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Deer Lakes Park drilling might net up to $74 million

Tuesday, Dec. 17, 2013, 12:01 a.m.
 

The size of Deer Lakes Park should sweeten deals to drill under it for natural gas, an industry analyst said Monday.

Range Resources and Huntley & Huntley offered Allegheny County $3.5 million up front and 17 percent of natural gas sales, generating $35 million to $74 million over decades, Matt Pitzarella, a spokesman for Range, said.

The joint offer was the lone proposal to drill under the 1,180-acre park from well pads outside its boundaries.

Representatives from both sides are negotiating a potential lease.

“The numbers are not unfair — and they might be at market rate currently — but I don't think it's at the point where the county should enter into a deal,” said Steven C. Townsend, a Downtown attorney who represents landowners in drilling deals. “The county will be better off waiting.”

County Council members expect to review and vote on a proposal early next year. Drilling opponents have urged council members for months to reject any deal. Council considered but voted down a three-year moratorium on drilling in county parks.

Kris Vanderman, a Charleroi attorney who has worked on oil and gas leases, said the offer is viable given the circumstances. The county asked for “pretty tough lease restrictions,” including enhanced environmental protections, he said.

Steven Baicker-McKee, an assistant professor of law at Duquesne University and an energy attorney, said the market has calmed compared to the “gold rush mentality” of a few years ago.

“My sense is that those numbers are pretty well in line with the market these days,” Baicker-McKee said. “The market has really come down from its peak where people were getting $5,000 an acre.”

Townsend suspects the county could get that figure at Deer Lakes Park.

The initial offer gives the county a one-time signing bonus of $3,000 an acre, generating $3.5 million. Townsend said the acreage of Deer Lakes Park could be worth at least $5,000 an acre, pushing the signing bonus to $5.9 million. The county could negotiate a higher royalty of 18 or 19 percent, he said.

“To get a county park with 1,000 acres is worth more than what the average Joe Blow is getting,” Townsend said.

The county will receive $5,000 per acre and royalty payments of 18 percent from Consol Energy, which will drill at the 9,300-acre Pittsburgh International Airport.

Pitzarella said it was not appropriate to compare the airport and Deer Lakes deals. He stressed that Range and Huntley & Huntley do not need access to the park's natural gas to advance their drilling operations in the area. Range has mineral leases for 24,000 acres in nearby townships and intends to start drilling in 2014.

“What would be criminal would be to lease all the gas down there and rob the taxpayers of its benefit,” Pitzarella said.

Aaron Aupperlee is a staff writer for Trib Total Media. He can be reached at 412-320-7986 or aaupperlee@tribweb.com.

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