Thursday, September 11, 2008

$2,560 an Acre for Drilling Rights in Pennsylvania

NEW YORK (Associated Press) - Five out-of-state companies were the high bidders on leases that will allow them to drill for natural gas and oil on more than 74,000 acres of publicly owned land in northern Pennsylvania and provide a $190 million shot in the arm for state parks and recreation.

The companies were among seven that bid on the leases of 18 tracts in three state forests that are over the potentially lucrative _ and largely untapped _ natural-gas formation known the Marcellus Shale.

Despite the competitive bidding that opened in July, the first such lease sale in six years, the companies still need permits from the state Department of Environmental Protection and are likely to move more slowly with actual drilling.

"Our expectation would be that we wouldn't see any activity for about two years," spokeswoman Christina Novak of the state Department of Conservation and Natural Resources, which owns and manages 2.1 million acres of state forest land, said Wednesday.

By law, the money will go into the state's Oil and Gas Lease Fund, which is reserved for conservation, recreation, dams and floor control, Novak said. In the past, the money has been used for such purposes as expanding state parks and buying mineral rights on land that the state already owns.

Spurred by high natural-gas prices, companies across North America are jockeying to make deals with the owners of private land atop the Marcellus Shale, a deep gas reservoir that lies 6,000 to 8,000 feet underground.

The best drilling prospects are in upstate New York, eastern Ohio and across much of Pennsylvania and West Virginia. Geologists have known about the gas trapped in the Marcellus Shale for decades, but only recently developed a way to extract it.

The winning bidders on the state forest tracts in Tioga and Lycoming counties included Texas-based ExxonMobil, which submitted high bids for leases on six tracts, and Texas-based Anadarko Exploration & Production Company LP, which won five leases. The others were the New York-based Seneca Energy Production Company, which won four leases; New York-based Fortuna Energy Inc., which won two; and Texas-based Hunt Oil USA Inc., which won one.

The 10-year leases include annual per-acre rental fees starting in the second year _ the sale price counts as the first year's payment _ and a 16 percent state royalty on natural-gas production.

Since 1947, the department has held 72 lease sales and there are currently 650 gas wells in production on 207,000 acres in state forests.

A moratorium on drilling was imposed in 2003 in response to complaints that roads, well pads and pipelines were destroying wildlife habitat, but that was lifted earlier this year at the same time the department announced the lease sale. Top of page

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