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DCNR Natural Gas Leases Take In $128.3 Million To Balance State Budget
The Department of Conservation and Natural Resources opened bids this week for 31,000 acres of Marcellus Shale natural gas leases on State Forest land. The winning bids totaled $128,397,888 about twice the required $60 million they must produced to balance this year's General Fund budget.

Specific tract bid results averaged approximately $4,140/acre:
-- Tract 1 Seneca $3,125/acre ... $23,253,125 total (Potter County)
-- Tract 737 Anadarko $4,111/acre ... $11,198,364 total (Clinton County)
-- Tract 007 Seneca $4,625/acre ... $48,530,125 total (Tioga County)
-- Tract 323 Exco $5,250/acre ... $24,354,750 total (Clearfield County)
-- Tract 416 Penn Virginia $3,750/acre ... $13,867,500 total (Potter County)
-- Tract 419 Chesapeake $2,437/acre ... $ 7,194,024 total (Cameron County)

"On Tuesday, we received proof positive that our careful planning and preparation to minimize the number of acres put out to bid was the right approach, because those less-than-32,000 acres generated more than twice the amount we projected for this fiscal year," said Gov. Rendell. "Now, we can walk into next year with $68 million in unanticipated oil and gas revenues. This will certainly make a difference in what will likely be another very challenging budget year. It will sure come in handy in dealing with our budget shortfall."

The winning bidders must make their bid payments to DCNR by March 12 for transfer to the General Fund. In addition, DCNR will receive an 18 percent royalty on natural gas production. DCNR leases in 2008 brought in $190 million covering 74,000 acres with a 16 percent royalty.

The two-year budget agreement in October requires DCNR to produce $60 million from oil and gas leases to help balance the 2009-10 budget and there is an agreement to require DCNR to produce $180 million from leases to balance the 2010-11 budget.

In past years $174 million was used from DCNR's Oil and Gas Fund to balance the 2007-08 budget and $43 million to balance the 2008-09 budget.

This $128.3 million means DCNR will owe the General Fund about $62 million next year from a third round of natural gas leases.

Fragmentation Concern

Gov. Rendell said he was very concerned about the fragmentation of State Forests caused by roads and pipelines required to service the natural gas drilling pads.

He pointed out DCNR has added more than 130,000 acres to the State Forest system since he became Governor, more than offsetting the 106,000 acres leased for Marcellus Shale natural gas drilling.

As a result of the concern over fragmentation, the Governor said DCNR would be forming a partnership with the oil and gas industry to develop best management practices to reduce the footprint of drilling operations and the fragmentation caused by supporting facilities.

Industry Meeting

Gov. Rendell announced he has invited natural gas drilling companies, state agencies and environmental groups to a meeting next week to discuss adoption of a natural gas production severance tax, drilling wastewater and other issues. He said he expects these meetings to become a regular event.

Drilling Expected To More Than Double

Gov. Rendell also reported Marcellus Shale activity is expected to more than double during 2010 according to the natural gas industry.

DEP reported issuing 1,984 drilling permits in 2009 and the industry expects to apply for 5,200 permits during 2010. DEP issued 195 Marcellus permits in 2008.

DEP said 763 wells were actually drilling during 2009.

For more background information, visit the DCNR natural gas leasing webpage.

1/18/2010

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