More state forestland up for gas leases

In a move applauded by conservationists, Gov. Rendell on Tuesday trumpeted plans to enact a wellhead tax on Marcellus Shale natural gas that would generate $160.7 million next year and potentially billions more in the coming years.

But the governor's office did not draw attention to another Marcellus Shale revenue source he is counting on. Buried on the 1,005th page of his proposed budget is a line item indicating the state expects to earn $180 million by leasing more state forestland for gas development.

Some Democratic lawmakers are decrying the governor's effort to cash in on the Marcellus land rush as an affront to efforts by the Department of Conservation and Natural Resources (DCNR) to sustainably manage 2.1 million acres of state forests. About 692,000 acres are already under lease for Marcellus production, including 32,000 acres auctioned last month.

"This is very shortsighted," said State Rep. David K. Levdansky of Allegheny County, who has led a charge by some House Democrats to block further leases until the state can evaluate the effect of Marcellus drilling on public lands.

The budget proposal did not specify how many additional acres would be leased, or where they would be. The DCNR would determine that if the budget item is approved.

"Leasing state forests to balance the budget is the wrong way to go," said Rep. Greg Vitali (D., Delaware). Rendell's proposal for a new round of leases defied his understanding that there would be no more land offered to gas operators, he said.

But Rendell's spokesman, Gary Tuma, said the deal to generate an additional $180 million next year was hammered out in October with legislative leaders of both parties and was discussed in public. It should come as no surprise, he said.

The governor did not draw attention to the deal in his budget address this week, Tuma said, "because it's already in place."

A new round would be the third offering of leases in three years as gas operators have scrambled to exploit the Marcellus Shale, a deep formation whose natural gas is being unlocked using techniques that combine horizontal drilling with hydraulic fracturing - smashing the rock formation with high-pressure fluid and sand.

Conservationists say the state, with little public debate, has dramatically altered a half-century of practices by the DCNR to manage public lands for multiple uses - including the extraction of natural resources, recreation, and preservation.

"This change is a sad state of affairs, where the state is trying to find the easy money. . . . The long-term implications are serious," said Andrew M. Loza, executive director of the Pennsylvania Land Trust Association.

Though few Marcellus wells have been drilled in state forests, DCNR expects that gas operators could construct thousands of them in the coming years, and that the forests might suffer irreparable fragmentation through the clearing of drilling sites and pathways for pipelines.

"It's really important to not lease any more state forestland before we know the impact of so much drilling," Loza said.

The last two Marcellus lease offerings have generated impressive sums: $166 million in 2008 from 74,000 acres, and $128 million in January from 32,000 acres. Because about $68 million of the January figure would roll over to next year's budget, the state would need to raise only $112 million more from new leases.

Some argue the state might make more money by holding onto its acreage rather than selling into a weakening market for gas leases.

But Tuma, Rendell's spokesman, said the leases should go forward this year for a simple reason: "because we need the revenue." He said the governor last year preferred an increase in income taxes, "but this was the legislature's alternative to what the governor proposed."

Rendell is likely to face a fight this year with his proposed severance tax on all natural gas produced in the state. He proposed a similar tax last year, but withdrew it after the industry complained it would retard growth.

Under Rendell's proposal, energy firms would pay 5 percent of the value of gas at the wellhead, plus 4.7 cents per 1,000 cubic feet of gas taken from the ground, starting July 1.

The plan would raise $160.7 million in the first year and $1.8 billion over five years.