Shale Daily / NGI All News Access

More Pennsylvania Forest Leasing Unlikely For Now

Although Pennsylvania could eventually lease additional state forest land for natural gas drilling, it will likely be in small doses, according to the state's top land manager.

"We will be looking at any opportunities on a case by case basis, and only for those type of leases that will have little or no impact on the surface," Richard Allen, secretary of the Department of Conservation and Natural Resources (DCNR), told members of the state Senate Appropriations Committee during a recent budget hearing.

Around 1.5 million acres of the 2.2 million-acre state forest system overlie the Marcellus Shale and some 700,000 acres are currently leased for drilling. Shortly before leaving office then-Gov. Ed Rendell placed a moratorium on leasing the remaining 800,000 acres (see Shale Daily, Oct. 27, 2010). Almost immediately upon taking office in November, Gov. Tom Corbett indicated he would gradually re-open state forests for drilling, but has yet to take steps in that direction (see Shale Daily, Nov. 15, 2010).

"Because of the moratorium in effect, we are not addressing any discussions in regards to additional leasing now," Allen said. "If and when the moratorium is lifted, we will be following the recommendations from the Marcellus Shale Advisory Commission."

That commission recommended additional stakeholder reviews of permitting in forests, as well as a general policy that all future leasing have little or no surface impact.

Maintaining the moratorium is a major issue of environmental groups in the state, and 80 state lawmakers threatened to hold up allocations from the Oil and Gas Lease Fund if Corbett dropped the moratorium (see Shale Daily, March 9, 2011; Jan. 13, 2011).

Committee Chair Jake Corman, a Republican from central Pennsylvania, noted that at current gas prices, leasing additional state forest land is not a major priority of industry.

Since its lease sales in 2008 and 2010, DCNR has issued 812 drilling permits on state forest land. Of those, 778 have also been approved by the Pennsylvania Department of Environmental Protection, 442 have been drilled and 152 are producing, Allen said.

Statewide, Pennsylvania has issued 8,870 Marcellus permits between 2009 and 2012 year-to-date, with 4,298 wells drilled during that period, according to data from the Pennsylvania Department of Environmental Protection.

Development is an increasingly important revenue source for DCNR. In addition to the $378 million it received from the lease sales, DCNR expects to get 30% of its budget this year, around $65 million, from rents and royalties into the the Oil and Gas Lease Fund, Allen said. And with operators telling the state that production will likely increase, Allen said DCNR expects that amount to increase in the years to come.

But the proposed budget actually projects a decrease in revenue to the fund from last year, something that Allen attributed to the ongoing drop in natural gas prices.

Citing the "cut and raid" budget policies of the Corbett Administration, Sen. John Yudichak, a Democrat from northeastern Pennsylvania, questioned whether using the fund for administrative costs violated the intention of the account. Allen said the fund was created to address recreation, conservation, flood control and dams, and that DCNR carried out those functions on an administrative level, in addition to programs.

When pressed on the matter, Allen said DCNR obtained a legal opinion on the question.

The proposed budget would permanently move $38 million earmarked for the Keystone Recreation, Parks and Conservation Fund to the state general fund, requiring DCNR to lean more heavily on the Oil and Gas Lease Fund and the Environmental Stewardship Fund, as well as revenues from the new impact fee on unconventional gas drilling.

Asked by Yudichak if DCNR worried that its funding could be held hostage by counties that chose not to impose the impact fee, Allen said that only 4% of the impact fee revenues collected in any year went to DCNR and therefore weren't crucial.

But Allen admitted that DCNR will have to "prioritize" grants because of tight budgets.

Asked by Sen. Lisa, Baker, a Republican from northeastern Pennsylvania, about the management of pipelines through state forests, Allen said that DCNR reviews permits thoroughly and asks companies to locate pipelines within existing rights-of way.

Asked about the impact of leasing and drilling to date, Allen said DCNR is always reviewing industry practices and that impact on the forests to date has been "minimal."

"We believe we have the strictest and tightest lease out there," Allen said.

While DCNR is supportive of drilling in forests, the agency has a policy to not allow any drilling in state parks where it owns the mineral rights, Allen said. But while DCNR owns 80% of the mineral rights in forests, it only owns 20% in parks. "By law, we cannot restrict anyone from accessing their mineral rights, but what we can do is enforce our guidelines and surface agreements to help minimize surface impact," he said.

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