Elisabeth Radow’s Spacing Unit Managment Plan

PROPOSED SOLUTION- SPACING UNIT RISK MANAGEMENT PLAN
FOCUS ON REMEDIATION AND REMEDIATION FUNDS IGNORES THE FACT THAT CERTAIN IMPACTS CANNOT BE FIXED WITH MONEY. WATER CONTAMINATION TOPS THE LIST, ALONG WITH HEALTH IMPACTS. NEVERTHELESS, IF NEW YORK DOES PROCEED TO ISSUE DRILLING PERMITS, THE CUOMO ADMINISTRATION CAN MANAGEABLY RESTORE RESPONSIBILITY TO THE GAS INDUSTRY FOR ITS OPERATIONS WHICH, AS EXPLAINED HERE, HAS BEEN OTHERWISE SHIFTED TO HOMEOWNERS AND TAXPAYERS.

IT IS RECOMMENDED THAT THE D.E.C. REQUIRE THE WELL SITE OPERATOR (AND ALL SUBCONTRACTORS), AS PART OF THE DRILL PERMITTING PROCESS, TO ESTABLISH AN INSURANCE AND INDEMNIFICATION PLAN FOR EACH SPACING UNIT (THE “SPACING UNIT RISK MANAGMENT PLAN”) WHICH (i) NAMES EACH PROPERTY OWNER (BY NAME; AND SECTION, BLOCK, LOT) WITHIN THE SPACING UNIT-INCLUDING A SPLIT ESTATE-AND THE LENDER, IF ANY, AS ADDITIONAL NAMED INSUREDS; (ii) ESTABLISHES LIMITS OF COMPREHENSIVE GENERAL LIABILITY INSURANCE, POLLUTION LIABILITY INSURANCE AND CONTROL OF WELL INSURANCE COVERAGE ON A WELL-SPECIFIC BASIS (OR ITS SUBSTANTIVE EQUIVALENT) RELATIVE TO THE ASSOCIATED HAZARDS AND RISKS; AND (iii) INCLUDES A LIQUID CASH (OR CASH EQUIVALENT) COMPONENT TO COVER BOTH WHAT IS UNINSURABLE AND NOT INSURED, INCLUDING LONG-TERM REMEDIATION. IN ADDITION, IF A PROPERTY IS SUBJECT TO A PRIOR MORTGAGE, THE PLAN WILL INCLUDE HOMEOWNER’S INSURANCE COVERAGE CONSISTENT WITH THE LENDER’S REQUIREMENT, IN THE EVENT THIS COVERAGE IS TERMINATED BY THE CARRIER. (AN UP-FRONT FUND FOR MUNICIPAL IMPACTS IS NEEDED, AS WELL.)

IT IS A GIVEN THAT BEST MANAGEMENT PRACTICES AND REGULATORY OVERSIGHT WILL NOT ELIMINATE ACCIDENTS, HUMAN ERROR AND ABANDONED, AGING GAS DRILLING INFRASTRUCTURE ASSOCIATED WITH UNCONVENTIONAL DRILLING. THIS MANAGEABLE INSURANCE AND INDEMNIFICAITON PLAN WOULD RESTORE BALANCE TO THE RELATIONSHIP AMONG NEW YORK HOMEOWNERS WHO LEASED THEIR LAND, THOSE WHO ARE FORCED INTO A SPACING UNIT THROUGH COMPULSORY INTEGRATION AND THE GAS DRILLING COMPANIES WHICH CONTROL THE DRILLING OPERATIONS ON AND UNDER HOMEOWNERS’ BACKYARDS. THE SPACING UNIT RISK MANAGEMENT PLAN WOULD LIKEWISE HELP PRESERVE HOMEOWNERS’ PROPERTY VALUE AND NEW YORK’S REAL PROPERTY TAX BASE. THIS PLAN WOULD ALSO RELIEVE NEW YORK TAXPAYERS OF THE CLEAN-UP COSTS WE WOULD OTHERWISE HAVE TO FUND, OR WORSE YET, THE DEGRADED QUALITY OF LIFE WE POTENTIALLY FACE BECAUSE WE SIMPLY CAN’T AFFORD THE REMEDIATION EXPENSES.

IF NEW YORK ELECTS NOT TO DRILL, WE STILL HAVE CONCERNS REGARDING OTHER STATES WHICH DO. NEW YORKERS’ PENSIONS ARE INVESTED IN THE $6.7 TRILLION DOLLAR SECONDARY MORTGAGE MARKET. OUR PENSION INVESTMENT PROVIDES A PORTION OF THE CAPTIAL WHICH ORIGINATING BANKS USE TO MAKE RESIDENTIAL MORTGAGE LOANS, NATIONWIDE. AS INVESTORS, WE EXPECT THE COLLATERAL TO REMAIN IN TACT FOR THE LIFE OF THE LOAN. WITH DRILLING GOING ON, OR PLANNED, FOR APPROXIMATELY 35 STATES ACROSS AMERICA, MANAGEMENT OF THE LOAN PORTFOLIOS IN THE SECONDARY MARKET SHOULD EMPLOY A TRACKING SYSTEM OF ALL MORTGAGED PROPERTIES (INCLUDING SPLIT ESTATES) WHICH ARE SUBJECT TO GAS LEASES; OTHER AGREEMEENTS GRANTING SIMILAR EXTRACTION RIGHTS; OR INVOLUNTARY COMPULSORY INTEGRATION. OF COURSE, A LENDER CAN CHOOSE TO FORECLOSE ON A GAS LEASE ENTERED INTO AFTER THE MORTGAGE WAS SIGNED; HOWEVER, THERE ARE COMPLEXITIES AND POLITICS INVOLVED. NEVERTHELESS, BANKS MAY OPT TO SEEK RECOURSE WITH RESEPCT TO GAS LEASES ONCE THEY GET A BETTER HANDLE ON HOW MANY OF THE NATION’S MILLIONS OF NON-PERFORMING LOANS ARE SECURED BY PROPERTIES WHOSE VALUE HAS BEEN ADVERSELY IMPACTED BY OIL AND GAS DRILLING OPERATIONS. MULTI-STATE ADOPTION OF THE SPACING UNIT RISK MANAGEMENT PLAN WOULD RESTORE CONTROL TO THE MORTGAGE MARKET, TOO.

*COPYRIGHT 2012. ALL RIGHTS RESERVED. ELISABETH N. RADOW, ESQ. (JUNE 28, 2012)
CONTACT: RADOW LAW PLLC; ENRADOW@RADOWLAW.COM