Marcellus, meet Oriskany

Several dozen landowners in Bedford County have found themselves between a geologically formation and a hard place. They will likely be in court and tilting against a massive gas company resisting the sale of underground storage rights.

Here's a short summary of the twisted path that got them there.
They've already tapped their property natural gas once -- from the Oriskany sandstone formation. That,it seemed, could have been the end of it.

Then last year, Spectra Energy and New Jersey Resources unveiled plans for one area underlying about 40 parcels – for natural gas storage in those old Oriskany holes. The joint venture wants to pump natural gas into the ground – 12 billion cubic feet of it. The company got approval from the Federal Energy Regulatory Commission, which regulates interstate pipelines and storage.

The process has just started in federal court in Pittsburgh and a judge and a panel of experts, it is presumed, will make sure landowner are properly compensated for the underground storage rights.

Here's the problem: The landowners want to get to the natural gas in the Marcellus formation, which they also have underfoot. They fear that if the Oriskany layer is filled with natural gas, it would preclude them from teaming up with a natural gas company for getting their Marcellus gas for decades. A Marcellus lease and royalties, they figure, could end up being worth much more than a storage lease. The Oriskany layer, they say, could be productive again with modern fracking and drilling techniques.

-- David Falchek

Natural Gas Websites

Here's a Web site that provides information on natural gas and the natural gas industry. It's pretty informative and has a lot of information. The site is maintained by the Natural Gas Association --- http://www.naturalgas.org/

Also, apparently, YouTube has a number of videos on natural gas drilling and fracing. Search Google with "natural gas drilling" and one of the first entries is a YouTube video


--- Josh Mrozinski

DCNR Opens Bidding for Natural Gas Leases on State Forest Lands

The state Department of Conservation and Natural Resources today announced the tracts that will make up the 74,000 acres of state forest that will be available for new, deep- and medium-well natural gas exploration.

Bidding begins now and is open until Sept. 3 on the 18 parcels, which are in Lycoming and Tioga counties. The individual tracts range in size from 1,800 acres to 8,800 acres. Under DCNR well-spacing regulations, 289 possible well pad sites can be developed on the 74,000 acres, but in its environmental assessment, DCNR notes that it expects 35-50 well sites to be developed on the leased land.

Here is the Oil and Gas Lease Offering page that outlines the deal, including maps of the lease sale tracts, bid information, and a copy of the lease.

Here is the full release:

HARRISBURG (July 14, 2008) — Department of Conservation and Natural Resources Secretary Michael DiBerardinis today announced that the department will hold a lease sale for subsurface oil and gas rights on 18 tracts totaling 74,023 acres in the Loyalsock, Tiadaghton and Tioga state forests in Tioga and Lycoming counties.

“This lease sale is part of the policy announced earlier this year to focus on medium and deep gas drilling to limit the impact on the surface and on other uses of the forest,” DiBerardinis said. “We chose the tracts of land after extensive environmental reviews to protect the health of the forest now and in the future.

“Given the enormity of the nation’s energy demand, making less than an additional 4 percent of our state forest available for drilling is a reasonable decision that protects our forest ecosystem and helps meet energy demands,” DiBerardinis said.

DCNR will receive sealed bids for leases on each of the 18 tracts from pre-qualified bidders until 2 p.m. on Sept. 3. A list of bidders and the award decisions will be posted on DCNR’s Web site within 24 hours.

A lease is awarded to the highest bidder based on the amount of the first year’s land rental. A lease covers annual land rental amounts and possible royalties to be paid based on the volume of gas extracted.

“Only a small portion of the total acreage will be used for well site location,” DiBerardinis said. “For each tract, we have identified the number of well pads that are allowed, and we encourage the use of existing roads. There are portions of the tracts that cannot be developed on the surface to protect wild or natural areas, ecosystems, water bodies, recreational opportunities, or visual impacts from vistas and trails.

A comprehensive environmental review is conducted by DCNR as part of the lease sale planning process. Additional environmental reviews are done at the time of well permitting.

Lease sales are developed by first receiving nominations for the acreage from gas companies. Gas companies are required to submit competitive bids for the offered state forest acreage. Highest responsible bidders may then be issued contracts. DCNR retains ownership and complete control of the land.

The primary term of the lease is a 10-year period, which may be extended by production from the lease. A gas well may produce for several decades or more. The lease document, environmental review and maps are available at www.dcnr.state.pa.us (choose Forestry, then Oil and Gas on State Forest Lands).

Revenues generated from a lease sale go to the Oil and Gas Lease Fund, which by law must be used for conservation and recreation programs. The fund has been used to obtain the mineral rights to parts of the state forest where DCNR did not own them, to purchase the acreage for eight state parks and to expand 31 other state parks.

This lease sale responds to increased interest in the Marcellus Shale formation; a deep resource thought to contain large quantities of natural gas stretching from New York through Pennsylvania and into West Virginia. In Pennsylvania, the formation reaches the northern tier as far east as Wayne County and as far south and west as Greene County and the Pittsburgh area. New technology and increased gas prices have made it possible to recover the hard-to-reach fuel.

Since 1947, the department has held 72 lease sales, the last of which was in 2002. Currently, about 207,000 acres of the 2.1-million-acre state forest are under lease for gas production, with about 650 wells in production.

There's a New Alliance in Town

The Rail-Trail Council of Northeastern PA; the Wayne County Oil and Gas Group; the Elk Gas Group; and the Thompson Area Oil and Gas Group announced on June 29 that they are forming a coalition to negotiate gas leases. This new alliance is called Susquehanna Wayne Oil and Gas Group, otherwise known at SWOGG.

SWOGG joins the Northern Wayne Property Owners Alliance and the Lower Wayne Property Owners’ Association, which are looking to negotiate leases that protect the land.

Here the link to SWOGG’s press release:

http://www.swogg.org/files/SWOGG_press_release_Final3.pdf

And here’s the address for the SWOGG Web site:

http://www.swogg.org/

Wansacz Bill Would Allow Gas Rights Owners Better Access to Production Data

State Rep. James Wansacz (D- Old Forge) recently introduced legislation that would amend the 1984 Oil and Gas Act to give property owners greater access to information about the amount of gas produced from wells on their land.

House Bill 2620 mandates that gas operators install a secured meter at each well head to display the volume of gas produced. It allows property owners to access the meters once every six months for a reading. It also includes protections so that competing operators can't sneak a peak at the meters ("the meter shall include an overlaying locked box or other mechanism to prevent the meter's being read without an access device").

The bill also amends the section on well reporting requirements to allow property owners to review the annual production reports operators submit to the Department of Environmental Protection. Owners are allowed to review the part of the report that relates to their properties once every six months.

What the bill does not change is the fact that gas operators are allowed to keep their production data confidential for five years- a rarity among gas-producing states, which tend to have more frequent- often monthly- public reporting requirements.

The bill, and another by Rep. Sandra Major (see below), may be part of a larger effort by lawmakers to overhaul oil and gas laws in the state. As reported by R.B. Swift, the Times-Tribune's Harrisburg bureau chief, last week, Mr. Wansacz said that lawmakers are planning a comprehensive review of the Oil and Gas Act now that a drilling boom is under way in Northeastern Pennsylvania.

Water withdrawl

Applications pending before the Susquehanna River Basin Commission from natural gas companies seeking to withdraw water from public sewer systems or the Susquehanna River in Wyoming County:

1- Chesapeake Appalachia LLC is seeking to withdraw water from the Susquehanna River Basin for natural gas well development in New York and Pennsylvania. The company expects to use 2.075 million gallons of water per day for the well development.
In New York, the natural gas well development will be in Tioga, Chemung, Steuben, Schuyler and Broome counties, according to Chesapeake. In Pennsylvania, natural gas well development will be in Susquehanna, Bradford, Wyoming, Sullivan and Wayne counties.

2- Chesapeake Appalachia LLC is also seeking to withdraw up to 999,999 gallons of surface water per day from the Susquehanna River in Mehoopany for natural gas well development.

3- Cabot Oil & Gas Corp. is seeking approval to obtain no more than 130,000 gallons of water per day from the Meshoppen Borough Water Company and Tunkhannock Borough Municipal Authority. Cabot expects to use the water for the development of natural gas exploration wells in Dimock and Springville.



Questions:
A) Does anyone have concerns about the proposed withdrawal (and use) of water from the river and municipal water systems?
B) Is there enough water to go around?

-- Josh Mrozinski

Severence tax rule No. 1.

Rule number one about severance tax, is that you never talk about severance tax.

Such is the case in Pennsylvania's oil and gas industry.

In researching Sunday's story on the Keystone State's lack of a tax that exists in all other major oil, gas and mineral producing states, I had conversations with a handful of company executives – very short conversations.

None wanted to go on record talking about or even alluding to the severance tax. If legislators and the general public aren't talking about a tax that would dip into their natural gas revenue, they sure as heck didn't want to bring it up.

Steve Rhoads, executive director of the Pennsylvania Oil and Gas Association, did address the issue even though his understanding of the tax structure in other states was a not complete.

A gas company executive did admit that, realistically, a Pennsylvania severance tax was coming, eventually. But he said the state needn't rush it into the books. The exploration of Marcellus Shale is in its infancy, he noted. The few holes that have been drilled are waiting for pipeline to collect the gas.

It could be three years until the gas is rising from Marcellus in large amounts, he said.

That gives legislators plenty of time to work out the fine print.

--- David Falchek

Gas Well Maps at Pagaslease.com

There is a great resource for visual learners, curious neighbors and anyone interested in tracking the march of gas exploration across the landscape of Northeastern Pennsylvania at pagaslease.com.

The landowners' forum site hosts a natural gas well mapper here. The page features four maps: one for Bradford, Susquehanna, Wayne, Wyoming and Lackawanna counties; one for the Southern Tier of New York state; one combined Pennsylvania and New York map; and one for the Haynesville Shale in Louisiana, Texas and Arkansas.

The maps use green markers to show where gas has been found, red markers to show where there are permits to drill, flags to show permits for a gas pipeline, P's to show current pipelines, and small yellow houses to show gas pipeline stations. The Google maps allow browsers to switch between political map, satellite map and terrain map views, so you can see the natural and man-made features in the area surrounding each proposed well site or pipeline. The site's authors also note a future feature of the maps: as Google updates its satellite images, the three- to five- acre well pads will be visible from the sky.

Click on the individual points and sometimes added information, like a May 25 photo of the drilling rig at the Lewis 2 well site, pops up.

The site is looking for help mapping areas. To volunteer, contact the well mapping team here.

Natural Gas Leasing Workshop in Clarks Summit

The Penn State Cooperative Extension is holding a workshop titled,
"Managing Natural Gas Lease and Royalty Income" on July 8 at the Newton Recreation
Center on the Newton/Ransom Blvd in Clarks Summit. The workshop starts 7 p.m.


The workshop costs $10 and will cover these topics:

- Ideas For Managing Your Gas Windfall

- Tax Consequences of Gas Lease and Royalty Income

- Gas Leases and Estate Planning

- Basic Steps to Investing Gas Income

For more information or to make a reservation call:
the Penn State Cooperative Extension office in Lackawanna County at 963-6842.



The Cost of the Workshop is $10.00 per person, payable at the door.

Is natural gas real estate?

A bill introduced in the Pennsylvania House of Representatives seeks to address the long-time frustration of local governments powerless to tax or reap the benefits of gas and oil drilling in their communities.

House Bill 1373, introduced by Rep. William DeWeese (D- Greene County) would permit the taxing of oil, gas, and other valuable minerals, as real estate. The bill would amend assessment law and effectively overturn a controversial decision by the state Supreme Court in 2002 that ended the long-standing practice of taxing minerals as real estate.

Although real estate agents and an attorneys recognize gas, oil, and minerals as part of real estate, assessors in Pennsylvania are not allowed to consider those as part of real estate, the court said.

Prior to that ruling, ten southwestern Pennsylvania counties had taxed oil, gas and minerals. They include Armstrong, Centre, Clinton, Elk, Fayette, Forest, Greene, McKean, Warren and Westmoreland. In the 2001-2002 fiscal year, school districts in those counties collected $2.6 million in so called OGM taxes, “oil-gas-mineral.” That accounted for about half a percent of the total school taxes in those areas, but in some areas, such as Forest County, OMG taxes were 8.1 percent of their budgets.

House Bill 1373 doesn't seem to have much steam. Co-sponsors appear limited to representatives from those counties. The bill is one-page – hardly enough to address the constitutional, taxation, and equal treatment issues the court sought to correct in voiding the tax.

Other states have different ways for communities that bear the burden of drilling and mining to benefit from the the wealth. An upcoming Scranton Times-Tribune report will take a look at how gas wells are, and are not, taxed in Pennsylvania. ]

For the text of House Bill 1373, click here.

--- David Falchek