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Pennsylvania halts new leases for gas drilling

By Jon Hurdle

PHILADELPHIA (Reuters) - Pennsylvania Governor Ed Rendell on Tuesday halted further leasing of state land for natural gas drilling, citing the need to protect forests from the drilling boom and renewing his call for a drilling tax that failed to pass last week.

The Democratic governor put 1.5 million acres off limits to energy companies seeking to exploit the gas-rich Marcellus Shale field, estimated to contain enough of the fuel to meet total U.S. demand for up to 20 years.

Rendell signed an executive order imposing a "strategic moratorium" on future drilling operations on state lands. Though it could be overturned after Rendell leaves office in January, he urged the gubernatorial candidates running in the November 2 election to preserve it.

Such lands make up less than 10 percent of the total area of the Marcellus in Pennsylvania, estimated Terry Engelder, a geologist at Pennsylvania State University, and there are only about 20 Marcellus wells producing gas on state lands now.

But even with the moratorium, that could rise as high as 12,000 wells in the next 20 years as energy companies exploit the vast gas field, said John Quigley, secretary of the state's Department of Conservation and Natural Resources.

Pennsylvania has already leased about one-third of its 2.2 million acres of state forest for gas drilling. The leased area represents about half of the public land covering the shale gas deposits.

"Drilling companies' rush to grab private lands across the state has left few areas untouched by widespread industrial activity," Rendell said. "We need to protect our un-leased public lands from this rush."

Kathryn Klaber, president of the Marcellus Shale Coalition, an industry group, said the natural gas industry has safely and responsibly operated on public lands for years.

"This responsible production of clean-burning, homegrown natural gas is creating tens of thousands of local jobs and hundreds of millions in tax revenues for the commonwealth," Klaber said."

GAS TAX AT ISSUE

The governor used the same occasion to call on the Republican-controlled Senate to reconsider his proposal to tax natural gas production.

The moratorium follows the failure last week of a proposed tax on natural gas production -- as advocated by Rendell for the last two years -- because state lawmakers failed to agree on the tax rate or how to use its revenue.

The Democratic governor urged the Senate to resume talks on the shale tax on November 8 in a last-ditch effort to enact the tax before he leaves office at the end of his second term in January.

"We have to pass a severance tax and we have to pass it in the lame-duck session," Rendell said. Pennsylvania remains the only gas-producing state without a severance tax.

Erik Arneson, a spokesman for the Senate Republicans, said they would not meet during "lame-duck" session after the November 2 election.

"We remain interested in trying to resolve this issue prior to the election, but the governor knows that we will not convene for a regular lame duck session," he said in a statement.

Under a compromise plan by Rendell, the severance tax would raise $300 million in its fifth year, about twice as much as a Senate Republican plan which Rendell blasted as "absurdly low."

(Reporting by Jon Hurdle; Editing by Daniel Trotta and David Gregorio)

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