Pennsylvania General Assembly passes Bill allowing drilling on state university land

by Saul Ewing Arnstein & Lehr LLP

On September 25, 2012, the Pennsylvania House of Representatives passed legislation that will allow the Commonwealth of Pennsylvania to lease mineral rights under land owned by state universities. The bill had previously been passed by the Senate and now goes to the Governor for his signature. Governor Corbett has indicated he would sign the legislation if it passed the legislature and he now has the opportunity to do so. The law will take effect immediately upon execution by the Governor.

Senate Bill 367, which upon enactment will be called the Indigenous Mineral Resources Development Act ("IMRDA"), allows the Department of General Services ("DGS") to enter into leases to allow the mining or removal of coal, oil, natural gas, coal-bed methane and limestone found underneath certain state-owned land. A copy of SB 367 may be found here. IMRDA requires DGS to engage in a competitive bidding process and to award contracts for the removal of minerals to the highest and best bidder.

Significantly, IMRDA allows for the leasing of land owned by the State System of Higher Education ("SSHE"). SSHE is the umbrella entity that owns and operates Pennsylvania's 14 state universities.1 State universities located in the Marcellus/Utica region, such as Clarion State University, California University of Pennsylvania, Indiana University of Pennsylvania and Mansfield State University, are likely to be directly impacted by the new law. Universities located in the non-Marcellus/Utica part of the Commonwealth, such as West Chester University and Cheyney University, will be indirectly impacted but will directly benefit as a result of funds that will be made available to their students and facilities. Significantly, the Pennsylvania State University and the University of Pittsburgh are separate from and not a part of SSHE. A limitation under IMRDA is that DGS may not enter into any lease for minerals under a state university unless the president of the SSHE university affected by the lease has provided his or her written authorization to proceed with negotiations.

Also, the new law plugs gaps found in existing state law that limited the ability of the Commonwealth to lease mineral resources on some state-owned land that previously was not subject to leasing. IMRDA permits the leasing of any state owned land for mineral development. The bill does not provide for the leasing of land administered by the Department of Conservation and Natural Resources ("DCNR"), the Pennsylvania Fish and Boat Commission or the Pennsylvania Game Commission. Existing legislation allows for the leasing of those state-owned lands and those agencies have already entered into leases for some lands administered by them.

Payments and royalties derived from SSHE land are to be distributed as follows:

  • 50 percent to be retained by the university where the minerals were extracted to be used for deferred maintenance projects and energy efficiency and cost savings improvements;
  • 35 percent to be allocated to the SSHE for use at universities where no minerals are found to be used for deferred maintenance projects and energy efficiency and cost savings improvements;
  • 15 percent to be allocated to the SSHE for use at all of its universities for the waiver of tuition fee and other related charges.

Payments and royalties derived from state–owned lands are to be distributed as follows:

  • 60 percent to the Commonwealth's oil and gas lease fund;
  • 25 percent to the Pennsylvania Infrastructure Investment Authority ("PennVEST") for nonpoint source best management practices to implement the Chesapeake Bay Watershed implementation plan and the statewide implementation of Total Maximum Daily Load ("TMDL") plan;
  • 15 percent to be retained by the state agency where the minerals were leased or extracted.

This new legislation will have an immediate and positive impact on SSHE universities which have been forced to defer maintenance as a result of budgetary cutbacks and will also directly help students as a result of IMRDA's allocation resulting in a waiver of certain tuition fees. With respect to other Commonwealth-owned properties, the Commonwealth will benefit from this new source of non-tax revenue which will be used for conservation-oriented projects, including the improvement of the Chesapeake Bay watershed and implementation of TMDLs. The new law is not without controversy as some activists and legislators have complained that leasing of state-owned land, particularly land under state universities, may jeopardize students and faculty members. While it is not likely that any significant acreage will be used for strip or deep mining of minerals, it is very likely that some land will be leased for natural gas drilling of the Marcellus and Utica Shales. These gas deposits are located more than a mile underground and may be drilled from off-site locations. Officials of the SSHE and the Commonwealth are confident that minerals can be leased and extracted without harm to any people or property.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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