Kentucky Government & Natural Gas Revenue

By JOE BIESK - Associated Press Writer

FRANKFORT, Ky. -- A proposal moving in the Kentucky General Assembly is looking to find some extra cash by searching underground.

As states across the country struggle to find money to pay their bills - federal stimulus help aside - state Sen. Tom Jensen has proposed Kentucky look to see if it can profit from any natural gas or oil brewing beneath state-owned property. That would include searching on land for state parks and public universities.

"We need to start thinking outside the box a little bit, instead of just thinking about cutting and taxing," Jensen, R-London, said.

Kentucky has pockets of underground oil and natural gas reserves. Exactly how much lies beneath the surface of state-owned land remains to be seen. Jensen, who is chairman of the Senate Natural Resources and Energy Committee, has proposed two separate measures aimed at finding out.

One proposal Jensen has offered would order the Kentucky Geological Survey at the University of Kentucky to study where state-owned land with underground natural gas or oil exists. Another would authorize the state to begin leasing that land and collect royalties.

The bill would also apply to public universities in Kentucky.

Souring national and state economies left Kentucky state government facing a projected $456.1 million budget shortfall in the current fiscal year that ends June 30. Next year's budget outlook is expected to get worse, although official projections are not yet available.

Kentucky lawmakers last month approved a plan to balance the budget by cutting some government services, doubling the state tax on cigarettes and imposing a 6 percent tax on alcohol - beer, wine and liquor. Lawmakers are also considering a plan for state government to keep about $130 million for road projects by blocking a 4 percent drop in Kentucky's gasoline tax from kicking in.

Jensen said any money that could be generated from oil and natural gas royalties could help.

"There's some potential here," Jensen said. "I'm hopeful that it'll help us in this time of need."

Brandon Nuttall, a geologist with the Kentucky Geological Survey, said exact numbers for how much oil and natural gas resources exist in the state, and how much reasonably can be removed, is unknown. Kentucky likely has about 1.3 billion or more barrels of oil and at least 12 trillion cubic feet of natural gas, Nuttall said.

If sold, what's there likely could bring in money for programs such as scholarships or habitat restoration, Nuttall said.

"If you're looking for enough revenue, for example, to make up the budget shortfall, that's not going to happen," Nuttall said. "There's lots of different programs that this income could help support."

Tom FitzGerald, head of the Kentucky Resources Council, an environmental advocacy group said there were some concerns about whether the legislation would allow leasing of public lands before the survey is completed. FitzGerald said he wanted the measure to ensure that land managers would have a say in whether lands such as nature preserves, wilderness or public park lands should be open to drilling.

"We want to fully protect those values," FitzGerald said.

Nevertheless, there are questions remaining even if the legislature approves the plan.

Officials still would have to determine not only if the state owns the land, but whether it has mineral rights to any underground resources, Jensen said. Any drilling would have to be in the state's best interest and maintain the environment and local scenery, Jensen said.

The state may also want to look to drill under lakes, rivers and streams, he said. Other states already allow for oil and natural gas to be removed from government land, including Montana, Indiana and Louisiana, Jensen said.

Whether Kentucky could make thousands or millions in royalties remains to be seen, Jensen said. That's part of what he's hoping the survey can determine, Jensen said.

"I know it can generate some revenue, but is it going to generate a lot?" Jensen said. "I don't know."