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May 14, 2009

 


DiNapoli: DEC Has Improved Monitoring of State Oil and Gas Drilling Operations and Lease Revenue

The State Department of Environmental Conservation (DEC) is doing a better job of monitoring whether the state’s taxpayers are receiving their appropriate share of revenue from gas and oil well and storage operations located on public lands, according to an audit released by State Comptroller Thomas P. DiNapoli. A previous audit indicated that the DEC was trusting drillers – without independent corroboration – to provide sales and production information that determine money owed to the state. In addition the audit indicated that DEC is doing a better job of overseeing gas drilling operations.

“The DEC has been making progress on the problems we identified,” said DiNapoli. “With Marcellus Shale formation natural gas exploration and development anticipated in central and western New York, adequate oversight to ensure public safety, preservation of state lands and effective competition of lease agreements to maximize state and landowner compensation has never been more important.”

All eight recommendations made in the previous audit have been implemented or partially implemented, resulting in the DEC:

  • creating standard forms for documenting inspections of operators' compliance with Temporary Revocable Permit requirements. Auditors found that among April/May 2008 inspection forms for 43 gas wells and pipeline segments in various stages of production located in Region 8, DEC officials were using the forms to document the inspections;
  • establishing requirements that leaseholders test the calibration of their meters, although Department inspectors need training to be able to verify meter readings and to compare these readings against production reports,
  • conducting supervisory reviews of operator well files to ensure all required documents regarding their operations are present and taken steps to keep abreast of lease terms used in other states,
  • evaluating the reimbursement structure of lease terms, and
  • analyzing lease acreage holdings to ensure appropriate competition of future transactions.

The development of the Marcellus Shale formation will present opportunities and risks for the State as well as private landowners. Currently a moratorium on this development is in place to allow DEC time to amend regulations to address specific safety and environmental concerns to ensure that:

  • Natural gas well development occurs safely;
  • Other uses of State lands are preserved;
  • State owned lands and resources are protected; and
  • Legal agreements are negotiated to provide compensation, including royalties that are competitive with those negotiated by other parties within New York State and in surrounding states.

Click here for a copy of the report.


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