and Robert B. Jacksona,b,c,1
a c

Center on Global Change, Nicholas School of the Environment, bDivision of Earth and Ocean Sciences, Nicholas School of the Environment, and Biology Department, Duke University, Durham, NC 27708

Edited* by William H. Schlesinger, Cary Institute of Ecosystem Studies, Millbrook, NY, and approved April 14, 2011 (received for review January 13, 2011)

Directional drilling and hydraulic-fracturing technologies are dramatically increasing natural-gas extraction. In aquifers overlying the Marcellus and Utica shale formations of northeastern Pennsylvania and upstate New York, we document systematic evidence for methane contamination of drinking water associated with shalegas extraction. In active gas-extraction areas (one or more gas wells within 1 km), average and maximum methane concentrations in drinking-water wells increased with proximity to the nearest gas well and were 19.2 and 64 mg CH4 L1 (n 26), a potential explosion hazard; in contrast, dissolved methane samples in neighboring nonextraction sites (no gas wells within 1 km) within similar geologic formations and hydrogeologic regimes averaged only 1.1 mg L1 (P < 0.05; n 34). Average 13 C-CH4 values of dissolved methane in shallow groundwater were significantly less negative for active than for nonactive sites (37 7 and 54 11, respectively; P < 0.0001). These 13 C-CH4 data, coupled with the ratios of methane-to-higher-chain hydrocarbons, and 2 H-CH4 values, are consistent with deeper thermogenic methane sources such as the Marcellus and Utica shales at the active sites and matched gas geochemistry from gas wells nearby. In contrast, lower-concentration samples from shallow groundwater at nonactive sites had isotopic signatures reflecting a more biogenic or mixed biogenic/ thermogenic methane source. We found no evidence for contamination of drinking-water samples with deep saline brines or fracturing fluids. We conclude that greater stewardship, data, and possiblyregulation are needed to ensure the sustainable future of shale-gas extraction and to improve public confidence in its use.
groundwater organic-rich shale isotopes formation waters water chemistry

Fig. 1. Map of drilling operations and well-water sampling locations in Pennsylvania and New York. The star represents the location of Binghamton, New York. (Inset) A close-up in Susquehanna County, Pennsylvania, showing areas of active (closed circles) or nonactive (open triangles) extraction. A drinking-water well is classified as being in an active extraction area if a gas well is within 1 km (see Methods). Note that drilling has already spread to the area around Brooklyn, Pennsylvania, primarily a nonactive location at the time of our sampling (see inset). The stars in the inset represent the towns of Dimock, Brooklyn, and Montrose, Pennsylvania.

ncreases in natural-gas extraction are being driven by rising energy demands, mandates for cleaner burning fuels, and the economics of energy use (15). Directional drilling and hydraulic-fracturing technologies are allowing expanded natural-gas extraction from organic-rich shales in the United States and elsewhere (2, 3). Accompanying the benefits of such extraction (6, 7) are public concerns about drinking-water contamination from drilling and hydraulic fracturing that are ubiquitous but lack a strong scientific foundation. In this paper, we evaluate the potential impacts associated with gas-well drilling and fracturing on shallow groundwater systems of the Catskill and Lockhaven formations that overlie the Marcellus Shale in Pennsylvania and the Genesee Group that overlies the Utica Shale in New York (Figs. 1 and 2 and Fig. S1). Our results show evidence for methane contamination of shallow drinking-water systems in at least three areas of the region and suggest important environmental risks accompanying shale-gas exploration worldwide. The drilling of organic-rich shales, typically of Upper Devonian to Ordovician age, in Pennsylvania, New York, and elsewhere in the Appalachian Basin is spreading rapidly, raising concerns for impacts on water resources (8, 9). In Susquehanna County, Pennsylvania alone, approved gas-well permits in the Marcellus formation increased 27-fold from 2007 to 2009 (10).
81728176 PNAS May 17, 2011 vol. 108 no. 20

Concerns for impacts to groundwater resources are based on (i) fluid (water and gas) flow and discharge to shallow aquifers due to the high pressure of the injected fracturing fluids in the gas wells (10); (ii) the toxicity and radioactivity of produced water from a mixture of fracturing fluids and deep saline formation waters that may discharge to the environment (11); (iii) the potential explosion and asphyxiation hazard of natural gas; and (iv) the large number of private wells in rural areas that rely on shallow groundwater for household and agricultural useup to one million wells in Pennsylvania alonethat are typically unregulated and untested (8, 9, 12). In this study, we analyzed groundwater from 68 private water wells from 36- to 190-m deep in
Author contributions: S.G.O., A.V., and R.B.J. designed research; S.G.O. and N.R.W. performed research; A.V. contributed new reagents/analytic tools; S.G.O., A.V., N.R.W., and R.B.J. analyzed data; and S.G.O., A.V., N.R.W., and R.B.J. wrote the paper. The authors declare no conflict of interest. *This Direct Submission article had a prearranged editor. Freely available online through the PNAS open access option.
1

To whom correspondence should be addressed. E-mail: jackson@duke.edu.

This article contains supporting information online at www.pnas.org/lookup/suppl/ doi:10.1073/pnas.1100682108/-/DCSupplemental.

www.pnas.org/cgi/doi/10.1073/pnas.1100682108

Fig. 2. Geologic cross-section of Bradford and western Susquehanna Counties created from gas-well log data provided by the Pennsylvania Department of Conservation and Natural Resources. The approximate location of the Lawrenceville-Attica Lineament is taken from Alexander et al. (34). The Ordovician Utica organic-rich shale (not depicted in the figure) underlies the Middle Devonian Marcellus at approximately 3,500 m below the ground surface.

Results and Discussion Methane concentrations were detected generally in 51 of 60 drinking-water wells (85%) across the region, regardless of gas industry operations, but concentrations were substantially higher closer to natural-gas wells (Fig. 3). Methane concentrations were 17-times higher on average (19.2 mg CH4 L1 ) in shallow wells from active drilling and extraction areas than in wells from nonactive areas (1.1 mg L1 on average; P < 0.05; Fig. 3 and Table 1). The average methane concentration in shallow groundwater in active drilling areas fell within the defined action level (1028 mg L1 ) for hazard mitigation recommended by the US Office of the Interior (13), and our maximum observed value of 64 mg L1 is well above this hazard level (Fig. 3). Understanding the origin of this methane, whether it is shallower biogenic or deeper thermogenic gas, is therefore important for identifying the source of contamination in shallow groundwater systems. The 13 C-CH4 and 2 H-CH4 values and the ratio of methane to higher-chain hydrocarbons (ethane, propane, and butane) can typically be used to differentiate shallower, biologically derived methane from deeper physically derived thermogenic methane (14). Values of 13 C-CH4 less negative than approximately 50 are indicative of deeper thermogenic methane, whereas values more negative than 64 are strongly indicative of microbial methane (14). Likewise, 2 H-CH4 values more negative than about 175, particularly when combined with low 13 C-CH4 values, often represent a purer biogenic methane origin (14).
Osborn et al.

Table 1. Mean values standard deviation of methane concentrations (as milligrams of CH4 L1 ) and carbon isotope composition in methane in shallow groundwater 13 C-CH4 sorted by aquifers and proximity to gas wells (active vs. nonactive)
Water source, n Nonactive Catskill, 5 Active Catskill, 13 Nonactive Genesee, 8 Active Genesee, 1 Active Lockhaven, 7 Total active wells, 21 Total nonactive wells, 13 milligrams CH4 L1 1.9 6.3 26.8 30.3 1.5 3.0 0.3 50.4 36.1 19.2 1.1 13 C-CH4 , 52.5 33.5 57.5 34.1 40.7 37 54 7.5 3.5 9.5 6.7 7 11

The variable n refers to the number of samples.

PNAS May 17, 2011 vol. 108 no. 20

8173

ENVIRONMENTAL SCIENCES

northeast Pennsylvania (Catskill and Lockhaven formations) and upstate New York (Genesee formation) (see Figs. 1 and 2 and SI Text), including measurements of dissolved salts, water isotopes (18 O and 2 H), and isotopes of dissolved constituents (carbon, boron, and radium). Of the 68 wells, 60 were also analyzed for dissolved-gas concentrations of methane and higher-chain hydrocarbons and for carbon and hydrogen isotope ratios of methane. Although dissolved methane in drinking water is not currently classified as a health hazard for ingestion, it is an asphyxiant in enclosed spaces and an explosion and fire hazard (8). This study seeks to evaluate the potential impact of gas drilling and hydraulic fracturing on shallow groundwater quality by comparing areas that are currently exploited for gas (defined as activeone or more gas wells within 1 km) to those that are not currently associated with gas drilling (nonactive; no gas wells within 1 km), many of which are slated for drilling in the near future.

Fig. 3. Methane concentrations (milligrams of CH4 L1 ) as a function of distance to the nearest gas well from active (closed circles) and nonactive (open triangles) drilling areas. Note that the distance estimate is an upper limit and does not take into account the direction or extent of horizontal drilling underground, which would decrease the estimated distances to some extraction activities. The precise locations of natural-gas wells were obtained from the Pennsylvania Department of Environmental Protection and Pennsylvania Spatial Data Access databases (ref. 35; accessed Sept. 24, 2010).

The average 13 C-CH4 value in shallow groundwater in active drilling areas was 37 7, consistent with a deeper thermogenic methane source. In contrast, groundwater from nonactive areas in the same aquifers had much lower methane concentrations and significantly lower 13 C-CH4 values (average of 54 11; P < 0.0001; Fig. 4 and Table 1). Both our 13 C-CH4 data and 2 H-CH4 data (see Fig. S2) are consistent with a deeper thermogenic methane source at the active sites and a more biogenic or mixed methane source for the lower-concentration samples from nonactive sites (based on the definition of Schoell, ref. 14). Because ethane and propane are generally not coproduced during microbial methanogenesis, the presence of higher-chain hydrocarbons at relatively low methane-to-ethane ratios (less than approximately 100) is often used as another indicator of deeper thermogenic gas (14, 15). Ethane and other higher-chain hydrocarbons were detected in only 3 of 34 drinking-water wells from nonactive drilling sites. In contrast, ethane was detected in 21 of 26 drinking-water wells in active drilling sites. Additionally, propane and butane were detected (>0.001 mol %) in eight and two well samples, respectively, from active drilling areas but in no wells from nonactive areas. Further evidence for the difference between methane from water wells near active drilling sites and neighboring nonactive sites is the relationship of methane concentration to 13 C-CH4 values (Fig. 4A) and the ratios of methane to higher-chain hydro-

Fig. 4. (A) Methane concentrations in groundwater versus the carbon isotope values of methane. The nonactive and active data depicted in Fig. 3 are subdivided based on the host aquifer to illustrate that the methane concentrations and 13 C values increase with proximity to natural-gas well drilling regardless of aquifer formation. Gray areas represent the typical range of thermogenic and biogenic methane taken from Osborn and Mcintosh (18). VPDB, Vienna Pee Dee belemnite. (B) Bernard plot (15) of the ratio of methane to higher-chain hydrocarbons versus the 13 C of methane. The smaller symbols in grayscale are from published gas-well samples from gas production across the region (1618). These data generally plot along a trajectory related to reservoir age and thermal maturity (Upper Devonian through Ordovician; see text for additional details). The gas-well data in the orange ovals are from gas wells in our study area in Susquehanna County, Pennsylvania (data from Pennsylvania Department of Environmental Protection). Gray areas represent typical ranges of thermogenic and biogenic methane (data from Osborn and McIntosh, ref. 18).

carbons versus 13 C-CH4 (Fig. 4B). Methane concentrations not only increased in proximity to gas wells (Fig. 3), the accompanying 13 C-CH4 values also reflected an increasingly thermogenic methane source (Fig. 4A).
8174 www.pnas.org/cgi/doi/10.1073/pnas.1100682108

Using a Bernard plot (15) for analysis (Fig. 4B), the enriched 13 C-CH4 (approximately > 50) values accompanied by low ratios of methane to higher-chain hydrocarbons (less than approximately 100) in drinking-water wells also suggest that dissolved gas is more thermogenic at active than at nonactive sites (Fig. 4B). For instance, 12 dissolved-gas samples at active drilling sites fell along a regional gas trajectory that increases with reservoir age and thermal maturity of organic matter, with samples from Susquehanna County, Pennsylvania specifically matching natural-gas geochemistry from local gas wells (Fig. 4B, orange oval). These 12 samples and local natural-gas samples are consistent with gas sourced from thermally mature organic matter of Middle Devonian and older depositional ages often found in Marcellus Shale from approximately 2,000 m below the surface in the northern Appalachian Basin (1419) (Fig. 4B). In contrast, none of the methane samples from nonactive drilling areas fell upon this trajectory (Fig. 4B); eight dissolved-gas samples in Fig. 4B from active drilling areas and all of the values from nonactive areas may instead be interpreted as mixed biogenic/ thermogenic gas (18) or, as Laughrey and Baldassare (17) proposed for their Pennsylvanian gas data (Fig. 4B), the early migration of wet thermogenic gases with low-13 C-CH4 values and high methane-to-higher-chain hydrocarbon ratios. One data point from a nonactive area in New York fell squarely in the parameters of a strictly biogenic source as defined by Schoell (14) (Fig. 4B, upper-left corner). Carbon isotopes of dissolved inorganic carbon (13 C-DIC > 10) and the positive correlation of 2 H of water and 2 H of methane have been used as strong indicators of microbial methane, further constraining the source of methane in shallow groundwater (depth less than 550 m) (18, 20). Our 13 C-DIC values were fairly negative and show no association with the 13 C-CH4 values (Fig. S3), which is not what would be expected if methanogenesis were occurring locally in the shallow aquifers. Instead, the 13 C-DIC values from the shallow aquifers plot within a narrow range typical for shallow recharge waters, with the dissolution of CO2 produced by respiration as water passes downward through the soil critical zone. Importantly, these values do not indicate extensive microbial methanogenesis or sulfate reduction. The data do suggest gas-phase transport of methane upward to the shallow groundwater zones sampled for this study (<190 m) and dissolution into shallow recharge waters locally. Additionally, there was no positive correlation between the 2 H values of methane and 2 H of water (Fig. S4), indicating that microbial methane derived in this shallow zone is negligible. Overall, the combined gas and formation-water results indicate that thermogenic gas from thermally mature organic matter of Middle Devonian and older depositional ages is the most likely source of the high methane concentrations observed in the shallow water wells from active extraction sites. A different potential source of shallow groundwater contamination associated with gas drilling and hydraulic fracturing is the introduction of hypersaline formation brines and/or fracturing fluids. The average depth range of drinking-water wells in northeastern Pennsylvania is from 60 to 90 m (12), making the average vertical separation between drinking-water wells and the Marcellus Shale in our study area between approximately 900 and 1,800 m (Fig. 2). The research area, however, is located in tectonically active areas with mapped faults, earthquakes, and lineament features (Fig. 2 and Fig. S1). The Marcellus formation also contains two major sets of joints (21) that could be conduits for directed pressurized fluid flow. Typical fracturing activities in the Marcellus involve the injection of approximately 1319 million liters of water per well (22) at pressures of up to 69,000 kPa. The majority of this fracturing water typically stays underground and could in principle displace deep formation water upward into shallow aquifers. Such deep formation waters often have high concentrations of total dissolved solids >250;000 mg L1 , trace
Osborn et al.

Table 2. Comparisons of selected major ions and isotopic results in drinking-water wells from this study to data available on the same formations (Catskill and Lockhaven) in previous studies (24, 25) and to underlying brines throughout the Appalachian Basin (18)
Active Lockhaven Catskill formation formation N8 N 25 Alkalinity as HCO , 3 mg L1 mM Sodium, mg L1 Chloride, mg L1 Calcium, mg L1 Boron, g L1 11 B 226 Ra, pCi L1 2 H, , VSMOW 18 O, , VSMOW 285 36 [4.7 0.6] 87 22 25 17 22 12 412 156 27 4 0.24 0.2 66 5 10 1 157 56 [2.6 0.9] 23 30 11 12 31 13 93 167 22 6 0.16 0.15 64 3 10 0.5 Nonactive Catskill Genesee formation group N 22 N 12 127 [2.1 17 17 27 42 23 0.17 68 11 53 0.9] 25 40 9 93 6 0.14 6 1 158 [2.6 29 9 26 200 26 0.2 76 12 56 0.9] 23 19 5 130 6 0.15 5 1 Previous studies (background) Lockhaven Catskill formation formation (25) (24) N 45 N 79 209 [3.4 100 132 49 NA NA 0.56 NA NA 77 1.3] 312 550 39 133 [2.2 21 13 29 NA NA NA NA NA 61 1.0] 37 42 11 Appalachian brines (18, 23) N 21 150 [2.5 33,000 92,000 16,000 3,700 39 6,600 41 5 171 2.8] 11,000 32,000 7,000 3,500 6 5,600 6 1

0.74

Some data for the active Genesee Group and nonactive Lockhaven Formation are not included because of insufficient sample sizes (NA). Values represent means 1 standard deviation. NA, not available. N values for 11 B analysis are 8, 10, 3, 6, and 5 for active Lockhaven, active Catskill, nonactive Genesee, nonactive Catskill, and brine, respectively. N values for 226 Ra are 6, 7, 3, 10, 5, and 13 for active Lockhaven, active Catskill, nonactive Genesee, nonactive Catskill, background Lockhaven, and brine, respectively. 11 B normalized to National Institute of Standards and Technology Standard Reference Material 951. 2 H and 18 O normalized to Vienna Standard Mean Ocean Water (VSMOW).

Osborn et al.

PNAS

May 17, 2011

vol. 108

no. 20

8175

ENVIRONMENTAL SCIENCES

toxic elements, (18), and naturally occurring radioactive materials, with activities as high as 16;000 picocuries per liter (1 pCi L1 0.037 becquerels per liter) for 226 Ra compared to a drinking-water standard of 5 pCi L1 for combined 226 Ra and 226 Ra (23). We evaluated the hydrochemistry of our 68 drinking-water wells and compared these data to historical data of 124 wells in the Catskill and Lockhaven aquifers (24, 25). We used three types of indicators for potential mixing with brines and/or saline fracturing fluids: (i) major inorganic chemicals; (ii) stable isotope signatures of water (18 O, 2 H); and (iii) isotopes of dissolved constituents (13 C-DIC, 11 B, and 226 Ra). Based on our data (Table 2), we found no evidence for contamination of the shallow wells near active drilling sites from deep brines and/or fracturing fluids. All of the Na , Cl , Ca2 , and DIC concentrations in wells from active drilling areas were consistent with the baseline historical data, and none of the shallow wells from active drilling areas had either chloride concentrations >60 mg L1 or Na-CaCl compositions that mirrored deeper formation waters (Table 2). Furthermore, the mean isotopic values of 18 O, 2 H, 13 C-DIC, 11 B, and 226 Ra in active and nonactive areas were indistinguishable. The 226 Ra values were consistent with available historical data (25), and the composition of 18 O and 2 H in the well-water appeared to be of modern meteoric origin for Pennsylvania (26) (Table 2 and Fig. S5). In sum, the geochemical and isotopic features for water we measured in the shallow wells from both active and nonactive areas are consistent with historical data and inconsistent with contamination from mixing Marcellus Shale formation water or saline fracturing fluids (Table 2). There are at least three possible mechanisms for fluid migration into the shallow drinking-water aquifers that could help explain the increased methane concentrations we observed near gas wells (Fig. 3). The first is physical displacement of gas-rich deep solutions from the target formation. Given the lithostatic and hydrostatic pressures for 12 km of overlying geological strata, and our results that appear to rule out the rapid movement of deep brines to near the surface, we believe that this mechanism is unlikely. A second mechanism is leaky gas-well casings (e.g., refs. 27 and 28). Such leaks could occur at hundreds of meters underground, with methane passing laterally and vertically through fracture systems. The third mechanism is that the process of hydraulic fracturing generates new fractures or enlarges existing ones above the target shale formation, increasing the connec-

tivity of the fracture system. The reduced pressure following the fracturing activities could release methane in solution, leading to methane exsolving rapidly from solution (29), allowing methane gas to potentially migrate upward through the fracture system. Methane migration through the 1- to 2-km-thick geological formations that overlie the Marcellus and Utica shales is less likely as a mechanism for methane contamination than leaky well casings, but might be possible due to both the extensive fracture systems reported for these formations and the many older, uncased wells drilled and abandoned over the last century and a half in Pennsylvania and New York. The hydraulic conductivity in the overlying Catskill and Lockhaven aquifers is controlled by a secondary fracture system (30), with several major faults and lineaments in the research area (Fig. 2 and Fig. S1). Consequently, the high methane concentrations with distinct positive 13 C-CH4 and 2 H-CH4 values in the shallow groundwater from active areas could in principle reflect the transport of a deep methane source associated with gas drilling and hydraulic-fracturing activities. In contrast, the low-level methane migration to the surface groundwater aquifers, as observed in the nonactive areas, is likely a natural phenomenon (e.g., ref. 31). Previous studies have shown that naturally occurring methane in shallow aquifers is typically associated with a relatively strong biogenic signature indicated by depleted 13 C-CH4 and 2 H-CH4 compositions (32) coupled with high ratios of methane to higher-chain hydrocarbons (33), as we observed in Fig. 4B. Several models have been developed to explain the relatively common phenomenon of rapid vertical transport of gases (Rn, CH4 , and CO2 ) from depth to the surface (e.g., ref. 31), including pressure-driven continuous gas-phase flow through dry or water-saturated fractures and density-driven buoyancy of gas microbubbles in aquifers and water-filled fractures (31). More research is needed across this and other regions to determine the mechanism(s) controlling the higher methane concentrations we observed. Based on our groundwater results and the litigious nature of shale-gas extraction, we believe that long-term, coordinated sampling and monitoring of industry and private homeowners is needed. Compared to other forms of fossil-fuel extraction, hydraulic fracturing is relatively poorly regulated at the federal level. Fracturing wastes are not regulated as a hazardous waste under the Resource Conservation and Recovery Act, fracturing wells are not covered under the Safe Drinking Water Act, and only recently has the Environmental Protection Agency asked fracturing

firms to voluntarily report a list of the constituents in the fracturing fluids based on the Emergency Planning and Community Right-to-Know Act. More research is also needed on the mechanism of methane contamination, the potential health consequences of methane, and establishment of baseline methane data in other locations. We believe that systematic and independent data on groundwater quality, including dissolved-gas concentrations and isotopic compositions, should be collected before drilling operations begin in a region, as is already done in some states. Ideally, these data should be made available for public analysis, recognizing the privacy concerns that accompany this issue. Such baseline data would improve environmental safety, scientific knowledge, and public confidence. Similarly, long-term monitoring of groundwater and surface methane emissions during and after extraction would clarify the extent of problems and help identify the mechanisms behind them. Greater stewardship, knowledge, andpossiblyregulation are needed to ensure the sustainable future of shale-gas extraction.
1. Pacala S, Socolow R (2004) Stabilization wedges: Solving the climate problem for the next 50 years with current technologies. Science 305:968972. 2. Tour JM, Kittrell C, Colvin VL (2010) Green carbon as a bridge to renewable energy. Nature Mater 9:871874. 3. Kerr RA (2010) Natural gas from shale bursts onto the scene. Science 328:16241626. 4. Raupach MR, et al. (2007) Global and regional drivers of accelerating CO2 emissions. Proc Natl Acad Sci USA 104:1028810293. 5. US Energy Information Administration (2010) Annual Energy Outlook 2010 with Projections to 2035 (US Energy Information Administration, Washington, DC), DOE/EIA0383; http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2010).pdf. 6. US Environmental Protection Agency (2011) Hydraulic Fracturing. (US Environmental Protection Agency, Washington, DC), http://water.epa.gov/type/groundwater/uic/ class2/hydraulicfracturing/. 7. Kargbo DM, Wilhelm RG, Campbell DJ (2010) Natural gas plays in the Marcellus shale: Challenges and potential opportunities. Environ Sci Technol 44:56795684. 8. Revesz KM, Breen KJ, Baldassare AJ, Burruss RC (2010) Carbon and hydrogen isotopic evidence for the origin of combustible gases in water supply wells in north-central Pennsylvania. Appl Geochem 25:18451859. 9. Zoback M, Kitasei S, Copithorne B Addressing the environmental risks from shale gas development. Worldwatch Institute Briefing Paper 1 (Worldwatch Inst, Washington, DC), http://blogs.worldwatch.org/revolt/wp-content/uploads/2010/07/EnvironmentalRisks-Paper-July-2010-FOR-PRINT.pdf. 10. Pennsylvania Department of Environmental Protection, Bureau of Oil and Gas Management (2010) 2009 Year End Workload Report. (Pennsylvania Dept of Environmental Protection, Bureau of Oil and Gas Management, Harrisburg, PA), http://www. dep.state.pa.us/dep/deputate/minres/oilgas/2009%20Year%20End%20Report-WEBSITE. pdf. 11. Colborn T, Kwiatkowski C, Schultz K, Bachran M (2010) Natural gas operations from a public health perspective. Hum Ecol Risk Assess, in press. 12. Pennsylvania Department of Environmental Protection (2011) Private Water Wells in Pennsylvania. (Pennsylvania Dept of Environmental Protection, Harrisburg, PA), http://www.dep.state.pa.us/dep/deputate/watermgt/wc/Subjects/SrceProt/well/. 13. Eltschlager KK, Hawkins JW, Ehler WC, Baldassare F (2001) Technical Measures for the Investigation and Mitigation of Fugitive Methane Hazards in Areas of Coal Mining (US Dept of the Interior, Office of Surface Mining Reclamation and Enforcement, Pittsburgh). 14. Schoell M (1980) The hydrogen and carbon isotopic composition of methane from natural gases of various origins. Geochim Cosmochim Acta 44:649661. 15. Bernard BB (1978) Light hydrocarbons in marine sediments. PhD Dissertation (Texas A&M Univ, College Station, TX). 16. Jenden PD, Drazan DJ, Kaplan IR (1993) Mixing of thermogenic natural gases in northern Appalachian Basin. Am Assoc Pet Geol Bull 77:980998. 17. Laughrey CD, Baldassare FJ (1998) Geochemistry and origin of some natural gases in the Plateau Province Central Appalachian Basin, Pennsylvania and Ohio. Am Assoc Pet Geol Bull 82:317335. 18. Osborn SG, McIntosh JC (2010) Chemical and isotopic tracers of the contribution of microbial gas in Devonian organic-rich shales and reservoir sandstones, northern Appalachian Basin. Appl Geochem 25:456471. 19. Repetski JE, Ryder RT, Harper JA, Trippi MH (2006) Thermal maturity patterns in the Ordovician and Devonian of Pennsylvania using conodont color alteration index (CAI) and vitrinite reflectance (%Ro). Northeastern Geology Environmental Sciences 28:266294.

Methods
A total of 68 drinking-water samples were collected in Pennsylvania and New York from bedrock aquifers (Lockhaven, 8; Catskill, 47; and Genesee, 13) that overlie the Marcellus or Utica shale formations (Fig. S1). Wells were purged to remove stagnant water, then monitored for pH, electrical conductance, and temperature until stable values were recorded. Samples were collected upstream of any treatment systems, as close to the water well as possible, and preserved in accordance with procedures detailed in SI Methods. Dissolved-gas samples were analyzed at Isotech Laboratories and water chemical and isotope (O, H, B, C, Ra) compositions were measured at Duke University (see SI Methods for analytical details). ACKNOWLEDGMENTS. We thank Rebecca Roter, Peggy Maloof, and many others who allowed us to sample their water wells; Laura Ruhl and Tewodros Rango for coordination and field assistance; Nicolas Cassar for thoughtful suggestions on the research; and Kaiguang Zhao and Rose Merola for help with figures. Jon Karr and the Duke Environmental Isotope Laboratory performed analyses of 18 O, 2 H, and 13 C of groundwater samples. William Chameides, Lincoln Pratson, William Schlesinger, the Jackson Lab, and two anonymous reviewers provided helpful suggestions on the manuscript and research. We gratefully acknowledge financial support from Fred and Alice Stanback to the Nicholas School of the Environment and from the Duke Center on Global Change.
20. Martini AM, et al. (1998) Genetic and temporal relations between formation waters and biogenic methane: Upper Devonian Antrim Shale, Michigan Basin, USA. Geochim Cosmochim Acta 62:16991720. 21. Engelder T, Lash GG, Uzcategui RS (2009) Joint sets that enhance production from Middle and Upper Devonian gas shales of the Appalachian Basin. Am Assoc Pet Geol Bull 93:857889. 22. Pennsylvania Department of Environmental Protection (2011) (Pennsylvania Dept of Environmental Protection, Harrisburg, PA), Marcellus Shale, http://www.dep.state. pa.us/dep/deputate/minres/oilgas/new_forms/marcellus/marcellus.htm. 23. New York State Department of Health, Bureau of Environmental Radiation Protection (2009) (New York State Dept of Health, Troy, NY), Comments, July 21, 2009, Supplemental Generic Environmental Statement on the Oil and Gas Regulatory Program Well Permit Issuance for Horizontal Drilling and Hydraulic-Fracturing to Develop the Marcellus Shale and other Low Permeability Gas Reservoirs; http://www. riverkeeper.org/wp-content/uploads/2010/01/Riverkeeper-DSGEIS-Comments-Appendix3-NYSDOH-Environmental-Radiation-Memo.pdf. 24. Taylor LE (1984) Groundwater Resources of the Upper Susquehanna River Basin, Pennsylvania: Water Resources Report 58. (Pennsylvania Dept of Environmental ResourcesOffice of Parks and ForestryBureau of Topographic and Geologic Survey, Harrisburg, PA) 139. 25. Williams JH, Taylor L, Low D (1998) Hydrogeology and Groundwater Quality of the Glaciated Valleys of Bradford, Tioga, and Potter Counties, Pennsylvania: Water Resources Report 68. (Commonwealth of Pennsylvania Dept of Conservation and Natural Resources, Harrisburg, PA) p 89. 26. Kendall C, Coplan TB (2001) Distribution of oxygen-18 and deuterium in river waters across the United States. Hydrol Processes 15:13631393. 27. Van Stempvoort D, Maathuis H, Jaworski E, Mayer B, Rich K (2005) Oxidation of fugitive methane in groundwater linked to bacterial sulfate reduction. Ground Water 43:187199. 28. Taylor SW, Sherwood Lollar B, Wassenaar LI (2000) Bacteriogenic ethane in nearsurface aquifers: Implications for leaking hydrocarbon well bores. Environ Sci Technol 34:47274732. 29. Cramer B, Schlomer S, Poelchau HS (2002) Uplift-related hydrocarbon accumulations: the release of natural gas from groundwater. 196 (Geological Society Special Publications, London), 447455. 30. Geyer AR, Wilshusen JP (1982) Engineering characteristics of the rocks of Pennsylvania; environmental geology supplement to the state geologic map, 1982 Pennsylvania Geological Survey. (Dept of Environmental Resources, Office of Resources Management, Harrisburg, PA). 31. Etiope G, Martinelli G (2002) Migration of carrier and trace gases in the geosphere: An overview. Phys Earth Planet Inter 129:185204. 32. Aravena R, Wassenaar LI (1993) Dissolved organic carbon and methane in a regional confined aquifer, southern Ontario, Canada: Carbon isotope evidence for associated subsurface sources. Appl Geochem 8:483493. 33. Coleman DD, Liu C, Riley KM (1988) Microbial methane in the shallow Paleozoic sediments and glacial deposits of the Illinois, USA. Chem Geol 71:2340. 34. Alexander SS, Cakir R, Doden AG, Gold DP, Root SI (2005) Basement depth and related geospatial database for Pennsylvania: Pennsylvania Geological Survey, 4th ser., OpenFile General Geology Report 05-01.0. (Pennsylvania Dept of Conservation and Natural Resources, Middletown, PA), http://www.dcnr.state.pa.us/topogeo/openfile. 35. Pennsylvania Spatial Data Access (PASDA) Online mapping, data access wizard, oil and gas locations. (Pennsylvania Dept of Environmental Protection, Harrisburg, PA), http://www.pasda.psu.edu/uci/SearchResults.aspx?searchType=mapservice&condition= OR&entry=PASDA.

8176

www.pnas.org/cgi/doi/10.1073/pnas.1100682108

Osborn et al.

Exhibit O

Exhibit P

Exhibit Q

Exhibit R
NOVEMBER/DECEMBER 2011 VOL. 83 | NO. 9

Journal
NEW YORK STATE BAR ASSOCIATION

Homeowners and Gas Drilling Leases: Boon or Bust?

By Elisabeth N. Radow

Also in this Issue

Retaliation Claims Dismissal Motions New Trust Laws Did the Odds Change? Attorney Professionalism Forum

POINT OF VIEW

Gas drilling in Dimock, PA

Homeowners and Gas Drilling Leases: Boon or Bust?

By Elisabeth N. Radow
The Conundrum
Gas companies covet the shale gas deposits lying under homes and farms in New Yorks Marcellus Shale region and are pursuing leasing agreements with area property owners. Many homeowners and farmers in need of cash are inclined to say yes. In making their argument, gas companies reassure property owners that the drilling processes and chemicals used are safe. Yet aside from arguments about the relative safety of the extraction process are issues not often discussed, such as the owners potential liability and the continued viability of the mortgage. The property owner can be particularly vulnerable when the drilling process involves highvolume, horizontal hydraulic fracturing, or fracking. For example, when Ellen Harrison signed a gas lease agreement in 2008, the company representative made no mention of fracking. Harrison received no details, only the chance for a win-win with clean gas for the locals and royalties for her. Like most Americans, Harrison has a mortgage loan secured by her home. All mortgages, Harrisons included, prohibit hazardous activity and hazardous substances on the property.

Reprinted with permission from the New York State Bar Association Journal, November/December 2011, Vol. 83, No. 9, published by the New York State Bar Association, One Elk Street, Albany, New York 12207.

ELISABETH N. RADOW (eradow@ cuddyfeder.com) is Special Counsel to the White Plains law firm of Cuddy & Feder LLP. Ms. Radow chairs the Hydraulic Fracturing Committee for the League of Women Voters of New York State. Ms. Radows Law Note, Citizen David Tames Gas Goliaths on the Marcellus Shale Stage, was published in the 2010 Spring issue of the Cardozo Journal of Conflict Resolution. This analysis and the assertions made in this article are attributable to the author alone.

Waste pond at hydro-fracking drill site, Dimock, PA

Photographs courtesy of J Henry Fair. Mr. Fairs work has appeared in the New York Times, Vanity Fair, Time and National Geographic. His new book, The Day After Tomorrow: Images of Our Earth In Crisis is a series of essays and startling images. www.industrialscars.com. Flight services provided by LightHawk http://www.lighthawk.org.

Tanker trucks lling water reservoir at hydo-fracking gas drilling operations near Sopertown, Columbia Township, PA

Overspray of drilling slurry at hydro-fracking drill site, Dimock, PA

NYSBA Journal | November/December 2011 | 11

POINT OF VIEW
Residential fracking carries heavy industrial risks, and the ripple effects could be tremendous. Homeowners can be confronted with uninsurable property damage for activities that they cannot control. And now a growing number of banks wont give new mortgage loans on homes with gas leases because they dont meet secondary mortgage market guidelines. New construction starts, the bellwether of economic recovery, wont budge where residential fracking occurs since construction loans depend on risk-free property and a purchaser. This shift of drilling risks from the gas companies to the housing sector, homeowners and taxpayers creates a perfect storm begging for immediate attention. wastewater, with concentrated levels of these toxic chemicals, drilling mud, bore clippings and naturally occurring radioactive material, such as uranium, radium 226 and radon, is released from the well into mud pits and holding tanks, then trucked out for waste treatment or reused. Reuse of frack fluid, currently the favored practice because it spares the finite water supply, concentrates the waste toxicity. The Environmental Protection Agency estimates that 20%40% of the fracking wastewater stays underground. The Marcellus Shale sits amid an intricate network of underground aquifers that supply drinking water in New York and surrounding states via municipal water supplies, private wells and springs. Shallow private wells constitute the primary source of drinking water for the upstate New York residences and farms where fracking for shale gas would take place, posing a cumulative threat to the states complex matrix of aquifers that source our groundwater.

A home represents a familys most valuable asset, nancially and otherwise.

The introduction of fracking in homeowners backyards presents a divergence from typical current land use practice, which separates residential living from heavy industrial activity, and the gas leases allocate rights and risks between the homeowner and gas company-lessee in uncharacteristic ways. Also, New Yorks compulsory integration law can force neighbors who do not want to lease their land into a drilling pool, which can affect their liability and mortgages as well.

The Risks
The use of fracking expanded in 2005 when Congress exempted it through statutory amendments from complying with decades-old federal environmental laws governing safe drinking water and clean air. (This exemption is now commonly known as the Halliburton loophole.) Also in 2005, New York changed its compulsory integration law to pave the way for fracking. According to the 2010 Form 10-Ks of Chesapeake Energy and Range Resources (both doing business in the Marcellus Shale region), natural gas operations are subject to many risks, including well blow-outs, craterings, explosions, pipe failures, fires, uncontrollable flows of natural gas or well fluids, formations with abnormal pressures and other environmental hazards and risks. Drilling operations, according to Chesapeake, involve risks from high pressure and mechanical difficulties such as stuck pipes, collapsed casings and separated cables. If any of these hazards occur it can result in injury or loss of life, severe damage or destruction of property, natural resources and equipment, pollution or other environmental damage and clean-up responsibilities,1 all in the homeowners backyard. American culture traditionally favors land use that keeps heavy industrial activity out of residential neighborhoods. The reasons range from safety to aesthetics. A home represents a familys most valuable asset, financially and otherwise. In legal terms, homeownership or fee simple absolute title means a bundle of rights encompassing the air space above and the ground below the land surface. It entitles homeowners to build up and out, pledge the house and land as collateral for a mortgage loan, and lease or sell the property. Part of a homes purchase price pays for this bundle of rights. Another bundle of rights attributable to homeownership
CONTINUED ON PAGE 14

The Marcellus Shale Region

The Marcellus Shale region, located across New Yorks Southern Tier, represents a portion of one of Americas largest underground shale formations, with accessibility to gas deposits ranging from ground surface to more than a mile deep. The decade-old combined use of horizontal drilling and high-volume hydraulic fracturing is the current proposed means of extracting the trapped shale gas. Horizontal drilling, which dates back to 1929, became widely used in the 1980s, with the current technology providing lateral access to mile-deep shale in multiple directions from a single well pad. To envision what this looks like, imagine one well pad that accommodates eight or more vertical wells with each well engineered to extend a mile or more in depth then turn and drill horizontally in its own direction, up to a mile through shale across residential properties and farms owned by a cluster of neighboring residents. High-volume hydraulic fracturing, first introduced by Halliburton in 1949, mixes millions of gallons of water with sand, brine and any of a number of undisclosed chemicals, which are injected into the well bore at pressure sufficient to rupture open the formation, prop open the mile-deep shale fractures with sand and release the trapped gas back into the well. Fracking-produced
12 | November/December 2011 | NYSBA Journal

POINT OF VIEW
CONTINUED FROM PAGE 12

consists of the actual roof over ones head; clean, running water; and access to utilities. A third bundle of rights is attributable to the intangibles that make a house a home, such as peaceful sanctuary, fresh air, and a safe, secure haven for budding children. Residential fracking challenges all of these attributes of home ownership.

Shifting Risk
Gas leases provide the bundle of rights from which gas companies generate financing and operate gas wells. Profitable gas extraction benefits from broad rights to access, extract, store and transport the gas, on the companys timetable. Gas leases contain these rights. Profitable gas investment benefits from latitude on timing of gas extraction and the latitude not to extract gas at all. Gas leases contain these rights too. The gas company has the sole discretion to drill, or not to drill. Leases provide the currency in trade. The longer the lease term, the more latitude a leaseholder has to manage market fluctuations. With its broad gas storage rights, a leaseholder can store gas from other sources, on-site and wait for the demand curve to peak before executing the most favorable transactions. In August 2011, the U.S. Geologic Survey estimated reserves of technically recoverable shale in the Marcellus Shale play at 84 trillion cubic feet, reflecting a significant reduction from DECs long-standing website

estimate of between 168 trillion and 516 trillion cubic feet. Shale gas projections have an inherent value, separate and apart from the extracted gas. People invest capital based on the anticipated reserves. Time will tell how the new estimates change if and where gas companies actually drill in New York. Some regions may be too difficult or expensive to access; others will be off-limits by law. The terms of the gas leases nevertheless entitle the gas lessee to maintain the leasehold, which can facilitate investor activity. The Form 10-K appended to the 2010 Chesapeake Energy Annual Report states,
Recognizing that better horizontal drilling and completion technologies, when applied to new unconventional plays, would likely create a unique opportunity to capture decades worth of drilling opportunities, we embarked on an aggressive lease acquisition program, which we have referred to as the gas shale land grab of 2006 through 2008 and the unconventional oil land grab of 2009 and 2010. We believed that the winner of these land grabs would enjoy competitive advantages for decades to come as other companies would be locked out of the best new unconventional resource plays in the U.S. We

Hydro-fracking drill sites, feeder pipelines, and access roads and gravel banks for road building (Dimock, PA)

14 | November/December 2011 | NYSBA Journal

POINT OF VIEW
believe that we have executed our land acquisition strategy with particular distinction. At December 31, 2010, we held approximately 13.2 million net acres of onshore leasehold in the U.S. and have identified approximately 38,000 drilling opportunities on this leasehold. We believe this extensive backlog of drilling, more than ten years worth at current drilling levels, provides unmistakable evidence of our future growth capabilities.2

The broad bundle of rights granted by gas leases enables gas companies to raise capital in the millions or billions of dollars once the up-front per-acre signing bonus is paid to the homeowner. This is beneficial for the drilling investment itself and for maintaining the companys competitive advantage. On the other hand, the effect of the lease encumbering the homeowners residence can have repercussions for mortgage financing, as will be discussed below.

Getting the Gas

Drilling companies derive the right to drill underneath residential (and non-residential) property in three ways: deed to the subsurface rights below the fee estate (a practice not typically used in New York); lease agreement with the fee owner; and compulsory integration, which involves government action that forces a property owner who wishes no drilling activity below its property into a drilling pool if the lessee otherwise has control of a statutorily prescribed percentage of land (in New York it is 60%). A drilling application submitted to DEC must show the area (up to 640 aces), known as a spacing unit, assigned to the well. The spacing unit becomes officially established when DEC issues the well permit.

for a finite time, in exchange for an agreed upon rent payable in regular installments. If the lease contains a percentage rent (a commercial lease concept based upon tenant revenue), it includes a formula for calculating the percentage rent and gives the landlord the right to inspect the tenants books to verify that the landlord receives the agreed upon percentage. Except for the space leased to the tenant, the landlord retains all rights of ownership. When the lease expires, the tenant moves out, or the tenancy converts to a month-to-month tenancy. No duration of month-to-month holding over on the tenants part converts the month-to-month arrangement into a lease for years. To end the relationship, either the landlord or tenant can give 30 days written notice to the other.3 To extend beyond the month-to-month relationship, the parties must enter into a new written lease. In contrast, gas leases function more like a deed with a homeowner indemnity than a space lease revealed by an assessment of the cumulative impact of the broad bundle of rights granted to the gas company-lessee and the corresponding bundle of rights relinquished by the homeowner. Standard pre-printed gas leases presented to New York homeowners by landmen and signed, without negotiation, represent the typical practice (until recently) in our state, and will be used here to illustrate the impact this has on the of rights and responsibilities of the homeowner. Depending upon the DECs ultimate regulatory framework, homeowners who negotiate gas leases can expect similar impacts given the industrial sized risks involved.

Deed to Subsurface Rights A deed to the subsurface or mineral rights splits the fee estate between the surface property and the subsurface property, with separate deeds for each estate. Subsurface deeds are common in Western states where drilling is an established practice; it gives the deed holder the full range of rights to the subsurface. As with the surface deed, it is considered a real property interest and is also recorded in the land records against the section, block and lot for the surface property. The rights do not extend above the subsurface and should not, as a legal matter, interfere with the rights of the surface owner. As a practical matter, because of drilling lifecycle hazards, the surface owner may sacrifice some of the attributes of home ownership discussed in this article. Standard Lease Agreement With Fee Owner The standard space lease, between a building owner (landlord or lessor) and a tenant (or lessee) grants the right to occupy a specified space in the building

The Use A gas lease grants the right to extract the gas and a litany of related gas-constituents; it also grants the right to explore, develop, produce, measure and market for production from the leasehold and adjoining lands using methods and techniques which are not restricted to current technology. The Space In a standard gas lease, the physical leased space consists of the subsurface area within the property boundaries and undesignated portions of the surface lands
to set up and store drilling equipment; create a surface right of way to use or install roads, electric power and telephone facilities, construct underground pipelines and so-called appurtenant facilities, including data acquisition, compression and collection facilities for use in the production and transportation of gas products to, from and across the leased property; and store any kind of gas underground, regardless of the source, including the injecting of gas, protecting and removing gas, among other things.

The lessees expansive, undesignated, reserved surface rights can result in acres going to support the operation, jeopardize a home mortgage and eliminate the homeowners ability to build on the surface in
NYSBA Journal | November/December 2011 | 15

POINT OF VIEW
areas the lessee determines would interfere with drilling operations. Without limiting the location, size and type of pipeline, the homeowner leaves open the chance of a high-pressure gas line running under the property. backyard. As the record title holder, homeowners remain potentially liable for the activity that occurs on their property, if it is not effectively delegated.

The Term The lease runs for a five-year primary term (a portion contain a five-year renewal term), which in a standard lease the lessee can unilaterally transform into an indefinite, extended term, without signing a new lease, for any of the following reasons:
exploration anywhere in the spacing unit, or a well in the spacing unit is deemed capable of production, or gas from the spacing unit is produced, or the spacing unit is used for underground gas storage, or the prescribed payments are made.

Hazardous Activity/Hazardous Substances Space leases expressly prohibit hazardous activity and the presence or storage of hazardous substances on the property, such as chemicals and flammable or toxic petroleum products. Gas leases permit both the drilling activity and the use of hazardous substances and flammable products, such as the methane gas itself. Gas leases reserve the right to store gas of any kind, indefinitely, underground, regardless of the source, which can create additional risk to the homeowners personal safety and adversely impact, as will be discussed, a homeowners responsibility to its lender. Easements Gas leases contain grants of easements, which is not typical for a lease. This grant includes the lessees right, even after surrendering the leasehold, to reasonable and convenient easements for the existing wells, pipelines, pole-lines, roadways and other facilities on the surrendered lands. Assuming its enforceability, a driller can surrender a lease and still assert a range of potentially perpetual surface and subsurface rights as superior to those of the fee owner without any further payment and without the obligation for repair, maintenance or resulting damage. However, unless the actual lease containing the easement grant gets recorded against the residential property in the public records, which, apparently is often not the case, the lessee has no assurance the easements will be protected. Even so, leases reserving potentially perpetual, undesignated easements for roads and pipelines raise expensive, longterm liability concerns for homeowners, their lenders and, potentially, fellow taxpayers. Insurance/Indemnification-Risk Allocation to Homeowner Space leases typically require the tenant to post a security deposit to cover late rent or property damage. Gas leases do not contain a similar provision. Space leases also require tenants to purchase general liability insurance naming the landlord as an additional named insured with an indemnity covering costs for uninsured damage and other costs occasioned by the tenant and its invitees. Risks associated with typical leasehold property damage belong to tenants since they control the space. Drilling leases typically omit these points. Absent negotiation, gas leases contain no insurance and no indemnification. Even assuming the existence of an indemnification, federal protection via the Halliburton loophole can provide cover. Unless anticipated DEC rules change, New York intends to require disclosure only of fracking chemicals by gas companies. While this represents a step in the right

The term capable of production is defined broadly enough to include off-site preparatory work. Regardless of the stated lease term, once a well is capable of production, the rights continue for as long as operations continue, possibly decades.

The Rent Homeowners receive a signing bonus ranging from dollars to thousands of dollars per acre of leased land. This single payment can potentially tie up the property, indefinitely. References in so-called paid-up leases (common in New York) to other potential additional payments (except for the royalty payment) are deemed satisfied by the signing bonus. Absent negotiation, royalties consist of a percentage (typically 1/8 or 12.5%), net of production-related expenses and any loss in gas volume that reduces the revenue received. Late payments or failure to make a royalty payment can never result in an automatic lease termination. Homeowners share the royalty with other members of the drilling pool on a pro-rated basis. This is known as correlative rights. The larger the drilling pool, the smaller the royalty. Unlike the percentage rent provision in a commercial lease, a gas lease contains no detailed formula for calculating the net royalty payment, no pro-rata share corollary to calculate the relative percent the homeowner bears to the pool of all other property owners entitled to divide the royalty pie and no right to review the lessees books and records. Assignment Space leases require a tenant to obtain landlord consent for a third-party lease assignment. In contrast, a gas lessee can sell and assign to or finance the gas lease (or any interest) with any party it selects, without providing notice to the homeowner. This continuing right deprives homeowners of control over confirming consistency between the initial lease and the terms of the assigned document who ends up with the lease, who gets hired and allowed onto the familys private property and the quality of the drilling activity performed in their
16 | November/December 2011 | NYSBA Journal

POINT OF VIEW
direction, it also gives companies an out by merely requiring them to disclose which chemicals they use. It does not necessarily make companies liable for the damage those chemicals cause. Eliminating the right to frack with toxic and carcinogenic chemicals by reinstating the laws amended by the Halliburton loophole would eliminate the shift of financial responsibility away from the gas company as it relates to this aspect of the gas drilling lifecycle. Regulating use of benign fracking additives that can boost risk would be useful as well. For example, radioactivity, a known danger at elevated levels, poses greater risks when it interacts with frack-fluid additives that contain calcium.4 By not restoring liability to the companies that control drilling operations and coupling it with economic reasons to prevent casualties, role in the lease process. Contract law favors the rights of private parties to enter into arms-length transactions without government intervention. Yet, when large numbers of complaining upstate homeowners recount consistent practices employed by the landmen that resulted in pre-printed standard gas leases signed without negotiation, it would be appropriate to involve the New York Attorney General, to examine the facts. In consumer protection contexts, the government (on its own or as a result of litigation) has seen fit to offer protection. Homeowners who signed gas leases do not constitute consumers per se, but the analogy supports Attorney General involvement to restore to the landowner the bulk of rights attributable to fee ownership and, by extension, the propertys value. Paradoxically, for

Assuming its enforceability, a driller can surrender a lease and still assert a range of potentially perpetual surface and subsurface rights as superior to those of the fee owner.
a homeowner will have to first experience the property damage or personal injury, then successfully arbitrate or litigate against the gas lessee for reimbursement and remediation, a burden most homeowners cant afford or mentally handle. Even assuming a homeowners fortitude to sue, focus on damages and remediation misses the fact that residential fracking introduces irreparable risks to homes and the families that live there. example, gas leases reciting good faith negotiations between the parties lock in homeowners with lesseefavored termination clauses. Unlike space leases that terminate on a stated expiration date, gas leases give lessees latitude to extend a stated lease term, indefinitely, by asserting it is capable of production or paid up or otherwise, subject to force majeure, asserting New Yorks de facto drilling moratorium as the event beyond their control. Force majeure litigation is now on the dockets across New Yorks Southern Tier.

Gas Lease Mortgages New York law5 recognizes minerals (before extraction) as real property. In May 2011, a Chesapeake Energy subsidiary, Chesapeake Appalachia, pledged mineral rights on over 1,000 Bradford County, Pennsylvania, mineral leases as collateral for a $5 billion line of credit mortgage loan with Union Bank of California, while in July, 2011, another Chesapeake Energy subsidiary, Appalachia Midstream Services, pledged pipeline rights-of-way on over 2,000 Bradford County properties to access an unspecified line of credit mortgage loan with Wells Fargo. Although the mortgage was properly recorded in the county recorders office against the section, block and lot of the fee/surface property, the news of a $5 billion loan linked to their property surprised mortgage-seeking homeowners. Legally, Chesapeakes mortgaged interests are distinguishable from the surface owners, so that shouldnt interfere with a home loan, but residential fracking might. It is worth noting that Wells Fargo, one of Chesapeakes lenders, stands among national lenders that do not grant mortgage loans to homeowners with gas leases. Homeowner Predicament Despite DEC website warnings about the potential adverse impacts of gas leases,6 the government plays no

Municipal Backlash; Indefinite Leases Municipalities within the 28 counties sitting on top of New Yorks Marcellus Shale differ on the benefits of fracking. Municipalities in favor of fracking focus on local economic growth.7 Municipalities opposing fracking take into consideration competing established economies, such as agriculture and tourism. By asserting home rule, municipalities have enacted moratoria, amended master plans or codes to prohibit heavy industry, including gas drilling, and banned drilling on public land or altogether.8 In September 2011, Anschutz Exploration Corp. filed a lawsuit against the Town of Dryden asserting the supremacy of the state to issue a drilling permit over the right of the municipality to amend its zoning law to prohibit drilling or storage of natural gas.9 The outcome of this case will have significant ripple effects throughout the state. When municipalities favor fracking, homeowners with questions or concerns are on their own. Residents who do not wish to renew and residents who are committed to leasing but want to renegotiate terms when their lease expires, as with an expired space lease, are meeting some resistance from the gas
NYSBA Journal | November/December 2011 | 17

POINT OF VIEW
companies, who are using General Obligations Law 15-304 (GOL) to reinstate expired leases. That statute states that before a recorded drilling lease expires by its own terms, the owner may serve a cancellation notice to the lessee triggering a lessee right to file an affidavit affirming that the lease is in full force and effect. Then, more papers get filed to confirm and preserve that right. Unlike the space lease which terminates on a certain date, GOL 15-304 gives drillers a second chance which (so long as the driller has recorded the full lease) can tie an unwilling homeowner indefinitely to a gas lease the homeowner no longer wants. Homeowners electing not to give the statutory notice live in limbo, uncertain as to where they stand. If a lessee decides to drill for gas but lacks the total acreage it needs, the lease provides the statutorily required leverage to form a so-called spacing unit by forcing unwilling property owners surrounding the voluntarily leased property into a drilling pool, a process called compulsory integration. Yet, the updated statutes effect eliminates the homeowners right to control the homestead, creates financial risk for the drillers acts by not expressly holding the driller responsible, and jeopardizes access to a mortgage or the ability to sell the property. The ECL permits objection by a homeowner to the forced pooling within prescribed guidelines (having a scientific basis) none of which includes asserting a conflict with other (existing or intended) contract obligations, such as a mortgage. ECL 23-0503, empowers DEC to schedule an adjudicatory hearing if it determines that substantial and significant issues have been raised in a timely manner. Whether a drillers rights of involuntary compulsory integration come after, or trump, sanctity of contract between a homeowner and its mortgage lender needs clarification.

$6.7 Trillion Secondary Mortgage Market

The Federal Housing Finance Agency (FHFA) was created in July 2008 on the heels of the mortgage crisis, to provide supervision, regulation and housing mission oversight of Fannie Mae and Freddie Mac and the Federal Home Loan Banks (FHLB) and to support a stable and liquid mortgage market. As of September 2010, according to FHFA, the combined debt obligations of these government-sponsored entities totaled $6.7 trillion, with Fannie Mae and Freddie Mac purchasing or guarantying 65% of new mortgage originations. FHFA, as conservator of the secondary mortgage market, has a fiduciary responsibility to promote the soundness and safety of the secondary mortgage market. It is in FHFAs interest to limit mortgage defaults. Most American homeowners hold a mortgage loan and 90% of all residential mortgage loans are sold into the secondary mortgage market (exceptions exist for million dollar homes which do not get sold by the lending bank). It is assumed that most upstate New Yorkers who signed gas leases have a mortgage, will want one in the future or want that right for a future purchaser. Mortgage lending favors low-risk activity on its mortgaged properties. Fannie Mae, Freddie Mac and the FHLB establish lending guidelines for appraisers and underwriters that dictate whether a home is a worthy investment. This helps to facilitate their combined mission to attract investors, such as pension funds, who provide liquidity in the secondary mortgage market. Primary lenders, in turn, rely on their borrowers compliance with mortgage covenants mirroring these lending guidelines for the life of the loan. Assuming 10% of the existing secondary mortgage market portfolio includes residential properties subject to drilling activity, this amounts to $670 billion of secondary mortgage market debt; assuming the number is only 1%, this amounts to $67 billion. Eventually, gas drilling may span up to 34 of the lower 48 states, including densely populated cities such as Fort Worth,

Compulsory Integration Involuntary compulsory integration represents the most controversial method drilling companies use to access gas. Compulsory integration (or forced pooling) exists by statute in 39 states.10 It replaced the common law rule of capture which allowed Person A to legitimately collect and own gas from Person Bs supply if it flowed into Person As well. To capture gas before a neighbor did, surface wells proliferated in close proximity to one another, causing the overall gas pressure to drop and making gas extraction inefficient for all involved. It also blighted the surface lands. Today, Environmental Conservation Law 23-0901 (ECL) deputizes a driller, subject to a DEC hearing, to force an unwilling property owner into a spacing unit if the drilling company otherwise controls 60% or more of the acreage in the spacing unit either by lease, deed or voluntary integration,11 which itself involves lease swaps among leaseholders to form the spacing unit. Proponents assert that forced pooling makes the drilling infrastructure investment more cost efficient by maximizing access to gas while also maintaining the surface landscape and fairly compensating the noncontributing integrated homeowner with a shared net 12.5% royalty. Opponents consider it a form of eminent domain. The constitutionality of forced pooling under a predecessor statute was confirmed in dicta by the New York Court of Appeals in Sylvania v. Kilborne, itself citing the United States Supreme Court, which held that a state has constitutional power to regulate production of oil and gas so as to prevent waste and to secure equitable apportionment among landholders of migratory gas and oil underlying their land fairly distributing among them the costs of production and the apportionment.12
18 | November/December 2011 | NYSBA Journal

POINT OF VIEW
Texas. If so, a substantial portion of the secondary residential mortgage market portfolio may be at risk from residential fracking.

Loan Underwriting Reveals Collateral Flaws With Residential Fracking

Home Appraisal All mortgage loans require a property appraisal, title insurance covering the lender or its assignees and homeowners insurance. Home and land appraisals are based upon like-properties, similarly situated, and are used to determine market value, the loan-to-value ratio and the maximum loan amount. Reliable appraisals of properties subject to gas leases are difficult to obtain and potentially prohibitively expensive; it would require a comprehensive title search of area properties encumbered by gas leases. Often a memorandum of the gas lease and not the lease itself is recorded, and a read-through of the entire gas lease is required to make a fair comparison between lease-encumbered properties. Underwriters need to evaluate the risks and know who pays for them; without the full lease in hand, they cant make such an evaluation.13 Evaluating the drillers identity can be another underwriting challenge; with unrecorded lease assignments, lenders dont know who is performing the heavy industrial activity on their residential collateral. Federal Housing Authority guidelines for federally insured mortgage loans, which make up a portion of the secondary mortgage market debt, require that a site be rejected if property is subject to hazards, environmental contaminants, noxious odors, offensive sights or excessive noise to the point of endangering the physical improvements or affecting the livability of the property, its marketability or the health and safety of its occupants,14 all of which are potential characteristics of residential fracking. Lenders Title Insurance A lenders title policy insures the mortgage lien, as of the date of the policy (up to the loan amount), against loss or damage if title is vested in someone other than the homeowner. Gas leases signed after the policy date are not covered by the policy. Gas leases in effect when the policy is issued will be listed as a title exception. Coverage wont include the gas lease or any claims arising out of it. Title endorsements dont eliminate this exception to coverage. Underwriters consider these exceptions a red flag, sufficient to jeopardize the loan. Lenders financing properties subject to compulsory integration wont discover the title encumbrance from a title search because ECL 23-0901 makes no apparent reference to recording the DEC determination of compulsory integration in the land records. New York title policies expressly exclude from coverage loss or claims relating to any permit regulating land use. It remains unclear

Flare at hydro-fracking gas drilling operations near Sopertown, Columbia Township, PA

whether a gas drilling permit which includes forced pooled property would fall within this exclusion. Either the Legislature will clarify the statute or the ambiguity will be a source of future litigation. Rating agencies and secondary mortgage market investors should be apprised if a loan portfolio which they have rated or in which they have invested, as the case may be, contains gas leases or forced pooled properties, since both add new risk.

Homeowners Insurance All residential mortgage lenders require homeowners insurance from their borrowers. Even the most comprehensive homeowners coverage, known as broad risk form or special form insurance excludes the types of property damage associated with the drilling lifecycle, such as air pollution, well-water contamination, earth movement and other risky commercial activity performed on residential property.
NYSBA Journal | November/December 2011 | 19

POINT OF VIEW
The Mortgage: No Hazardous Activity/Substances, No Gas/Gas Storage, No Radioactive Material Residential mortgages prohibit borrowers from committing waste, damage or destruction or causing substantial change to the mortgaged property or allowing a third party to do so. This includes operations for gas drilling. Standard residential mortgages prohibit borrowers from causing or permitting the presence, use, disposal, storage, or release of any hazardous substances on, under or about the mortgaged property. In mortgages, hazardous substances include gasoline, kerosene, other flammable or toxic petroleum products, volatile solvents, toxic pesticides and herbicides, materials containing asbestos or formaldehyde and radioactive materials. Borrowers are also prohibited from allowing anyone to do anything affecting the mortgaged property that violates any environmental law. Environmental law means federal, state and local law that relates to health, safety and environmental protection. Mortgages obligate borrowers to give lenders written notice of any release, or threat of release, of any hazardous substances and any condition involving a hazardous substance which adversely affects the value of the mortgaged property. Mortgages prohibit the activities gas leases permit to preserve the propertys marketability. For example, shallow water wells and springs, typical in the northeast, represent the homes drinking water source; they become susceptible to contamination from drill site spills and leaks or flooding from frack wastewater. Frack fluid chemicals, pollutants and naturally occurring radioactivity in the waste have been reported to far exceed levels considered safe for drinking water. A contaminated well cannot be easily remediated, if at all. A home or a farm without on-site potable water may not sell. Migrating methane gas from the drilling process risks explosions both inside and outside of the home. Because water and migrating methane gas each defy boundaries, following minimal underwriting setback requirements between the home and the drill site may prove inadequate to protect a water well from irreparable contamination or a home from explosion. A bank can consider these factors when approving a mortgage loan, and once financed, when declaring a mortgage loan in default.
have been used for natural gas and oil exploration and production activities for a number of years, often by third parties not under our control. For our non-operated properties, we are dependent upon the operator for operational and regulatory compliance. While we maintain insurance against some, but not all risks described above, our insurance may not be adequate to cover casualty losses or liabilities, and our insurance does not cover penalties or fines that may be assessed by a governmental authority. Also, in the future we may not be able to obtain insurance at premium levels that justify the purchase.15

In the Form 10-K appended to its 2010 Annual Report, Range Resources adds:
We have experienced substantial increases in premiums, especially in areas affected by hurricanes and tropical storms. Insurers have imposed revised limits affecting how much the insurer will pay on actual storm claims plus the cost to re-drill wells where substantial damage has been incurred. Insurers are also requiring us to retain larger deductibles and reducing the scope of what insurable losses will include.16

Homeowner and Lender Vulnerability

The 2010 Form 10-K issued by Chesapeake states:
There is inherent risk of incurring significant environmental costs and liabilities in our operation due to our generation, handling and disposal of materials, including waste and petroleum hydrocarbons. We may incur joint and several liability, strict liability under applicable U.S. federal and state environmental laws in connection with releases of petroleum hydrocarbons and other hazardous substances at, on, under or from our leasehold or owned properties, some of which

Signing a gas lease without lender consent is likely to constitute a mortgage default. At any time before or after the drilling begins, a lender can demand the borrower to either terminate the lease or pay off the loan. Since the gas companies have pledged the gas leases as collateral for loans or brought in investors based upon the potential income the gas lease can produce, facilitating a lease termination may require protracted litigation. Further, it is not likely that most homeowner-borrowers will have the ready cash to repay the loan. This places the lender in an untenable position. Residential fracking, perpetual unfunded easements and long-term gas storage beneath mortgaged homes create a cumulative threat to the repayment of mortgage loans tranched in secondary mortgage market portfolios. Homeowners suffering irreparable property damage, such as well water contamination, structural damage or casualty from a gas explosion, wont have coverage from homeowners insurance and may have no recourse against the gas company holding the lease. This is so even if homeowners sue and succeed in court since the gas companies own disclosure statements state they are underinsured. New York State Comptroller Thomas Di Napoli has proposed an up-front gas companyfunded emergency fund to remediate those emergencies that can be fixed. As of yet, the gas industry, the Governor, the state Senate and the Assembly have not offered support for such a fund. The Form 10-K for Chesapeake Energy and Range Resources, for example, cite the risks attendant to gas drilling. They do not indicate the source of funding to support the numerous risks from the drilling activity. Unless this source of funding can be identified, the secondary mortgage market, as holder of 90% of the nations home mortgages, may be left with the

20 | November/December 2011 | NYSBA Journal

POINT OF VIEW
clean-up bill. Ultimately, financial responsibility could fall on the taxpayers. New York homeowners who signed gas leases without the facts about this unconventional drilling claim they did not know the risks involved. These homeowners did not know that they violated their mortgage by entering into the gas lease or have potentially no insurance coverage in case of a drilling loss. Impacted homeowners can write to New Yorks Attorney General to (1) document their experience; (2) request a reprieve from a mortgage loan default; and (3) institute a no gas drilling policy until it is determined that the mortgaged collateral wont be at risk from the drillers plans. To achieve this, gas leases should be revised to modify or omit the risky clauses, such as gas storage, surface rights and undesignated, unfunded easements. In the alternative, the gas leases can be terminated. Homeowners need help before gas permitting begins, in order to spare the homestead and the home mortgage market too.

The Conundrum Revisited

The energy and housing sectors both rely on investor dollars to fund their future. Pension funds and other money sources that still invest in housing but now consider natural gas the preferred investment raise a potential paradox: Will individuals retirement funds expand as their homeownership rights fade away? The conundrum to consider: how can a nation with $6.7 trillion in residential secondary mortgage market debt that measures economic recovery by construction starts and new mortgage loans also accommodate risky and underinsured residential fracking involving a stillunknown quantity of this residential mortgage collateral? Before New York embraces fracking as a new frontier, it would be wise for our corporate and government leaders focused on the vitality of our housing and energy sectors to address and resolve this conundrum.
1. Chesapeake Energy Corp., 10-K: Annual Report Pursuant to Section 13 and 15(d) 27 (2011) (Chesapeake Energy 10-K: Annual Report); Range Resources, Uncovering Tomorrows Energy: 2010 Annual Report 13 (2010) (Range Resources 2010 Annual Report). 2. 3. Chesapeake Energy 10-K: Annual Report 4. N.Y. Real Property Law 232-b.

New Mortgages for Homeowners With Gas Leases and New Construction18
Even before the drilling commences, many upstate New York homeowners with gas leases cannot obtain mortgages. Bank of America, Wells Fargo, Provident Funding, GMAC, FNCB, Fidelity and First Liberty, First Place Bank, Solvay Bank, Tompkins Trust Company, CFCU Community Credit Union and others17 are either imposing large buffer zones (too large for many borrowers) around the home as a condition to the loan or not granting a mortgage at all. Once lenders connect the no hazardous activity clause in the mortgage with the mounting uptick in uninsurable events from residential fracking, this policy can be expected to expand. Originating lenders with gas industry business relationships may decide to assume the risk, make mortgage loans to homeowners with gas leases and keep the non-conforming loans in their own loan portfolio. However, there is a limit to what an originating bank can keep in its own loan portfolio. Eventually, cash infusions from the secondary mortgage market will become a necessity; and secondary mortgage market lending guidelines will be a reality. If homeowners with gas leases cant mortgage their property, they probably cant sell their property either (this assumes the purchaser will need mortgage financing to fund the purchase). The inability to sell ones home may represent the most pervasive adverse impact of residential fracking. Real estate developers and contractors rely on construction financing and financeable homeowners to stimulate construction starts. New Yorks upstate construction future depends upon the ability to sell what one builds. Washington County, Pennsylvania, for example, reported improved home sales servicing the gas industry in 2010, but apparently not of properties built on drill sites.

4. Mark Greenblatt, Texas drinking water makes pipes and plumbing radioactive, KHOU.com (May 18, 2011) at http://www.khou.com/home/-I-Team-Texasdrinking-water-makes-pipes-and-plumbing-radioactive-1221408194.html. 5. N.Y. Jurisprudence, Mines 7; see N.Y. Uniform Commercial Code 9-102. 6. Div. of Mineral Res., A Landowners Guide to Oil & Gas Leasing, Dept of Envtl. Conservation (2008), http://www.dec.gov/docs/materials_ minerals_pdf/brochure.pdf. 7. Cornell University Professor Susan Christopherson cautions against boom-bust impacts. See Susan Christopherson, Marcellus Gas Drilling, Cornell Univ. 2011, http://www.greenchoices.cornell.edu/development/marcellus. 8. Joe Hoff, Moratoria, Bans, Resolutions Opposed to Hydrofracking: A Local and Global Sampling, R-Cause (Sept. 20, 2011) www.r-cause.net/bans-moratoria. 9. Anschutz Exploration Corp. v. Town of Dryden & Town of Dryden Town Bd., Supreme Court, Tompkins County; N.Y. Environmental Conservation Law 23-0303(2) (ECL). 10. ECL 23-0901; Marie C. Baca, State Law Can Compel Landowners to Accept Gas and Oil Drilling, Pro Publica (May 19, 2011), http://projects.propublica. org/tables/forced-pooling. 11. ECL 23-0901. 12. Sylvania Corp. v. Kilborne, 28 N.Y.2d 427 (1971) (quoting Hunter Co. v. McHugh, 320 U.S. 222 (1943)). 13. See Greg May, VP, residential lending, Gas and Oil Leases Impact on Residential Lending,Tompkins Trust Co., White Paper,(Mar. 24, 2011), http:// www.tompkins-co.org/tccog/Gas_Drilling/Focus_Groups/Assessment%20 Documents/White%20Paper.pdf 14. Dept of Hous. & Urban Dev., Valuation Analysis for Single Family One-toFour Unit Dwellings (4150.2) (2011). 15. Chesapeake Energy 10-K: Annual Report 29, supra note 1. 16. Range Resources 2010 Annual Report 13, supra note 1. 17. Greg May, VP, residential lending Tompkins County Trust, telephonic update of white paper, supra note 13, and Joseph Heath, Esq. 18. See Ian Urbina, Rush to Drill for Natural Gas Creates Conflicts With Mortgages, N.Y. Times, Oct. 20, 2011, p. 1. Mr. Urbinas article used Elisabeth Radows August 11, 2011, letter to Freddie Mac and the federal agency that oversees Freddie Mac, warning the agencies about potential conflicts in the mortgage market, as a documentary source for his piece. The letter may be viewed at http://www.nytimes.com/interactive/us/drilling-downdocuments-8.html#document/p12/a33448.

NYSBA Journal | November/December 2011 | 21