More of Pennsylvania’s public lands may be auctioned for natural gas leasing next year after an offering Tuesday on 32,000 acres generated $128.5 million — twice the revenue budgeted.

Pennsylvania’s Senate Republicans this week said they already have an agreement in place to raise up to $180 million from gas leasing in 2011. Gov. Ed Rendell, a Democrat, on Wednesday did not rule out directing the state’s Department of Conservation and Natural Resources (DCNR) to lease more parcels of land in the Marcellus Shale to generate income for the state’s flagging budget.

Rendell, who spoke to reporters Wednesday, said the Marcellus Shale offers a “historic opportunity” to generate jobs and raise needed revenue for the state, which struggled to balance its 2010 budget.

Sixteen energy companies this week bid an average of $4,020/acre to drill on six parcels comprising 32,000 acres of state forest in north-central Pennsylvania. The lease sale’s total of $128.5 million generated more than twice the amount called for by lawmakers and generated a windfall of almost $60 million.

Seneca Resources Corp. was the top bidder, offering $71.8 million for two parcels totaling about 18,000 acres. Other top bidders included EXCO Resources Inc., with a $24.4 million bid for 4,639 acres; Anadarko Petroleum Corp., which bid $11.2 million for 2,724 acres; Penn Virginia Corp., with a bid of $13.9 million for 3,698 acres, and Chesapeake Energy Corp. unit Chesapeake Appalachia LLC, which bid $7.2 million for 2,952 acres.

Tudor Pickering Holt & Co. (TPH) analysts in a note to clients Thursday said the bids this week were “not surprising given the increased amount of information on Marcellus this time around.” The most recent transaction in Pennsylvania’s Marcellus acreage, they noted, was in December, when Ultra Petroleum Corp. paid $5,000/acre for 80,000 net acres in three counties (see Daily GPI, Dec. 22, 2009). “This lease sale looks comparable to that,” they wrote.

There were “new faces” among the qualified bidders this year that didn’t participate in the 2008 sale, noted the TPH team. Among those making bids in this auction were ConocoPhillips (COP), El Paso Corp. (EP), Ultra and Williams (WMB), but “none submitted any bids despite applying to qualify. Of these, COP and EP don’t currently have acreage in the Marcellus.” They expect WMB to increase its Marcellus acreage “in a big way.” Williams currently leases 25,000 acres in the play, but TPH expects the producer “to get to more than five times that.”

Among the other trends noted by TPH: Chesapeake was the only bidder on all six tracts and the only bidder for a Cameron County, PA, tract. The bids were “surprisingly close on most tracts.” And ExxonMobil Corp. bid on two tracts.

A previous auction in September 2008 for 74,000 acres in Pennsylvania generated average bids of about half the amount of the latest bids, or $2,000/acre, from 18 companies, DCNR spokeswoman Chris Novak told NGI. More than 800 gas wells are now active in the state.

Last October state leaders struck a budget deal to obtain more income from leasing acreage in the massive shale play, which lies beneath most of Pennsylvania (see Daily GPI, Oct. 12, 2009). To date about a third of Pennsylvania’s 2.1 million acres of state forest have been opened to energy development.

John Quigley, DCNR acting secretary, on Tuesday called for policymakers to evaluate the environmental impact of gas drilling before leasing more land. About 692,000 acres of the state’s 2.1-million-acre forest system are already under lease.

State Rep. Greg Vitali also Wednesday called for the state to enact a severance tax on each unit of gas produced from Pennsylvania wells instead of leasing additional public land. A similar proposal was defeated last year.

“We need to go real slow at this and not look at the parks as a cash cow,” Vitali told reporters.

Rendell acknowledged that the Marcellus Shale region is “a very sensitive area” and said he was concerned that business interests and citizen groups would remain polarized over the drilling issues.

“We don’t have to make the false choices of either drawing a line in the sand and saying no more drilling under any circumstances…and cutting off what does have the potential to put tens of thousands of Pennsylvanians to work,” Rendell said.

The state could generate the most income in the future by targeting the “most attractive” drilling tracts identified “while at the same time taking significantly less acres of land,” said the governor.

Other methods to generate drilling income from the Marcellus Shale also are moving forward, said DCNR’s Novak. Pennsylvania now is negotiating to lease rights underlying the Susquehanna River to an undisclosed driller that has leased private land along the waterway. The shale deposits would be accessed through horizontal drilling on adjacent land.

According to the DCNR, the leases under the waterway could generate more than $10 million in initial payments as well as future royalties. The driller would be identified if the transaction is successfully completed, Novak said.

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