Gas drilling leases could yield millions for Pittsburgh

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Aug. 20--A solution to some of Pittsburgh's money problems could be just below the surface.

Leasing the drilling rights to natural gas trapped in a portion of the Marcellus shale formation under Pittsburgh's 2,000 acres of parks could net the city $6 million to $16 million in one-time access fees and potentially millions more in royalties if officials make deals similar to those struck elsewhere in Western Pennsylvania and Texas.

"It's something we would be willing to look into," said Mayor Luke Ravenstahl's spokeswoman Joanna Doven, noting that the city is up against a $15 million to $30 million budget deficit.

"Access fees should start at $7,000 to $8,000 an acre if the city's going to do this," said Duquesne University professor Kent Moors, an authority on oil and gas finance and policy.

Moors said that's much higher than the $3,000- to $4,000-per-acre prices private and public land owners got in past years because unleased land "is becoming a premium."

Drilling in urban areas ruins roads from heavy tanker truck traffic and creates noise when drillers use high-pressure water to fracture shale and release gas, a process called fracking. Those issues merit extra compensation, he said.

"The drilling process will be extremely invasive," Moors said. "You want to get a maximum amount of return out of the access for drilling."

Spokeswomen for the city's Urban Redevelopment Authority and Ravenstahl's office said officials have not been approached about leasing public land.

But drillers have courted many governments in Western Pennsylvania, which have eagerly cashed in.

North Fayette supervisors leased 164 acres of land this month -- including two parks and the site of its municipal building -- to Range Resources of Ft. Worth, Texas, for $3,000 an acre and 17.5 percent of revenues from any wells drilled there, said Brian Temple, director of development.

Temple said the township signed the lease because many adjacent private property owners already had done so and it could use the $492,000 for infrastructure needs. He said the township limits when drilling may occur during the day and requires drillers rebuild damaged roads.

In Washington County, officials are beginning to see the fruits of a 2003 lease that paid the county $17,500 up-front and $10 an acre for rights to 2,800-acre Cross Creek County Park and its lake.

Nine wells have been drilled. Royalties are bringing in $96,000 to $122,000 a month.

Half the money is going to build roads to access the expansive park, develop a horse riding trail, build a boat launch and put in new shelters and bathrooms, said Lisa Cessna, executive director of the county's planning commission. The department's $850,000 annual budget could not otherwise afford those "big ticket" projects, she said.

"There's still noise and dust," Cessna said. "We had a leak issue once before, culverts have been crushed and sometimes it can be frustrating, but we've gotten lucky."

Environmentalists worry that chemically treated water used in fracking could harm the environment around drill sites.

Elizabeth Schneider of Lincoln Place, an anti-drilling activist, said a Chesapeake Energy official at a recent meeting in Lawrenceville tried to allay fears that drilling would begin soon in the city.

"We've always looked at that as, well, maybe not for right now," she said.

Roy Kraynyk, Allegheny Land Trust executive director, said drilling companies have approached him several times to sign leases. The group hasn't ruled out permitting horizontal drilling, but it would not allow drilling directly on its land.

The nonprofit is weighing the financial gain against the dangers to 1,500 acres of green space it protects in Allegheny and Washington counties.

"We're in a position where the revenue is very, very attractive but we also have a mission to protect woodlands and streams," Kraynyk said.

In Dallas and Ft. Worth, Texas, drilling rights to the Barnett Shale formation have paid well.

Dallas received $33.4 million to balance its 2008 budget when officials signed leases on more than 5,000 acres with XTO Energy Inc. and Trinity East Energy, officials said.

The per-acre prices ranged from $4,125 to $9,360. Only a few wells have been drilled.

Pittsburgh finance officials are scrambling to plug a $15 million hole created when Ravenstahl's plan to tax college students to boost the city's recession-battered pension funds fizzled.

The city needs money, but it cannot afford to risk environmental damage or public safety hazards that could come from gas well drilling, said Councilman Doug Shields, who wants to ban drilling in the city.

"I understand every government is strapped for cash, but that's not a good reason to degrade our quality of life and environment," Shields said. "We could make money off of prostitution, too, but we're not going to do that."

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