Tioga County, NY Lease Deal with eCORP Falls Apart

champagne bottle and glassIt looks like it’s time to put away the champagne bottle and glasses that New Yorkers had brought out to toast a deal in Tioga County, NY that would use LPG (waterless) fracking and perhaps herald an early end to more than four years of a horizontal drilling moratorium.

In March, MDN reported on a deal announced between eCORP International and the Tioga County (NY) Landowners Group, also known as Southern Tier Energy Partners (STEP), to lease 135,000 acres in Tioga County with an eye to using LPG waterless fracking (see this MDN story). After the initial announcement, eCORP released another press statement outlining the deal that both sides had supposedly worked out, a somewhat complicated arrangement in which the approximately 2,000 landowners would be split into 13 independent operating companies and would become part-owners in those companies (see this MDN story).

Why the complicated deal structure? It would allow eCORP to move forward and drill with a more expensive technology (LPG fracking) at a time when the commodity price is historically low. That is, it shifts some of the risk of drilling to the landowners, who would receive no signing bonus and only a 12.5 percent royalty. And why would landowners want to sign under those terms? While the risk increases, so does the reward. Landowners would stand to make much more money long-term when natural gas prices rise than they would have made under a traditional lease deal.

But apparently a majority of the landowners have not bought in to the plan, and eCORP announced on Monday that they’re going back to the drawing board to craft a new deal. From the eCORP press release:

eCORP International, LLC ("eCORP") and Southern Tier Energy Partners, LLC ("STEP") recently announced the execution of a Memorandum of Understanding ("MOU") contemplating the development of up to 135,000 acres of Marcellus and Utica shale in the Southern Tier of New York State utilizing environmentally responsible oil and gas development technologies. The parties were aware at this stage that there was much more work to accomplish in order to formulate an agreement.

Because current and potentially protracted low gas prices render gas shale development marginally economic under the terms used by most energy companies, the parties had originally analyzed a business structure that had the potential benefit of imparting to participating landowners a financial stake in any success through indirect ownership in the company developing their oil and gas rights.

Since then, after further consultation among the parties, this approach, though appealing to many, does not appear to allow sufficient flexibility to assimilate all stakeholder needs and concerns, or find agreement among a consensus of the stakeholders.

John F. Thrash, CEO of eCORP states, "After greater in-depth analysis of the original conceptions, we felt that the preliminary notion of incorporating a landowner-owned company might prove too complex and cumbersome. Accordingly, eCORP and STEP have gone back to the drawing board to continue the process of identifying a beneficial deal structure for all stakeholders consistent with all applicable regulatory requirements. We will continue to attempt to craft an approach that will be streamlined, understandable, and afford greater flexibility to those considering selecting eCORP as the operator working their land, and hope to be back with a new and more workable concept in the near future."

Thrash further stated, "We wish to take the opportunity again, at this juncture, to reaffirm to all stakeholders that which we have stipulated in our prior public statements concerning our operations and business life in Tioga County and New York State; which is that eCORP intends to strictly adhere to all present and future applicable regulations, statutes, codes and authorities pertaining to all our activities in the region of any kind, and especially relative to well stimulation practices, protecting the environment, and minimizing impacts."*

MDN’s translation of the above press release: The Tioga landowners told eCORP to stuff it—they’re not in the business of drilling and don’t have a desire to be. So if eCORP can’t figure out how to do a more tradition deal, it’s sayonara, adiós, ciao baby.

*eCORP International (Apr 30, 2012) – eCORP Considers Alternatives In Connection With Preliminary Analysis Of Tioga County, New York Development; Parties Continue Process Of Investigating Optimal Deal Structure

  • Anonymous

    The landowners are foolish. Many were looking forward to a nice chunk of cash immediately [ lease  payment ] and they wouldn’t get it with  the proposed arrangement. But they will not get it anyway until gas prices improve. If they had been patient , there would have been a lot more money  down the road.  Taking on some risk means higher rewards.

  • Anonymous

    Was a “working interest” a security? I read somewhere that under securities law, only sophisticated investors can be sold working interests in gas wells and these good folks were not considered knowledgeable enough to partake in this kind of venture. Is this true? Just wondering…..

  • Anonymous

    As a landowner in Tioga, here was the biggest issue that bothered me about the deal and that I did voice to Nick.
    As a Landowner/operating owner I share 2/3 of the wealth but I also share 2/3 of the risk. Yet, I have no say of where they will drill when they will drill etc. etc. but I have more of a stake than the “guy” who makes those decisions Conversely, I am not a geologist working for the company and should not have a say in where and when the company drills (could you imagine putting that decision in the hands of the landowners-jeeeze). Just that fact alone I was not right with the deal. The Operating company wants the gas and has the means to extract it, that is their business and as a landowner I don’t want to share in any part of that. All I own is the land(access) to get to it. With out me (when I say “me” I mean all landowners of course) they can’t make money, and with out them I don’t make money. But, I don’t want to “own” any part of the company. Just pay me for the rights of  land usage and a percentage of what you extract. I guess it’s the old K.I.S.S. principle. When you complicate something beyond comprehension, and believe me they did, people tend to run away from it with the exception of the truely desperate.

    I hope they restructre a better more traditional deal. If not. . .let’s wait and see. The State is so upside-down right now in regards to getting anything going with drilling NO company in their right mind would take a risk of leasing (traditionally) in NY right now. Leaving your company’s 1 Billion dollar investment in the hands of some town clown politician who could ban drilling cause he /she “don’t think it’s safe” with absolutely no scientific study to back that claim only an opinionated point of view would be suicide for a CEO. The political log jam in Albany must be rectified first. The “keystone log” happens to be Joe Martens. When he is removed things should smooth themselves out without haste. Patients is the key right now as well as pressure on the Governors Office. It is really time to sue the State for torturous interference due to unnecessary delays on behalf of ALL landowner groups. JLCNY you out there???    

  • http://marcellusdrilling.com Jim Willis

    Thanks for commenting & your perspective. Very helpful for those of us who don’t live in Tioga to know what the landowners are thinking.

  • http://marcellusdrilling.com Jim Willis

    I certainly can’t fault the landowners for wanting a “bird in the hand” — which in New York, is worth about 10 in the bush. You just never know when the fickle NY state DEC, governor, and even local politicians will change their minds. I don’t think the landowners are totally risk averse–they’re just saying this particular deal represents a bit too much risk for them.

  • Anonymous

     Obviously you failed to read Blueflames take on the ” proposed” deal that Ecorp was trying to force down landowners throats in a short period of time. It was quite obvious that there were just to many confusing scenario’s put forth by Ecorp and the majority of landowners didn’t “jump’ at this opportunity, like they figured would happen. There were many questions asked, but could not be answered to the approval of the landowners. Ex’s: If we( landowners) are 2/3 owners of these drilling operation ,what is the average cost to set up these rigs and drill?What type of production has to be obtained to at least break even? What happens if the production is insufficient? Do we lose money? Could we lose our property? How long a period will we have to “sign” over drilling rights to Ecorp? How long will we have to wait before they start drilling in my section ( there are 13 of them)? Where are the prime area’s in Tioga County that  Ecorp will be concentrating on first? How does Ecorp get paid? Does their compensation come from the landowners profits or from a percentage of the well production? To many ways that the uneducated/ unknowing landowner can LOSE money. exdent11 before you make comments like that, make sure you know what your talking about. This deal was fishy from the beginning.Landowners have not got a clue as to the costs involved in NG exploration, yet this company is asking us to put up our land(gamble), with no upfront compensation in”hopes” that they can turn a profit, especially in a depressed NG market.I am a gambling man and have taken on reasonable risk in the past.This type of deal is way over my head as well as most landowners, we are not willing to gamble everything we own for a maybe. Also, whats the rush at this point, Martens/ Cuomo already screwed the NY market with the moratorium, even if it is lifted now, most companies are already embedded in other states and drilling wont come to NY until they are done getting all the Gas out of areas where they are now ,that could be many years!! In any event the saying goes” Buyer beware, if it sounds to good to be true it usually is”.

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