State Deals With Drillers Raise Brows
Pittsburgh Tribune-Review
2 September 2010
By Debra Erdley and Walter F. Roche Jr.
The cash-strapped Rendell administration has leased nearly 150,000
acres of public forests and game lands to gas companies that paid $400
million to drill for natural gas.
Some critics say Pennsylvania taxpayers lost out on more money when
administration officials privately negotiated two of the deals, worth
$122.3 million, instead of seeking bids.
"Why wouldn't you be competitively bidding public resources?" asked
Bill Belitskus, president of the Allegheny Defense Project, a nonprofit
forest watch group. "That's criminal to me."
But it's legal in Pennsylvania, where an obscure clause in state law
allows closed-door negotiations when drillers own leases next to state
land.
State records the Tribune-Review obtained show that, in one
noncompetitive agreement Jan. 7 with Texas gas company Anadarko, the
state received $1,000 an acre for 2,300 acres in Sproul State Forest,
in Centre and Clinton counties.
Two weeks later on Jan. 19, a public auction of 31,976 acres in
Cameron, Clearfield, Potter, Clinton and Tioga counties generated $128
million, or about $4,000 an acre, for taxpayers.
In another noncompetitive deal reached May 10, the state leased
Anadarko 33,000 acres in Centre, Clinton and Lycoming counties, at an
average $3,650 an acre.
That was less than the $5,000 to $6,000 an acre paid to private
landholders at the time, said Greg Wrightstone of Wexford, a petroleum
geologist who authored studies on the Marcellus shale formation.
"Both of these private, no-bid lease schemes ... were consummated at
less than market-bonus rates," Wrightstone said, calling the deals "a
slap in the face to Pennsylvania taxpayers."
Rendell spokesman Mike Smith defended the deals. He said $1,000 an acre
was the going rate for gas leases when
Anadarko approached the administration about the Sproul tract in May
2009. Kent Moors of Duquesne University, an international expert on oil
and natural gas policy, said that indeed was the case in May 2009, but
things had improved by the time the deal was sealed eight months later.
The May 10 Anadarko deal, the company's second private deal, provided
money to plug a hole in the state's 2010-11 budget. It ended the need
for more leasing and minimized disruption to the environment because
the company could access much of the land from adjacent leases, Gov. Ed
Rendell said at the time.
"This is a responsible approach that meets our revenue targets and
limits the impact of additional natural gas exploration," Rendell said.
Anadarko did not return calls for comment.
Although Anadarko held leases adjacent to those it negotiated
privately, "other companies did as well, and my private discussions
with various companies indicate that there would have been intense
interest in bidding for these tracts, had they been made available in
an open bidding process," Wrightstone said.
Drillers the Tribune-Review contacted were hesitant to criticize such
deals openly. Some privately said the deals raised industry officials'
eyebrows.
Rep. David Levdansky, D-Forward, is among lawmakers seeking a
moratorium on leasing public land for drilling.
"Going forward, I feel very uncomfortable with the governor having the
authority to sole-source (state forest lease) contracts," Levdansky
said.
John Quigley, secretary of the Department of Conservation and Natural
Resources, said he's comfortable with
Rendell's pledge to halt wholesale leases in state forests. But Rendell
leaves office at the end of the year.
"The big question is: What about the next administration?" Quigley
said.
He warned further forest leases will endanger the state's sustainable
forest management certification and 90,000 Pennsylvania jobs that
depend on the state's marketing of timber as sustainably harvested.
Game Commission leases
The state Game Commission leased more than 5,000 acres across Elk,
Center, Forest, Greene and Clearfield counties.
At rates ranging from $1,250 to $5,500 per acre, and royalty payments
up to 27.5 percent, the commission received $2.3 million from leases
last fiscal year.
The commission entered into a noncompetitive deal -- submitting votes
by fax machines -- in May with Chesapeake Appalachia. Under the deal,
the company will pay $2.4 million this year -- $5,500 per acre -- and
21 percent of royalties for access to game lands in Bradford County.
However, it will get a $450,000 credit for deeding 95 acres to the
commission.
Commission spokesman Gerald Feaser said Chesapeake's lease includes
three islands in the Susquehanna River near Wyalusing. Chesapeake will
access the gas without disturbing surface game lands, he said.
"They were drilling right next to us, and if we didn't act
expeditiously, it could have resulted in surface damage," said Feaser.
He acknowledged that any damage to state game lands ultimately would be
Chesapeake's responsibility but said:
"Isn't it better to have no damage in the first place?"
Commissioner David J. Putnam said the commission granted the leases
with a long-term outlook.
"I don't think it was wise to try to balance the state budget by
selling off assets," he said. "You're not going to maximize the value
by doing that. We are not going to do that."
The Game Commission uses lease proceeds for operations. The money does
not go into the general budget.
Commission Chairman James J. Delaney said he voted for the expedited
lease in part because the commission badly needs cash.
"I had some real concerns," he said, recalling a disaster caused by
mining too close to the river. "These are tough decisions. I'll
continue to be diligent."
Environmental concerns
Quigley and Rendell insist they structured the state forest leases with
respect for the environment.
Quigley pointed to the most recent Anadarko lease.
"It minimizes the environmental footprint. Typically, in a 30,000-acre
lease, we'd see 1,000 acres of surface disturbance. On this we will see
less than 300 acres of surface footprint," Quigley said.
Even so, some scientists and environmental groups question the impact
horizontal drilling technology may have on forests. The process uses
millions of gallons of water and chemicals to fracture the shale,
releasing gas.
Few Pennsylvanians see the drill sites along a remote stretch of Elk
State Forest on Boone Mountain Road. Five drill sites -- four of them
identified as Marcellus wells -- are clustered on a stretch of state
road eight-tenths of a mile long in Elk County.
At two sites, green wellheads mark the bare yellow soil where rigs once
tore into ground formerly covered with trees and ferns. At a third
site, a bank of massive brine tanks and a pair of solar-powered heaters
that draw moisture from the gas sit near the wellheads.
Nearby, an endless roar cuts through bird song as a huge rig surrounded
by towering klieg lights bores the earth. A second rig toils at a site
almost a mile away.
"We don't need as many of these sites all clustered close together,"
said Belitskus.
John Hanger, secretary of the Pennsylvania Department of Environmental
Protection, wants to keep well sites 8,000 to 10,000 feet apart.
Kathryn Klaber, president of the Marcellus Shale Coalition, an industry
trade group, declined to endorse any "one-size-fits-all" regulation but
noted that improving technologies allow drillers to cluster wells.
Belitskus traveled to Elk County in August with Allegheny Defense
Project forest monitor Cathy Pedler to update the group's records.
They're concerned about water withdrawal applications filed with the
Susquehanna River Basin Commission that show EOG Resources, a Texas
company drilling on Boone Mountain Road, plans to drill 500 wells over
four years.
"And that's just one company in one region," Belitskus said.
Anthony R. Ingraffea, a professor of civil and environmental
engineering at Cornell University, began studying hydraulic fracturing
three decades ago. He, too, worries about its impact in forests.
"Bird species disappear. Invasive plant species appear," Ingraffea
said. "... And, of course, there are the inevitable spills.
"... Statistically speaking, no industry is perfect. When you have
hundreds of thousands of potential incidents, there will be hundreds of
incidents, or more."
Debra Erdley and Walter F. Roche Jr. can be reached at
derdley@tribweb.com or 412-320-7996.