When Richard Lasky retired to an 80-acre farm in upstate New York, he thought he was buying a little peace of mind after years of hard work in Manhattan's garment industry. Little did he know he was investing in a potential energy jackpot: Mr. Lasky's land sits on an enormous buildup of natural gas, which is poised to generate thousands of barrels of lucrative fuel.
As oil prices surge and new technologies make it easier to tap gas trapped in dense rock formations beneath the ground, Mr. Lasky is one of about 1,300 private landowners in Chenango County who have seen their acreage suddenly become valuable to prospectors. In a bid to cash in on gas trapped in shale below the earth's surface, energy companies and land speculators are paying record amounts to lease — and in some cases buy — property in counties stretching from Lake Erie to the Catskills.
Six months ago, landowners were leasing their land for $35 or less an acre; today, prospectors are wooing them with offers of as much as $3,000 an acre, an 8,500% increase, in addition to offering royalties on the gas removed from their wells.
Prices on land for sale has also skyrocketed. "Farmland that went for $750 to $1,000 an acre now goes for $2,000 to $2,400," a real estate broker in Norwich, N.Y., Peggy Parker, said.
"In the past six months, we've even seen junky land go for $1,000 an acre," the owner of Chenango County Realty in Holmesville, N.Y., David Thomas, added.
Multinational corporations such as Chesapeake Energy Corp. and Norse Energy Corp. have quietly been boring holes through layers of the state's sediment for more than a decade. But now, with oil prices regularly surpassing $115 a barrel, drilling for natural gas, which heats about half of America's homes, has taken an aggressive turn.
Since January, the New York State Department of Environmental Conservation has issued 495 drill permits, compared with 575 for all of 2007. About 30 energy companies have set up drill sites in New York, seeking to profit from the nation's demand for natural gas, which is up 5.5% this year.
The price of natural gas, which is measured in British thermal units, or BTUs, has been increasing along with demand, surpassing $13 per 1 million BTUs in July, the first time since 2005. The Energy Information Administration predicts that the average price of natural gas will remain elevated through 2009, hovering at about $9 or $10 per 1 million BTUs.
With prices for natural gas so high, corporations are betting on being able to excavate the Marcellus Shale, 34 million acres of rock that extends to central New York from West Virginia. Researchers at Pennsylvania State University have said the Marcellus holds some 50 trillion cubic feet of recoverable natural gas, nearly three times the amount produced annually.
"The energy companies are pretty optimistic about this shale," a vice president of economic and international affairs at the Independent Petroleum Association of America, Frederick Lawrence, said. "And being close to a very strong market, the Northern Corridor, is a big factor."
A gas boom also would benefit the denizens of rural counties such as Chenango, where the per capita income was $25,533 in 2005.
"It's hard to live here," a consulting petroleum geologist in Worcester, N.Y., Donald Zaengle, said. "Upstate New York is filled with land-rich, net-income-poor people."
While many New Yorkers have cashed in by selling their land or accepting large per-acre signing bonuses, some are holding out, taking the time to negotiate more lucrative, long-term leases.
"The typical gas company lease is an extraordinary bad document for landowners," an attorney in Elmira, N.Y., Christopher Denton, said.
Until recently, most gas companies were offering royalties of 12.5% of what is produced at a natural gas well, the minimum mandated by state law.
"I didn't get as much as I could have if I had waited," Steven Palmatier, who signed a contract five years ago to lease his land at $710 an acre, said.
For guidance, landowners are starting to look to other gas-rich regions such as Louisiana and north Texas, where residents receive royalties of 20% or more. "It behooves us to find out what other areas are doing," the town supervisor of Preston, N.Y., Peter Flanagan, said. "This whole thing has the potential to make a positive economic impact, but we're ignorant of a lot of what goes on in this industry."
To barter better lease terms, more landowners are negotiating with the energy companies in groups, pooling their acreage together. "I wouldn't settle for less than $5,000 an acre and 14% royalties," Mr. Lasky, who, as president of the Central New York Landowner's Coalition, represents more than a dozen landowners who own about 80,000 acres, said.
Landowner groups are also asking companies for environmental safeguards, seeking protection for damaged roads and possibly ruined water supplies. Energy companies, which are not required to disclose the contents of the fluids used in their drilling processes, will use high-pressure injections of chemical liquids as they bore horizontally into the earth.
"Nasty chemicals seeping into reservoirs would be a disaster," Ramsay Adams, the executive director of Catskill Mountainkeeper, a nonprofit environmental group, said. "The impact that drilling has on the watershed — that's a big issue for us."
Many city governments and county organizations are encouraging residents to bide their time. "There shouldn't be a stampede to sign a lease," the president of the Chenango County Farm Bureau, Bradd Vickers, said.
Mr. Vickers owns a 400-acre cattle farm and was first approached by a gas company 10 years ago. Today, he still hasn't signed on any dotted lines. "The gas has been here for hundreds of years. It's not going anywhere," he said. "We have the time to do this right."