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