NEWS RELEASE

COMMONWEALTH OF PENNSYLVANIA
Department of Conservation
and Natural Resources
Commonwealth News Bureau
Room 308, Main Capitol
Harrisburg, PA 17120

FOR IMMEDIATE RELEASE

CONTACT: Gretchen Leslie
DCNR Press Secretary
(717) 772-9101

DCNR POSTPONES GAS LEASE AUCTION TO ALLOW PUBLIC REVIEW
Decision comes one day after Conservation and Natural Resources Advisory Council votes to recommend postponement

HARRISBURG (April 25, 2002) — Accepting the recommendation of the Conservation and Natural Resources Advisory Council, state Department of Conservation and Natural Resources (DCNR) Secretary John C. Oliver today announced the agency will postpone the gas lease auction originally scheduled for May 8-9 to allow for further review and discussion by the public.

The auction was 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 Cameron, Clinton, Fayette, Huntingdon, Lycoming, Potter, and Tioga counties.

The Advisory Council voted 8 to 5 yesterday to recommend postponing the auction.

“After a thorough discussion with our Conservation and Natural Resources Advisory Council members, it was their recommendation and our decision to postpone this auction to allow for an information and review period by council members and others,” Secretary Oliver said.

“Although we’ve been leasing gas rights for more than 50 years, we recognize there is an increased concern over this lease because of the amount of state forestland under consideration. Even though we followed our standard procedure with this lease, we should have made our plans known well in advance. It became clear the public did not view this lease as ‘standard.’ We want to take a step back to share our processes with the public and allow those interested a chance to further review these plans.”

Oliver said over the next two months DCNR will hold several information outreach sessions with the public to explain details of the gas lease and the history of gas drilling on state forestlands, hear comments, and address concerns.

A web site is being developed with information about the proposed drilling activity, the lease document, as well as draft environmental review procedures for approving and administering gas wells that will be used by field foresters.

DCNR will spend several weeks after the public comment period, which ends June 15, reviewing information received from interest groups. A decision on re-scheduling the public auction will be made after the review period, no later than July 31.

For the last couple of years, DCNR has been investigating the possibility of leasing the gas rights to the Trenton-Black River formation, a porous rock structure thought to be the location of large supplies of natural gas in northcentral Pennsylvania. The formation, which runs from New York to Kentucky, is located as deep as three miles beneath the surface under state forest lands.

“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 formations,” Secretary Oliver said. “Since we have been safely drilling for natural gas since 1947 on state forestlands as part of our multi-use management of our forests, and since there is such a high level of interest by the industry, we decided to pursue similar opportunities in Pennsylvania.”

Oliver noted DCNR’s resource-management team spent more than six months examining its gas lease for additional environmental considerations for deep, high-pressure drilling. Part of the review was visiting deep well locations in New York to study environmental concerns.

“We believe we have in place some of the most stringent environmental requirements in the nation for gas drilling on our lands,” Secretary Oliver said. “Over the years the Bureau of Forestry has proven it can lease oil and gas resources for development without compromising a healthy, sustainable forest.”

Secretary Oliver noted that for this lease auction DCNR tightened its lease requirements for operators:

• 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.
• No surface activity of any kind—such as drilling, wellpad construction, roads, pipelines—can take place on a state park or state forest wild or natural area, such as Pennsylvania’s Grand Canyon. The lease also prohibits drilling within 660 feet of the boundary of these areas.
• 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 at 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.
• All drilling sites, access roads and transmission lines are subject to approval by the DCNR district forester.
• All well drilling must comply with the Department of Environmental Protection’s (DEP) oil and gas well drilling regulations.

“We believe that with the stringent lease requirements, our site specific environmental review process, and DEP’s well-drilling regulations, DCNR can assure stewardship of these lands for future generations,” Secretary Oliver said.

DCNR geologists estimate that only a small fraction of the 500,000 acres in the lease auction would ever be disturbed, and that only a few dozen wells are likely to be drilled.

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.

“It is important to note that no lands are being ‘sold off,’” Secretary Oliver said. “The lands contained in this auction are being put up for lease, not for sale, and what’s being leased is the subsurface gas rights. All traditional management of these forests, such as recreation and wildlife, will continue by DCNR personnel.

“Nearly all of these acres have been leased for gas development in the past, some as many as two and three times.”

Since 1947, hundreds of gas wells have been drilled on state forestlands, and about 450 wells are producing today. Over the last 55 years, the total income from oil and gas production and 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, 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,” Secretary Oliver said.

“Money from this fund has purchased land for many of Pennsylvania’s state parks and helped to maintain an estimated $3 billion parks and forestry infrastructure.”

Unlike previous oil and gas lease sales, in which sealed paper bids were used, DCNR plans to conduct the first-ever online bidding auction. During two days, companies will have the opportunity to bid on the 141 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 the PA PowerPort at www.state.pa.us, PA Keyword: “gas drilling.” To view a copy of the lease, log on to www.assetauctions.freemarkets.com.

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2002