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Pennsylvania Leases 1,400 Acres Under Waterways, Nets $5.9M in Bonuses

The Pennsylvania Department of Conservation and Natural Resources (DCNR) has leased more than 1,400 net acres for natural gas drilling under public waterways in the state, and has raised nearly $5.9 million in signing bonuses.

Patrick Henderson, energy adviser to Pennsylvania Gov. Tom Corbett, confirmed to NGI's Shale Daily that DCNR has entered into nine lease agreements for exploration under state waterways since March 2012.

Last month DCNR signed a five-year oil and gas lease with Chesapeake Appalachia LLC for nearly 1,092 acres underlying the Susquehanna River in Bradford and Wyoming counties. The leased area is divided into two parcels, measuring 820.76 and 271.16 acres.

Chesapeake agreed to pay the DCNR a $4,000/acre signing bonus (about $4.37 million total), plus a royalty for the gas of 35 cents/Mcf --  or 20% of fair market value, whichever is higher, and 20% of the field price per barrel for oil, condensate or natural gas liquids.

DCNR this year also signed leases, with identical five-year primary terms, signing bonuses and royalty terms, with:

  • Vantage Energy Appalachia LLC on Jan. 31 for about 80.4 acres under Ten Mile Creek in Greene County with a total signing bonus of $321,692;
  • ExxonMobil Corp.'s XTO Energy Inc. on Feb. 25for 18.7 acres under Black Lick Creek in Indiana County with a $74,800 total signing bonus; and
  • Chevron Appalachia LLC on March 12 for 57 acres under Dunkard Creek in Greene County with a total signing bonus of $228,000.

Mark Szybist, an attorney representing the statewide public interest group PennFuture, said he believes the leases run afoul of an executive order issued in 2010 by then-Gov. Ed Rendell (see Daily GPI, Oct. 27, 2010). That order places an immediate ban on oil and gas leases for any land owned and operated by DCNR.

"If you read the executive order, it prohibits leasing of any lands administered by DCNR -- not just state forests or state parks," Szybist told StateImpact Pennsylvania. "So technically these leases would appear to violate the executive order, even if this is not the leasing Rendell had in mind."

Henderson said Rendell's executive order was still in effect but was only binding on the governor's office. Corbett could lift it at any time or issue a new order.

"It's applicable to state park and forest lands that are owned and managed by DCNR," Henderson said. "[But] the fact remains that these lands are actually owned by the Commonwealth, not DCNR. That is a key distinction.

"We did research prior to DCNR going down this path. We researched whether or not the executive order was applicable. Our attorney concluded that it was not applicable. It is not parkland or forest land owned by DCNR. [With these leases], DCNR is essentially acting as the agent on behalf of the Commonwealth because that's where all the expertise for executing leases resides."

In 2012, DCNR began requiring operators to sign a lease and make royalty payments to the state for gas drilling under Pennsylvania's navigable streams, lakes and waterways (see Shale Daily, June 5, 2012). Many waterways were designated as publicly owned in the late 1700s and 1800s, but Pennsylvania received the mineral interests under the waterways when the Dam Safety and Encroachments Act was codified into state law in 1978. Rulings by the Pennsylvania and U.S. Supreme Courts have affirmed the designations.

That year, DCNR officials said the agency was concerned that publicly owned mineral rights were hindering development, or that the state wasn't being properly compensated in areas where drilling was already taking place.

DCNR has developed a website with an interactive map to show where the state's publicly owned waterways are located.

Henderson added that DCNR met with operators last year to discuss leases under publicly owned waterways, and said that so far they have been both enthusiastic and cautious over the possibilities those leases provide.

"Nobody at all is disputing that [navigable waterways] are publicly owned," Henderson said, adding that the operators "know up front that they're going to have to talk to the Commonwealth. If they don't, they're left with the proposition of putting pads potentially on either side of the river and then drilling away from the river, not going under because they don't own it.

"It makes sense for them to come and talk to us because perhaps they can do that [drilling] with one pad and laterals underneath, saving them all sorts of time and cost. [But] there are other areas out there where operators simply aren't sure. There are drilling laterals under waterways all over the Commonwealth. At times in the past there has been confusion over what's publicly owned and what's not."

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