TO: Daniel Reynolds, Chairman; Legislators.

FROM: Barbara Fiala, County Executive.

cc: Joseph Sluzar, County Attorney; Darcy Fauci, Dep. County Exec; Pat Brennan, Dep. County Exec; Marie Kalka, Budget Director.

Re: Natural Gas Lease Offer

DATE: September 20, 2010

______

Broome County has received a revised mineral lease offer from Inflection Energy, LLC. While the proposed bonus has been reduced from $3,000 per acre to a range of $2,250 to $2,750 per acre, the offer does not apply to some of the County’s best acreage near the Pennsylvania border. Plus the 20% royalty remains. Inflection has included important environmental protections, including an environmental monitor, closed loop drilling and land reclamation guidelines. It has agreed to hold the offer open until November 30, 2010.

This memo will summarize several key points.

1) Parties. The lease would be between the County of Broome as lessor, an Inflection Energy, LLC as lessee.

2) Bonus. There will be a bonus per mineral acre from $2,250 to $2,750 depending on the location of the property; another like bonus payment may be paid after five years. The bonus is not contingent on lifting the informal DEC moratorium.

3) Term. The initial term is 5 years. The lessee has an option to extend for an additional three years on any property not developed. The lease becomes effective upon execution; the five year clock on the initial term commences when DEC finishes the SGEIS and permits for horizontal drilling may be issued.

4) Property leased. The offer covers approximately 3,209.14 acres with a total bonus of $7,817,207, plus or minus. The final bonus would be adjusted following property searches. The lease would apply to all geological formations.

a) Excluded from the offer is Aqua Terra, Hawkins Pond and Cole Park. Based on information acquired from the County’s consulting geologist, some of this excluded acreage potentially has the most gas in place in the Marcellus formation in Broome County.

b) The offer includes land where the public safety building is located, but not land where Broome Community College is located. Currently those properties are listed on one tax parcel. An acreage adjustment will have to be made following property searches.

(page 1 of 2)

5) Royalty. The lessor will pay a 20% royalty. The County must share in post production costs. That share is capped at $0.30 per mcf.

6) Royalty protection. If lessor executes any leases in the next year with a higher royalty or lower deduct, the County will receive the same benefit.

7) Surface operations. The lessee will pay $1.00 per foot for gather line pipelines, $20.00 per foot for transmission line pipelines and $2,000 per acre for surface operations. There will be a CPI adjustment for future years. The Commissioner of Public Works must approve all locations in advance according to department standards.

8) Wells. Lessee agrees to drill two wells within two years.

9) Environmental Protections. The lessee will pay for an environmental monitor, hired and directed by the County, to ensure compliance with DEC regulations and lease covenants. The lessee has agreed to use closed loop drilling at all wells. The lessee has agreed to follow as close as practical NYS Ag and Market reclamation guidelines.

10) Time of Offer. The offer is open until November 30, 2010.

11) Legislature. My office has accepted the offer subject to approval by the Broome County Legislature.

We are willing to schedule a meeting at your convenience to discuss the offer in more detail. Inflection officials are also willing to attend a session.

###