|
DCNR Natural Gas Leasing Proposal
BACKGROUND
Over the last few years, a number of companies have been successfully drilling deep, high-pressure gas wells in southern New York and in West Virginia from the Trenton-Black River formation. The Trenton-Black River is a porous rock formation possibly as deep as three miles beneath the surface in Pennsylvania. This formation runs from New York to Kentucky and is thought to be the location of large supplies of natural gas in north-central Pennsylvania under state forestry lands.
Since the Bureau of Forestry has been safely drilling for natural gas for more than 50 years on state forest lands as part of its multi-use management of state forests, and since there is such a high level of interest by the industry, the Department of Conservation and Natural Resources - oversight agency of the Bureau of Forestry - decided to pursue similar opportunities in Pennsylvania.
DCNR intended to solicit bids from the oil and gas industry to lease the subsurface natural gas rights on nearly 500,000 acres of state forestland in Potter, Tioga, Clinton, Cameron, Lycoming, Huntingdon and Fayette counties. DCNR postponed the oil and gas lease auction for these lands it had originally scheduled for May 8-9, 2002, to allow for further review and discussion by the public.
OIL AND GAS LEASE FUND
Gas drilling activity is not new to state forestry lands. Since 1947, many hundreds of gas wells have been drilled on state forestry lands, and between 450 and 500 wells are producing today. Over the last 55 years, the total income from gas storage royalties and rentals has reached $129 million.
The General Assembly created the Oil and Gas Lease Fund in 1955 and established a landmark and farsighted policy of taking the money from the sale of nonrenewable oil and gas resources owned by the state and reinvesting this money into public conservation assets benefiting all Pennsylvanians.
Money from this fund has purchased land for many of Pennsylvania’s state parks, acquired critical tracts for state forests and helped to maintain an estimated $3 billion parks and forestry infrastructure.
The anticipated revenues from leases such as these being offered at the upcoming auction are required to be deposited in the Oil and Gas Lease Fund and earmarked for land conservation and recreation projects on state park and forest lands.
ENVIRONMENTAL SAFEGUARDS
It is very important to note that no lands are being “sold off,” nor is the department “opening” a half-million acres to natural gas drilling, with the implication that these lands were closed to industry development in the past. The lands contained in the auction are being put up for lease, not for sale, and what are being leased are the subsurface gas rights. And nearly all of these acres have been leased for gas development in the past, some as many as two and three times.
The department has developed one of the strongest, if not the strongest, oil and gas lease in the country. And in anticipation of the upcoming lease auction DCNR has strengthened its environmental and safety provisions even more.
For example:
- To reduce forest fragmentation, DCNR changed the minimum well spacing requirement from one well in 40 acres to one well for each 640 acres - one square mile.
- DCNR increased the bond requirements to some of the toughest in the nation. Instead of the $2,500 bond per well required by law, DCNR is requiring companies to secure a $25,000 lease bond as well as a well plugging bond for each well ranging from $5,000 to $100,000 as a minimum depending on the depth of the well.
- Successful bidders must provide the department with a $20 million Drilling-Well Control Insurance Policy for wells anticipated to reach 10,000 feet or deeper.
- The lease prohibits drilling on or within 660 feet of the boundary of any state park, state forest wild area or natural area.
- All drilling sites and access roads are subject to the approval of the DCNR district forester. Therefore, if the proposed site is in an area unacceptable to the District Forester, he or she has the authority to require the company to move the proposed drill site or access road to a more acceptable location.
- All well drilling must comply with the Department of Environmental Protection’s oil and gas well drilling regulations.
There are about 500,000 acres of state forestry land in the proposed lease auction. But only a very small fraction of that total would ever be used for well site locations or access roads. Drilling the Trenton-Black River is expensive. It is estimated that each well drilled there may cost between $3 and $5 million. Thus, because of the anticipated large drainage area and high drilling and completion costs, over-drilling will not be a problem.
Each well site “footprint” will be about 3 to 5 acres. During drilling, a rig will be onsite for about 60-90 days, after which time a successful well will be fitted with a wellhead and hooked up to a transmission line. A well may produce gas for several decades or more.
Over the years the Bureau of Forestry has proven it can lease oil and gas resources for development without compromising its stewardship responsibility, including maintaining a healthy, sustainable forest, protecting threatened species, assuring viable habitat for game and non-game species and providing outdoor recreational opportunities of nearly every imaginable kind.
This upcoming natural gas lease auction and drilling program will be done with stringent safety and environmental protection provisions of our lease, and a committed staff of professionals. We feel confident that our valued forest resource will be protected.
UNIQUE BIDDING OPPORTUNITY
Unlike previous oil and gas lease sales, in which sealed paper bids were used, DCNR plans to conduct the first-ever online bidding auction. Companies will have the opportunity to bid on the 75 tracts being leased. Designed and administered by FreeMarkets Inc. of Pittsburgh, the competitive, anonymous auction will be the first of its kind held in this country by a governmental agency. For more information, log on to www.assetauctions.freemarkets.com.
| 
