Shale Gas: Fact Or Fiction

It is fair to question how large a factor shale gas will be in America, Canada, and soon other parts of the world, most notably Europe. No one can predict exactly how much gas will ultimately be produced from this source because there are many variables in that equation. But let us not be swayed by the nay-sayers; it is far easier to be negative than it is to be positive and optimistic.

Let us look at a few positive realities.
1) Organic rich shales deposited in sedimentary basins and buried to depths needed to generate methane gas exist all over the world, certainly on every continent. They are best-defined in America because of all of our exploration and development drilling over the last 100 years.

2)The technology to drill horizontally and carry out hydraulic fracturing of these shales is well established, understood, and improving continually.

3) The infrastructure to process and transport this "natural gas" (primarily methane) exists to a great extent in North America and I believe to a lesser extent in Europe. We use it to heat our homes and domestic water supplies, and cook our food, among other things. It is used to generate electricity on a scale far larger than solar, wind, geothermal and hydro power will ever be capable of producing.

4) Natural gas is "clean-burning". Its only by-products are water vapor and carbon dioxide, both harmless substances, unless you believe the nonsense postulated by the global warming alarmists.

There are many other positives about natural gas. Just ask T. Boone Pickens. I've taken the following from here.
Peter

The Dash for Unconventional Gas

Today's Financial Times has a generally optimistic article about the vast quatities of unconventional natural gas tht are now apparently within reach around the world:

All across Europe big oil companies are scouring millions of acres of countryside and buying up rights to tap the natural gas trapped in prehistoric shale beds thousands of metres below its surface.

The shale gas rush has made its way over from the US, where breakthroughs in technology have allowed companies to extract gas from reservoirs previously seen as untouchable.

The newly accessible US shale deposits are so big that executives now believe the country has enough gas to last it for a century. This extra supply and the US’s new found self-sufficiency has created a worldwide gas glut that has driven down prices.

It is a remarkable turnround. Just three years ago, most US energy executives were working out how the US could import enough gas from places as far away as Nigeria, Russia and Qatar, while competing with the demands from China and other energy-hungry developing countries.

Now the world’s biggest, richest and most sophisticated energy companies believe that they may be able to repeat the American shale gas revolution in Europe, potentially undermining the power of Russia, the region’s biggest gas supplier.

Not all are convinced. Over the weekend, John Dizard's FT column took a highly skeptical look at the prospects for abundant and cheap natural gas, and is worth excerpting at length:

I try not to get into arguments over other people's religious convictions. Even if you win your point, you make an enemy. That's been a conventional understanding since the Thirty Years War. Sometimes, though, you have to clear your throat and carefully offer a heretical thought, if lives or large amounts of property are at risk.

For example, I think it might not be a bad idea to examine the faith-based assumption that the US has a virtually unlimited supply of natural gas from shale formations that can be extracted at a low price for the indefinite future. Perhaps the few people who think shale gas will be produced at a higher cost, and more slowly, than generally believed should be heard out, rather than be executed or sentenced to work in the salt mines. If you disagree, I will quickly withdraw that comment.

The shale gas religion crosses the usual political boundaries. The environmentalist wing believes that shale gas can displace dirty, coal-fired generation. Liberals believe it will help power the clean energy policy. National security conservatives believe shale gas can end dependence on Middle Eastern or Venezuelan oil. Economic conservatives believe it can close the current account deficit, and drive an economic recovery, at least until even more nuclear power can come on line.

There are environmentalists, rural landowners and health advocates who worry that shale drilling could contaminate water supplies. Most of them, though, want to have more careful regulation, rather than prohibition, of shale gas exploitation.

I was prompted to comment on shale gas again after watching a well known, highly emotional American television stock market commentator suggest that shale gas will be so abundant that facilities for importing natural gas could be converted to export the stuff. This when the present low US price for natural gas is about 10 times the economic value of gas stranded in huge Middle Eastern deposits.

What is the basis for Dizard's skepticism?

Policy should be based on material reality, which is that maintaining, let alone increasing, US use of natural gas will require a very substantial increase in prices over the present spot and futures levels. On that point, the shale gas industry people and I are in agreement. One set of data points might turn out to be revealing. Look up the "balancing item" in the "natural gas navigator" on the US Energy Information Administration's website. This is how the difference between reported gas storage and the net of production and consumption is explained. For the last report, in December, the "item", or unexplained error, is about 100bn cu ft. That is a whole bunch of gas, as they say out there.

The "item" has been increasing steadily from the middle of last year. So production is likely lower, or consumption much higher, than the EIA has been able to count. Given that production is calculated from a sample of producers that is probably overweighted to large companies with access to capital markets, it is probably the case that production is lower than Washington, or most of Wall Street, thinks. Smaller gas producers, who are probably under-sampled, will have had their access to debt or equity proportionately much more restricted than was the case in the boom years.

If that analysis is correct, the US will run short of low priced gas sooner rather than later.

Cheap and abundant natural gas as far as the eye can see? Maybe not.

Alberta Benefits From Duvernay Shale Gas Play

Alberta, Canada is benefiting greatly from a newly developing Shale Gas Play centered around a geological rock formation called the "Duvernay". Some very serious money is being spent by some big players in acquiring land leases from the government of Alberta. This will benefit everyone in Canada and adjacent American states that use Canadian gas.
Peter

Alberta shale gas play creates a buzz

Duvernay resource set to fuel land sales worth hundreds of millions

By Dan Healing, Calgary HeraldFebruary 24, 2010

Alberta's two drilling rights auctions in March are expected to bring in hundreds of millions of dollars, thanks to interest in a long-known shale gas play called Duvernay that is being unlocked by some new technology.

Chris Theal, global head of oil and gas research for Macquarie Securities, said interest in the play, which is southeast of Grande Prairie in northwestern Alberta, was largely responsible for the surprising $384-million Dec. 16 provincial land sale.

That single sale brought in more money for the Alberta treasury than the $347 million raised to that point in 2009 and was the highest sale of non-oilsands rights since December 2006.

The sales next month will be even more lucrative for the government and move the boundaries for the play farther north into the Peace River Arch, Theal told a gas conference this week.

"There are 2,100 sections of land posted in those two land sales," said Theal, noting 1,122 sections in the first sale and 748 in the second.

"I think the March 10 land sale is going to be in the neighbourhood of $800 million or $900 million. ... Technology that is responsible for what we know in northeastern B.C. could open up another resource play here in the western Canadian basin."

To put it in perspective, the Alberta government is budgeting just $650 million from land sales for all of the 2010-11 fiscal year. Its biggest annual non-oilsands land sale tally was $1.8 billion in 2005.

It's not known who bought the land in December because most companies buy through agent companies. However, Theal said the play is deep, and expensive drilling will require deep-pocketed companies such as EnCana, Talisman Energy and Canadian Natural Resources.

It is expected the Duvernay will be tapped by horizontal wells with multistage fracture stimulation, although no such wells have yet been drilled.

The Duvernay play provided the name for the company called Duvernay Oil Corp., a big player in the Horn River that was sold to Shell Canada for $6 billion in 2008.

Alberta posted its largest February sale in 14 years last month, raising $106 million. Theal agreed with other observers that the companies that bought the land were targeting the much shallower Cardium tight oil play.

Mike Dawson, president of the Canadian Society for Unconventional Gas, said at the same conference that Alberta has not invested as much effort in unconventional gas as other regions.

He added that the deep Duvernay play covers twice as much area as B.C.'s much-touted Horn River Basin, and Alberta also has the little-explored deep Colorado shale plays to explore.

"We have a sleeping giant in shale gas which really is in the very early stages of exploration, with a minimal amount coming from Alberta," he said.

In a later interview, he added: "The companies that are sitting there with deep pockets are saying we want to be early movers even if it takes five years to develop it because if we don't have the land, we can't develop the resource."

He considers the Montney formation in northeastern Alberta to be tight sand gas, not shale.

Both Theal and Dawson said they expect the oil and gas industry to get a shot in the arm from the province's upcoming competitiveness review.

"I think the Alberta government finally gets it," Dawson said.

Both said the government should recognize that tight gas and shale gas plays have huge upfront costs by allowing them a royalty holiday until the wells are paid for.

To Exploit America's Resources, Or Wither And Die?

Is America in a position where we can afford to NOT exploit these resources? Are windmills and solar panels going to keep people warm in northern climate zones? They don't generate much energy when the wind doesn't blow and the sun is low in cloudy skies. We may wish we had back some of those Billions of dollars wasted on the great global warming hoax. Peter

Drilling Restrictions May Cost the US $2.4 Trillion February 19, 2010 Reuters An article on the Reuters website reports that the United States economy will lose $2.4 trillion over the next twenty years if currently restricted onshore and offshore areas are not opened to oil and gas drilling. The article is based on a study done by the National Association of Regulatory Utility Commissioners.

Horizontal Drilling And Geosteering Enable Shale Gas Production

In all the excitement (in some circles) about the production of gas utilizing the combination of "horizontal" or directional drilling and hydraulic fracturing of these wells, it is rarely, almost never, (outside of technical journals) described or discussed HOW these wells are drilled. How are they guided, how are they "steered" into and through the desired layers of rock, in this case shale? Many technologies are brought to bear in finding and producing this gas. Much of that work is held tight by energy companies and much of it goes unheralded. But that will change.
Peter

The Quiet Energy Revolution

FROM-American

By Max Schulz

How ironic that during the ‘drill, baby, drill’ demonstrations as gasoline prices spiked in 2007 and 2008, a silent revolution with natural gas was already underway that will make those concerns largely irrelevant

The 20th century was the century of oil. Wars were fought over it, and the outcomes of the century’s biggest conflicts hinged on the stuff. In World War I, for instance, Churchill’s conversion of the British Navy to oil gave the crown’s ships supremacy over German vessels. In World War II, when the Nazis and Japanese each failed to secure supplies of oil, they were doomed. Later, President Ronald Reagan, CIA Director William Casey, and America’s Middle Eastern partners manipulated global oil production to bankrupt the Soviet Union and win the Cold War. In the first half of the century, oil policy served as the catalyst for military victory. In the second half, oil helped propel the greatest economic expansion in the history of the world, and liberated mankind from the tyranny of immobility.

All hail oil! But not too much, because the 21st century won’t be defined by oil. It is more likely to be defined by a different fossil fuel: natural gas.

Two monumental shifts in the world of energy are underway right now: one technological, the other financial. They will change the way we power our lives (especially our cars), provide a real measure of energy security, and help curb greenhouse gas emissions. Neither shift has anything to do with the turn to a green renewable energy economy promised by President Obama.

Physics ensures that will never happen, no matter how much wishful thinking (and government subsidy) is applied. Sorry, greens, carbon-based energy will continue to dominate our energy future, not windmills or solar panels.

The first profound shift was made possible by a little-noticed technological breakthrough in the last three years that has changed the way we extract natural gas. Engineers now make use of two important innovations.

One is horizontal, or directional, drilling, which permits wells to move laterally beneath the surface instead of going straight down. This technology minimizes the number of holes that have to be drilled, leaving a smaller surface footprint and accessing a larger area.

The other technology is hydraulic fracturing, used to extract gas trapped in porous shale rock. In this process, also known as fracking, water and chemicals are pumped at tremendous pressure into shale rock formations to push gas into pockets for easier recovery.

By marrying and perfecting the two processes into a technology called horizontal fracking, engineering has virtually created, from nothing, new natural gas resources, previously regarded as inaccessibly locked in useless shale deposits. Suddenly, the mammoth shale formations in Texas, Pennsylvania, Ohio, New York, North Dakota, and elsewhere have the potential to produce abundant amounts of gas for decades to come.

How significant are these developments? Exxon Mobil announced in December that it will pay $41 billion—that’s right, billion—to acquire XTO Energy and its expertise at extracting unconventional natural gas resources. The French energy company Total SA, meanwhile, is paying $2.2 billion to acquire a 25 percent stake in Chesapeake Energy’s Barnett Shale operations in Texas.

Human ingenuity has turned theoretical gas reserves—too costly ever to be exploited—into practical resources. And just in time. Less than a decade ago, experts were noting that conventional natural gas production had begun to plateau, despite annual increases in the number of wells drilled. The National Petroleum Council warned in 2003 that “North America is moving to a period in its history in which it will no longer be self-reliant in meeting its growing natural gas needs.” In the spring of 2004, Federal Reserve Chairman Alan Greenspan warned that, driven by these looming shortages, wellhead natural gas prices might top $6 per thousand cubic feet by summer, roughly double 2002 prices; and indeed, until the recession brought down demand, natural gas did sell in the $5–$9 per thousand cubic feet range.

Horizontal fracking has helped eliminate many of those grave worries. As Pulitzer-prize winning author and energy analyst Daniel Yergin and his colleague Robert Ineson wrote recently in the Wall Street Journal, production in the lower 48 states “surged an astonishing 15 percent from the beginning of 2007 to mid-2008.” And this is just the tip of the iceberg, as production ramps up in the nation’s shale formations, such as in Marcellus, Bakken, and Haynesville. What was once a shortage has given way to a glut, or, as Yergin and Ineson put it, a “shale gale.”

Proven reserves of natural gas in the United States have been revised upward by 50 percent in the last decade, and those numbers are sure to climb higher as more shale gas is discovered. Perhaps not surprisingly, other nations are sending geologists to the United States to study techniques for extracting gas from unconventional sources. China, India, and Australia all have enormous shale fields. In the coming decades, the shale gale won’t be just an American phenomenon; it will blow all over the globe.

A technological advance created the first shift, driven by free markets not by government edict. The second shift complements the first, and has taken place again because of the way free markets work. That is the formation of a global market for natural gas, much the same as the global petroleum market.

We are accustomed to think of crude oil as a global commodity, its price the same roughly all over the world. Partly that is because oil is so easily transported. Turn on the taps, and a tanker ship can be filled with liquid crude before heading for any seaport on the planet. On land, oil can travel by pipeline, by truck, or even by the barrel or the one-gallon container. The portability of oil helped an international market begin to blossom more than a century ago.

Natural gas and natural gas markets, however, are different. Ethereal and highly flammable, natural gas poses significant transportation problems. A tanker ship can’t simply fill up and shove off. For this reason, there has been no single global market for gas, but a number of balkanized, regional markets all over the planet. The price of natural gas in one region has little connection to the price in another, and for many years regions facing shortages could not be relieved by gas from regions with excess capacity.

That is changing, not as rapidly as the shale gale has transformed America’s gas picture, but still rapidly compared with other business transformations. The reason is liquefied natural gas (LNG). Innovations in liquefaction and re-gasification technologies allow gas to be condensed to 1/600th its size, which then can be shipped by sea. Major infrastructure investments by energy companies and governments, along with the development of specially designed double-hulled tankers to transport LNG, are creating a robust, integrated market for natural gas.

The implications are profound and largely positive. The new mobility of LNG will bring a sorely needed measure of market stability after the past five years of unpredictability in price and supply.

On the other hand, some observers fear that creating a global marketplace will spur the establishment of a nefarious natural gas cartel similar to oil’s OPEC. Such worries, however, overstate a potential cartel’s capacity to manipulate a diversified, global market, particularly one in which nations like Australia, Canada, and the United States will be heavyweights. Indeed, one truly positive benefit is that the emergence of a market for LNG will severely limit Russia’s ability to use its significant gas resources as a political and economic weapon, as Moscow has done in recent years with its European neighbors.

LNG, along with the shale gale, should help keep natural gas prices low for a long time. The average wellhead price for natural gas in the United States had crept to $8 per thousand cubic feet in 2008. There is little doubt that high energy prices were among the contributing factors to the economic downturn that began in the latter half of 2008. An ocean of cheap gas augurs well for America’s and the global economy’s future.

Natural gas may also change how we drive, and enable ordinary consumers to break oil’s monopoly on transportation. As my colleague, Peter Huber, notes in a recent Manhattan Institute report, “Gas-handling technologies [have] improved quite enough to make natural gas a practical alternative” to oil. After all, gas is cheaper than gasoline and diesel per unit of energy. That’s why large stationary power plants that used to run on oil switched to natural gas long ago.

The chief obstacle to developing a natural gas infrastructure capable of supplying service stations and highway rest stops is regulatory. If that is removed—and here we do need government action—we could expect to see trucks, buses, and cars running on natural gas in a relatively short period of time. The reduction in greenhouse gas emissions would be considerable.

We may also see continued inroads of gas into the electricity-generating sector (which can also affect transportation as we move to hybrid and electric vehicles). Gas emits about half as much carbon per unit of energy as coal. With worries about long-term gas supplies allayed, expect regulators and utilities to favor construction of new gas-fired power plants over controversial coal plants, which are more expensive to build anyway. This same thing happened during the 1990s, and gas shot to a 20 percent share of America’s electricity economy as a result.

The Energy Information Administration estimates that U.S. demand for electricity will rise 26 percent by 2030. Gas-fired power is slightly more expensive than coal-fired electricity today and much more expensive when the wellhead price of gas soars. But stable, lower long-term gas prices brought on by the shale gale and the emerging LNG market will ensure that coal’s pricing advantage is not so pronounced. Gas is well positioned to help meet that increase.

The age of oil took off with a boom when the Spindletop gusher blew in 1901. A century later, as the price of oil hit new records, our politics were inflamed by an acrimonious debate over offshore oil drilling and breaching the Arctic National Wildlife Reserve. How ironic that during the “drill, baby, drill” demonstrations as gasoline prices spiked in 2007 and 2008, a silent revolution with natural gas was already underway that could make those concerns largely irrelevant.

Max Schulz is a senior fellow at the Manhattan Institute

More...

European Shale Gas

Someone needs to tell President Obama that free enterprise and innovation do far more to stimulate any countries' economy than do government subsidies and "stimulus funding" and hot air.
Peter

Realm Energy Makes Aggressive Play for European Shale Gas Deposits

Oil and gas rights could span more than 1.5 million acres (Source)

VANCOUVER, Jan. 26 /PRNewswire-FirstCall/ - Realm Energy International Corporation ("Realm Energy") (TSX-V:RLM) (www.realmenergy.ca), is pleased to announce its recent applications for oil and gas rights in multiple countries throughout Continental Europe. The applications were filed following a rigorous evaluation of high potential shale deposits throughout the continent and, if successful, will permit Realm Energy to bring North American technological advancements in shale gas and oil extraction to Europe.

Realm Energy is now concentrating on eight discrete sedimentary basins in seven European countries and submitted applications for oil and gas rights that collectively extend over 1.5 million acres of land. Realm Energy received confirmation of receipt from government bodies that its applications are under active consideration.

"After months of rigorous evaluation, confirmation that our applications are under active consideration is an important step toward our goal of acquiring oil and gas rights over significant lands containing high-potential shale formations," said Craig Steinke, Executive Chairman. "We stand behind our extensive evaluation process and strongly believe that Realm Energy is positioned to maximize the possibility of favorable outcomes from these applications."

Realm Energy is collaborating with Halliburton Consulting ( HAL) in aggressively evaluating high potential shale deposits throughout Europe and select emerging countries. In addition to its filed applications, Realm Energy is evaluating other undeveloped shale plays and intends to make further applications to various governments for oil and gas rights in early 2010.

About Realm Energy

Realm Energy International Corporation is a Canadian domiciled global energy company focused on driving the exploration and development of major shale plays throughout Europe and emerging countries. The Company is in the process of acquiring petroleum and natural gas rights in large contiguous tracts which it has identified as high potential, and is committed to leveraging the most advanced shale technology to bring these resources into production.

Visit Realm Energy's website at www.realmenergy.ca.

    REALM ENERGY INTERNATIONAL CORPORATION

    Craig A. Steinke
    Executive Chairman

Horizontal Drilling Success In Texas' Eagle Ford Shale

Horizontal Drilling and presumably hydraulic fracturing proves its worth again. Energy independence? It's there if we want it. Economic recovery? Jobs? Ditto. Quick, someone tell President Obama before every Democrat is voted out of office.
Peter

UPDATE 1-Pioneer says Eagle Ford results top expectations

Tue Jan 19, 2010 9:39am EST (Source)

Jan 19 (Reuters) - Oil and gas company Pioneer Natural Resources Inc (PXD.N) said initial production from its second well in the Eagle Ford shale in Texas beat its estimates and it is looking for a joint venture for the shale, with bids expected in the second quarter.

The company said the Robert Crawley Gas Unit z1 well flowed at an initial production rate of about 17 million cubic feet of gas per day.

"With the highest gas rate reported to date in the play, the Crawley z1 exceeded our expectations and confirms that dry gas wells provide strong economics at today's prices," CEO Scott Sheffield said in a statement.

In October, the company said its Sinor z5 well in the Eagle Ford shale saw an initial rate of about 11.3 million cubic feet of natural gas equivalent per day (mmcfed). [ID:nBNG506499]

U.S. gas producer Chesapeake Energy Corp (CHK.N) had given France's Total (TOTF.PA) the first right to negotiate a joint venture on Chesapeake's smaller position in the Eagle Ford shale play in south Texas.

Other companies have also approached Chesapeake about partnering in Eagle Ford, Chesapeake's CFO Marc Rowland told Reuters Jan. 11. [ID: nLDE60A2DA]

Pioneer shares were up 3 percent at $52.08 in early morning trade Tuesday on the New York Stock Exchange. (Reporting by Arundhati Ramanathan in Bangalore; Editing by Gopakumar Warrier)

Gas Drillers Bring Hundreds Of Millions Of Dollars To Pennsylvania

The following story comes from "The Philadelphia Enquirer" (source). Consider the numbers. Gas exploration and production companies paid an average of $4,020 per acre (a total of $128.5 Million) just for the right to drill for gas on Pennsylvania State Lands. Then when production is established these companies agree to an 18% percent royalty on the amount of gas produced.

This is a fabulous financial opportunity for the people of Pennsylvania. Jobs will be created as the drilling of even one of these wells costs millions of dollars and involves hundreds of people. This is the kind of economic "stimulus" package Pennsylvania and America needs. These are real jobs, not hypothetical "green jobs". This activity creates wealth rather than spending taxpayer's money subsidizing uneconomic and environmentally damaging energy schemes like wind turbines, solar panels, geothermal, or ethanol. The infrastructure and technology to safely extract and use natural gas already exists.

In spite of all the positive aspects of natural gas there are still environmental doom-Sayers who oppose this drilling activity. They say they are concerned about real and potential environmental damage. If anyone wants to know the truth about the pros and cons of horizontal drilling, hydraulic fracturing, and the economic benefits of this activity, they should look to the area around Fort Worth, Texas where the Barnett Shale is being developed. They should also look to the area around Shreveport, Louisiana where the Haynesville Shale is being developed. Ask the people there if they like the activity. Ask them if their ground water is being polluted. Ask them how they're benefiting economically. I think the answers will be overwhelmingly positive. Do a search on this blog for more information on all of these subjects.

Learn the truth. Pay no attention to the same environmental alarmists who have foisted the myth of man-made global warming upon us. Perhaps it is not just coincidental that one of the "climate scientists" who has done the most to perpetuate the hoax and fraud behind the myth of man-caused global warming is Penn State University's Michael Mann. Here is a good place to learn more about the global warming, or if you wish, the climate change issue. Stay warm and give thanks to the natural gas drillers who provide the energy to heat your homes.
Peter

Gas drillers bid twice what Pa. budgeted

By Andrew Maykuth and Amy Worden

Inquirer Staff Writers

HARRISBURG - Natural-gas drillers yesterday bid $128.5 million to develop 32,000 acres of Pennsylvania state forests, twice the revenue the state had budgeted, prompting fears of a headlong rush to overrun public lands to tap into the rich Marcellus Shale.

Gas drillers offered an average of $4,020 per acre - almost twice the amount that such leases generated less than two years ago - for the right to extract natural gas from six tracts of state forest in north-central Pennsylvania.

The robust bidding was further proof of the intense industry interest in the Marcellus Shale, a vast underground formation stretching from New York to West Virginia, and whose sweetest spots underlie much of Pennsylvania.

But John Quigley, acting secretary of the Department of Conservation and Natural Resources, regarded the successful auction as a mixed blessing, saying the windfall could further whet the appetite of policymakers to lease public land to derive immediate revenue without fully understanding the long-term environmental implications of gas development.

"As we sit here this afternoon, fully one third of the state forest is now leased for gas exploration," Quigley said in an interview yesterday. "I think that raises some important questions. How much is too much?"

Jan Jarrett, president of the advocacy group Citizens for Pennsylvania's Future, also called for a suspension of new leases until the impact of drilling could be measured.

"We believe that's enough," she said. "We believe there ought to be a moratorium on further leases on state land until a study can be done to determine what the impact is on the forests and the other uses of the forest."

Rather than leasing more public land, Quigley encouraged policymakers to enact a statewide severance tax on natural gas as a more sustainable revenue source. Gov. Rendell, who last year delayed imposition of a severance tax after the gas industry told him the tax would stymie new development, has called on the legislature to enact the tax by July 1.

An industry trade representative declined to comment on the calls for a severance tax, but lauded the lease sale.

"This shows the industry's ability to generate wealth for Pennsylvanians," said Kathryn Klaber, president of the Marcellus Shale Coalition.

The state conservation department conducted the bidding under duress after the legislature ordered it to generate $60 million for the general fund with new gas leases. The department selected six tracts totaling 31,967 acres and set a minimum bid of $2,000 an acre.

The drillers have a month to send their checks to the state treasury for the new leases, and the $68.5 million that exceeded the legislature's target will flow into the state's Oil and Gas Lease Fund, which under state law must be used for conservation purposes.

Jarrett suggested the state use some of the funds to buy the mineral rights that it does not now own under about 85 percent of the state's parks. Without the rights, the commonwealth has little control over drilling activity on those lands.

"The state cannot prohibit drilling where they don't own mineral rights," she said. "That puts the best areas for public recreation at risk."

But the legislature can order that money in the Oil and Gas Lease Fund be spent for other purposes, and the windfall is likely to trigger a scramble in Harrisburg to redeploy that revenue in the state's cash-strapped budget.

With the new agreements, about 692,000 acres of the 2.1 million acres of state forest will be under lease - that includes about 290,000 acres on which the state does not own the mineral rights. About 750 wells are in production on conservation department lands, but only three of them tap into the Marcellus. State officials expect more than a thousand Marcellus wells could be developed in the next decade.

Five companies yesterday were the apparent high bidders for the new leases located in the Elk, Moshannon, Sproul, Susquehannock, and Tioga State Forests in Cameron, Clearfield, Clinton, Potter and Tioga Counties.

Seneca Resources was the winning bidder on two tracts. The other successful bidders are EXCO Resources Inc.; Anadarko Exploration & Production; Chesapeake Appalachia L.L.C.; and Penn Virginia Oil & Gas Co., based in Radnor.

The new state leases, which are much more environmentally restrictive than the private-sector agreements, limit the drillers to building 123 well pads totaling no more than 645 acres on the six leases - about 2 percent of the land. Marcellus gas developers typically install multiple wells on each site, and tap into the mile-deep formation with a horizontal drilling technique that allows them to reach laterally for thousands of feet.

The new leases also call for the drillers to pay royalties of 18 percent for gas sold from the wells, much higher than the 12.5 percent state minimum. State officials say the revenue generated from royalties from successful wells can far exceed the up-front lease fee.

The growth of Marcellus activity, and its economic potential from public lands, has been staggering.

Until 2007, the state's Oil and Gas Lease Fund had generated $153 million over five decades.

In 2008, in a single auction of new leases, the conservation department generated $166 million from 74,000 acres, surpassing the total generated in the previous 53 years. Those leases went for an average of $2,243 an acre.

Just eight years ago, the state offered 218,000 acres of gas leases in northern Pennsylvania. The gas industry protested the rate of $30 an acre was too high and declined to bid for most of the tracts. Only a quarter of the acreage was leased.