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Potential Oil and Gas Revenues from Public Lands Assessed by KGS

Lexington, Ky. (December 16, 2009)—An analysis by the Kentucky Geological Survey (KGS) at the University of Kentucky shows that the state could derive between $6 million and $15.4 million in additional revenue each year if the oil and natural gas resources of state- and university-owned lands were developed. Brandon Nuttall, of the KGS Energy and Minerals Section, led the study. It was mandated by the 2009 Kentucky General Assembly with the passage of Senate Joint Resolution 67, signed into law March 20. SJR 67 called for the state Department of Energy Development and Independence in the Energy and Environment Cabinet to contract with KGS “to study the value of potential oil and gas operations on State-owned and university-owned lands and to identify factors that may limit development of such a program.” The legislation noted that oil and gas production on public lands occurs in other states and could bring additional revenue to Kentucky.

Nuttall, along with Tom Sparks and Sarah Briland of KGS, gathered and assessed data from state agencies and public universities for the study. They determined that 178 tracts of public land, covering just over 181,000 acres, have potential oil or gas resources. Development of those resources depends largely on surface access restrictions. The range of likely revenue from drilling activity is large because changing market conditions, price volatility, and unforeseeable circumstances at each site make such estimates speculative. Nuttall says the estimates are based on a range of revenue projections for single wells using public data describing production trends and commodity prices. The relatively modest amount of revenue involved cannot be expected to meet the state’s recent large revenue shortfalls.

“Further complications for the assessment could arise from errors in the data and sensitive environmental issues at the sites,” Nutall says. “Surface access for drilling will be prohibited at many sites, but the State or universities could enter into agreements where horizontal drilling technology can be used to develop the resource in those cases.”

The study was completed relatively quickly because the General Assembly requested the assessment before the 2010 General Assembly convenes. Nuttall presented the findings at a December 11 meeting of the Interim Joint Committee on Natural Resources and the Environment. He adds that the report includes suggestions for refining the figures.

SJR 67 also called on the Kentucky Department of Energy Development and Independence to develop regulations for permitting oil and gas operations on public lands and protecting public safety and the environment.  The state Finance Cabinet will also develop lease and oversight guidelines relating to possible oil and gas operations on these properties.

The full report, “Senate Joint Resolution 67: Assessing Oil and Gas Potential of State- and University-Owned Lands in Kentucky” is at the KGS web site. To download the report, go to the KGS Publications & Map catalog at Enter this publication’s number, 17320, in the box next to “Enter Publication Number or SkuCode”, and to the right of this box select "exact publication id" from the pull down menu.  Clicking on the “Search” button opens a new page with a link to the map.