Norse Energy, the Norwegian company that had hoped to cash in on a natural gas drilling boom in the Marcellus Shale in New York and create dozens of jobs in the Buffalo Niagara region, said Friday it has filed for Chapter 11 bankruptcy protection as the state continues its four-year-old moratorium on hydraulic fracturing.
Norse has an office in the Gateway Building in Hamburg that its local executives believed would grow rapidly as drilling expanded in New York. But those plans were put on hold while the company waited to begin drilling on the 130,000 acres it has under lease in New York as the debate raged over high-volume hydraulic fracturing, or fracking, a controversial technology used to free natural gas from shale.
As the moratorium continued, Norse faced a severe cash crunch and put its New York acreage up for sale, selling off about 23,000 acres in Central New York that included all of its conventional producing gas wells, for $37 million during May. But the combination of low natural gas prices, resulting from the steep rise in shale gas production in Pennsylvania and other states that allow fracking, coupled with the moratorium in New York, pushed down the prices that Norse’s New York leases could command in a sale.
“New York is a tough sell right now” for potential buyers, said Dennis Holbrook, Norse’s Hamburg-based chief legal officer. “They liked the geology of our position. They didn’t like the geography of our position.”
The state Department of Environmental Conservation has had a moratorium on drilling permits for horizontal wells since it launched an environmental impact review in 2008. The DEC is developing new regulations for fracking. The agency last week extended by 90 days the deadline to act on the proposed fracking regulations while the state Health Department conducts a review of the revised rules. That review now will extend into late February.
At its peak, Norse had 35 to 40 workers at its office in the Gateway Building and about 16 in Central New York, where most of the company’s land holdings are. Today, it’s down to five employees in Hamburg and a single worker at its office in Norwich. In May, Norse said it was moving its headquarters from Hamburg to Houston.
The company, which estimates that the natural gas trapped beneath that land contains as much energy as the equivalent of 951 million barrels of oil, said it will seek funding to continue operating while it attempts to reorganize under the bankruptcy court’s protection.
“This hopefully will buy us sufficient time for the regulatory process to advance,” Holbrook said.
If New York decides to allow shale gas drilling – and approves the rules for doing it quickly enough – Holbrook said the company would like to reorganize its operations and find a partner to launch a drilling program on its acreage.
“There is a scenario that could fit within our time frame,” he said.
If not, however, Norse may be forced to sell off its leased acreage as part of the bankruptcy proceedings to pay off its creditors as fully as possible, he said.
Norse’s financial position has been deteriorating steadily for nearly two years. With revenues squeezed because of the drilling moratorium, Norse faced a constant cash crunch. Despite the asset sales it was able to make, the company was down to $1.5 million in cash by mid-November, and Norse officials warned that those funds would only be enough to fund its operations into December.
Then, the company was ordered last week by a New York court to put $7.6 million into an escrow account as part of a year-old dispute with Buffalo-based Bradford Drilling Associates, which sued Norse last December for allegedly going millions of dollars over budget in a $9 million upstate drilling project that was halted in August 2011 in a move to conserve cash.
“I’m still an optimist at heart,” Holbrook said. “We still believe in New York. We still believe in the geology here, and honestly, I still believe in the regulatory environment here.”