Court to decide if nearly $400 million in state oil and gas bonuses fund conservation

Jon Hurdle

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Jon is an experienced journalist who has covered a wide range of general and business-news stories for national and local media in the U.S. and his native U.K. As a former Reuters reporter, he spent several years covering the early stages of Pennsylvania’s natural gas fracking boom and was one of the first national reporters to write about the effects of gas development on rural communities. Jon trained as a general news reporter with a British newspaper chain and later worked for several business-news organizations including Bloomberg News and Market News International, covering topics including economics, bonds, currencies and monetary policy. Since 2011, he has been a freelance writer, contributing Philadelphia-area news to The New York Times; covering economics for Market News, and writing stories on the environment and other subjects for a number of local outlets including StateImpact. He has written two travel guidebooks to the European Alps; lived in Australia, Switzerland, Israel, and Saudi Arabia, and visited many countries including Ethiopia, Peru, Taiwan, and New Zealand. Outside of work hours, Jon can be found running, birding, cooking, and, when weather permits, gardening in the back yard of a Philadelphia row home where he lives with his partner, Kate.

July 4, 2017 | 8:38 AM

Chris Collins / Pa. Dept. of Conservation and Natural Resources

A trail in Ryerson Station State Park, managed by the DCNR whose leasing of state lands for oil and gas development is at issue in a new court challenge by an environmental group. Dept. of Conservation and Natural Resources

State revenue from oil and gas signing bonuses should be used to fund conservation in the same way as the proceeds from oil and gas royalties, an environmental advocate argued, urging an appeals court to support a recent landmark ruling by the Pennsylvania Supreme Court.

The Pennsylvania Environmental Defense Foundation said almost $400 million in bonus payments for drilling on state forest land from 2009-2010 should be used for the conservation of natural resources, echoing the Supreme Court’s June 20 ruling that the proceeds from oil and gas sales are part of a public trust that must be used to defend the natural environment.

The foundation won its case before the court which said in the historic ruling that the Environmental Rights Amendment under Article 1, Section 27 of the state Constitution must be the guiding principle of the Commonwealth’s management of its natural resources. The state must act as a trustee, not an owner, of land, air and water, the court said.

On the specific issue of how signing bonuses should be used, the Supreme Court sent the case back to the Commonwealth Court, directing it to hear arguments over whether theses payments should become part of the “corpus” of the public trust.

“To the extent that the lease agreements reflect the generation of revenue streams for amounts other than for the purchase of the oil and gas extracted, it is up to the Commonwealth Court … to determine whether these funds belong to the corpus of the section 27 trust,” the ruling said.

John Childe, an attorney for the foundation, is now asking the lower court to affirm that lease signing revenue is also part of the public trust and so must be used for conservation, and not for general operational purposes. The revenue came from bids by energy companies for the first year’s lease on a parcel of state land.

At issue is $383 million in the lease payments — known as “bonus bids” — that was paid into the state’s General Fund from the Oil & Gas Lease Fund in 2009-10, using revenue from oil and gas companies who wanted to drill on 139,000 acres managed by the Department of Conservation and Natural Resources.

Former Governor Ed Rendell imposed a moratorium on new oil and gas leases on state land just before leaving office in 2011. Then Governor Tom Corbett overturned Rendell’s move with an executive order in 2014. Corbett wanted to open up 25,000 acres of additional state land to drillers in order to raise $95 million to plug a hole in the 2014-2015 budget. But Gov. Wolf imposed a moratorium on new leasing of state lands for oil and gas development immediately after taking office in 2015.

John Childe, representing PEDF, originally filed a lawsuit challenging the use of any oil and gas money for purposes other than conservation in 2012.

“The bonus payments, in the beginning of the process of leasing the state forest tracts for Marcellus Shale, became a very large amount of money,” Childe told StateImpact. “You can’t extract oil and gas without those bonus payments.”

The motion was filed against Gov. Wolf as the sole defendant. Wolf’s spokesman, J.J. Abbott, did not offer a response to the motion.

Childe’s motion, filed with the Commonwealth Court on June 29, was supported by John Quigley, former Secretary of the DCNR, who argued in an affidavit that the department’s loss of the lease revenue severely hurt its ability to manage or mitigate the profound impact that a rush of gas drilling had on the leased lands.

“The effect was a very serious diminution of the agency’s capacity to fulfill its legislatively mandated mission of conserving and maintaining the public natural resources for the benefit of all the people, including the generations yet to come,” Quigley wrote.

In the early years of the state’s shale gas revolution, DCNR had little experience of unconventional gas development, and did not understand the intensity and scale of the activities such as well pads, roads, compressor stations and waste water impoundments, Quigley said.

If the Commonwealth Court rules for the foundation, the big question now is whether the state will have to repay the $383 million – which was used to balance the general fund budget — back into the Oil & Gas Lease Fund to meet the newly affirmed constitutional requirement, Quigley said in an interview.

Since the leased land is no longer available to the public as part of the constitutionally mandated trust, the income derived from it, including the lease payments, must be used for conservation, the foundation said in its motion.

“The funds from the lease and bonus payments must remain in the trust and must be devoted to the conservation and maintenance of our public natural resources, consistent with the plain language of Section 27,” its motion said.