Alex Levine: Leasing Process and Special Regulations

The first section of this paper will discuss the different leasing procedures and regulatory guidelines that exist in state governments and how these policies are shaping the fast-growing industry throughout the country. Although there are overall federal regulations that state governments must meet, some states have taken it upon themselves to raise their standards of regulations and enforce different monetary policies when dealing with gas-drilling corporations that are leasing state-owned public lands. To better understand the scope of state leasing procedures and regulations that are currently in place, two states will be compared along with their legislation directly addresses hydraulic fracturing on state lands.
The two states being examined are Pennsylvania and Michigan. Both states have different procedures and systems set up for hydraulic fracturing on state-owned lands.
It is right to start with the state where Lehigh University is located, Pennsylvania. Drilled in 2005, the first well in the Marcellus Shale was in Washington County in western Pennsylvania. Currently more than 5,000 wells have been drilled into the Marcellus Shale across the state (Goho, 2012). The boom has be significant, with total natural gas production in the state reaching 1.3 trillion cubic feet in 2011, more than six times than that in 2008 (Goho, 2012).
The question becomes how much of this gas production is happening on state- owned lands. According to the Department of Conservation and Natural Resources (DCNR), public lands comprise 30% of the 17 million acres of forest land in Pennsylvania. State forest land alone encompasses nearly 2.2 million acres and about 1.5 million of those acres are above the Marcellus Shale gas deposit. However, only about 700,000 acres of those acres are available to gas development (DCNR Leasing Statistics, 2013). The remaining acres in the Marcellus gas play include designated Wild Areas, Natural Areas, and sensitive ecological and recreation areas that are not available for natural gas development involving surface disturbance per DCNR policy and executive order (DCNR Statistics, 2013).
The DCNR is currently entered into 123 active lease agreements which encompass approximately 385,940 acres. The leases permit the development of oil and gas resources and/or storage of natural gas. Overall, the DNCR has approved 224 well pads and 941 shale gas wells on state-owned land since 2008 (DCNR Statistics). The Nature Conservancy predicts that 60,000 new wells will sprout up on public lands in Pennsylvania by the year 2030 (Post Carbon Institute, 2013).
The leasing process for natural gas on state lands in Pennsylvania is explained in the Conservation and Natural Resources Act of 2005, otherwise known as Act 18. This act formed the Department of Conservation and Natural Resources and states, “The department is hereby empowered to make and execute contracts or leases in the name of the Commonwealth for the mining or removal of any valuable minerals that may be found in state forests” (DRC Guidelines, 2013).
Final approvals for lease sales are given by the DCNR’s Minerals Division staff, who review all permits and requirements for the proposed activity. Final approval letters are issued for all proposed infrastructure to be built on state lands. Start of construction and installation of infrastructure cannot start until the receipt of final approval from the Minerals Division (DCNR Guidelines, 2013).
Although the DCNR has the power to sell leases to gas companies, the state agency that has overarching control over regulations and manages permits for oil and gas drilling is the Pennsylvania Department of Environmental Protection (DEP). The main legislation that dictates environmental and other regulations is the Pennsylvania Oil and Gas Act. The DEP is supposed to ensure that gas companies are following the proper environmental safety procedures and water management requirements (DCNR Guidelines, 2013).
In addition to state government approval, there are additional requirements to be met for hydraulic fracturing in Pennsylvania. Other permits and approvals that may be required, depending upon the area of drilling and the surrounding environment include: an erosion and sediment control permit from DEP, a water allocation permit from the Delaware River Basin Commission for withdrawals from the Delaware River watershed; a water allocation permit from the Susquehanna River Basin Commission for withdrawals from the Susquehanna River Basin; or a Water Management Plan approved by the DEP for withdrawals from any waters of the Commonwealth (Stronger Inc., 2013).
Another main difference of leasing on public lands in Pennsylvania is the restrictions placed on heavy hauling of materials and heavy truck transportation during certain times of the year where the recreational promise of the state lands take priority over the gas leases. These guidelines were set to try to prevent a clash between the recreational users of the public lands and the gas lease holders. One of the guidelines is listed below and bans heavy truck traffic and transportation vehicles on certain days of the year, as taken from the Guidelines for Administering Oil and Gas Activity on Pennsylvania State Forest Lands:
• Holidays: Memorial Day weekend Fourth of July holiday or weekend Labor Day weekend
• Hunting & Fishing Seasons: Opening weekend of trout season. opening weekend of youth spring gobbler season, opening weekend of spring gobbler season, regular bear season, a portion of regular firearms deer season
• Other Activities: The Forest District Manager may determine that restrictions on hauling and seismic restrictions are necessary to protect public safety during the following activities: Special activities and events on state forest land or adjacent
state park, opening day of deer archery season , opening day of youth/special use hunting, opening day of early muzzleloader, opening day of general small game (DCNR Guidelines, 2013)
The second state government that will be explored to provide another view of how states can handle leases on state lands is Michigan. Although Michigan does not have as big a gas deposit as that in the Marcellus Shale, there are still gas deposits that exist under state-owned lands across the state.
In Michigan, the government agency that is responsible for managing state public lands and the leasing of these lands for gas drilling is the Department of Natural Resources (DNR). The state of Michigan owns 6.2 million acres of oil and gas estate, but currently has commercial production on just more than 400,000 acres (MDNR FAQ, 2013). The DNR is also responsible for overseeing the oil leasing process for state-owned lands. The leasing process in Michigan starts with an auction that is held twice a year, once in the fall and once in the spring (Moore, 2013). Parties interested in leasing state-owned oil and gas rights can nominate themselves for a gas lease auction. The DNR director gives final approval of the parcels to be offered and the corresponding parcel classifications. (MDRC FAQ, 2013)
Similar of how Pennsylvania’s Department of Environmental Protection ultimately holds the rights to grant drilling permits, the same is true for the Michigan Department of Environmental Quality (DEQ), Office of Oil, Gas, and Minerals. One way the leasing process in Michigan differs from Pennsylvania’s is that parcels nominated for leasing are classified the rights to grant drilling permits, the same is true for the Michigan Department of Quality (DEQ), Office of Oil, Gas, and Minerals. One way the leasing process in Michigan differs from Pennsylvania’s is that parcels nominated for leasing are classified for the DEQ by professional ecologists and geologists to determine the environmental impact of a gas drilling site on that piece of land (Brady, 2013). Additional restrictions on state leases include prohibition of drilling within wetlands or habitat identified as critical to the survival of endangered species and any drilling within 1,320 feet of any lake or stream (DNR - Oil & Gas Lease Auction Information, 2013).