May 2008

Underground treasure: As energy companies probe for oil and gas, the public watches with some concern

By Gail Binkly

Related stories

Dirty business: A Colorado scientist says chemicals used in natural-gas production can be harmful

Public lands expect more energy production

Two public meetings related to oil and gas development took place in Dove Creek one week in April.

On April 14, representatives of the San Juan Citizens Alliance, a local environmental nonprofit, had an informational meeting to advise area residents how they might be affected by energy production near their homes and land.

The audience of approximately 30 was largely skeptical of energy companies, shouting out questions about what regulations they would have to follow and whether they would be made to improve county roads.

Two evenings later, the Dolores County Planning Commission held a special hearing on several development proposals, including one to reopen an old natural-gas well and several for drilling new wells.

The crowd of two dozen was overwhelmingly sympathetic to energy development, bursting into applause any time anyone said something positive about it. When Leslie Taylor, a local resident, tried to ask whether a representative of the Bill Barrett Corporation would put in writing his promises about taking care of county roads, the crowd seemed to cringe – as if to ask for anything in writing might cause the company to balk.

(However, the company representative said he foresaw no problem with having a road agreement in writing.)

The mood at that hearing was summed up by local resident Dwayne Garchar. “We live up by the Kinder- Morgan [carbon-dioxide] plant,” he said, and paused. “We hear it.

“But I’m sick and tired of being the second-poorest county in the state of Colorado.”

The crowd applauded.

So it is with energy development. Many locals welcome the money it brings, but others deplore the torn-up roads and worry about effects on health, [See accompanying story, page 5] the environment, and quality of life.

For decades, Montezuma and Dolores counties have coexisted fairly comfortably with Kinder-Morgan (formerly Shell Western E&P), which sucks carbon-dioxide out of the McElmo Dome, the largest CO2 deposit in the United States, and pipes it to Texas to squeeze more oil out of drying-up fields.

And derricks along the Utah- Colorado and Utah-Arizona borders have long been drawing oil out of the Aneth oilfields.

But now, with petroleum prices skyrocketing, the hunt for underground treasure is heating up. Energy companies are eagerly exploring for new caches of fossil fuels, and development is booming across the West. And that is causing some concern in the Four Corners.

Having questions

In Colorado, about 22,000 new oil and gas wells will likely be drilled in the next two decades, according to a report by the Wilderness Society.

And in northern New Mexico, another 10,000 wells are expected in the next two decades in the San Juan Basin, which already has approximately 18,000 wells, mostly for natural gas. According to the industry, U.S. Geological Survey projections for the San Juan Basin are that it contains more than 50 trillion cubic feet of unconventional natural-gas reserves (often coalbed methane), 148 million barrels of natural-gas liquids, and 19 million barrels of oil.

In Montezuma and Dolores counties, interest in oil and gas exploration is likewise increasing. The Bill Barrett Corp., based in Denver, has been busily conducting seismic testing in both counties and applying for permits to drill for natural gas.

“It’s happening so fast, gentlemen, that I don’t even know the name of that well,” Miles Coroy of the Bill Barrett Corp. told the Montezuma County commissioners April 21, during a discussion of seismic testing in that county. The testing, which isn’t expected to exceed the county’s “threshold standards,” was approved.

Energy development has become a bone of contention at recent meetings in Dolores County, sparking debates between residents who want it and those who say, at the least, it ought to be better-regulated.

“Where you are now with development is perhaps where we were 20 years ago in La Plata County,” Josh Joswick of the San Juan Citizens Alliance told the group at the April 14 meeting in Dove Creek. Joswick is a former La Plata County commissioner and former mayor of Bayfield, Colo.

La Plata County sits atop one of the biggest coalbed-methane fields in the United States, with probably 40 years left in the field, he said. Dolores County doesn’t have coalbed methane, but has deposits of oil and liquid natural gas.

Joswick said he was living in Bayfield in the mid-1980s when oil and gas development came in a rush. “People were pretty receptive, but some had questions,” he said.

3,000 reviewed, one denied

In 1991, La Plata County became the first county in Colorado to adopt its own regulations for the oil and gas industry. The county had to go to the state supreme court to establish its right to do so, but was successful.

“Industry kicked and screamed about the regulations, but they have proceeded apace — they have done well,” Joswick said. “A little under 3,000 wells have been drilled in La Plata County. One has been denied. But approximately 3,000 have been reviewed by the county.

“Regulations did not drive the industry out, but they sure pointed it in the direction where operators behaved pretty well.”

Joswick said it’s beneficial for counties to plan ahead and develop their own rules for the industry, because there will be impacts — on roads, law enforcement and other areas.

In La Plata County, roads were especially affected. “Most were gravel,” Joswick said. “They were built for light use, not hauling drill rigs or gravel truck or water trucks at the rate they were going.”

Archuleta County, Durango and Bayfield already have regulations designed to deal with the industry or are in the process of adopting them. Montezuma County amended its landuse code last year to allow it to collect road impact fees for such activity. “You need public discourse on things like roads, how far operations have to be from residences, and so on,” Joswick said.

There has already been considerable public discourse on energy in Dolores County, where meetings have sometimes been heated. Even at the hearing April 16, where the audience was largely supportive of oil and gas, there were questions about notification of neighbors and impacts to roads.

Planning Commission Chairman Vernon Lerette himself noted that the county’s roads were not all adequate for heavy truck traffic. He said after a compression plant was put in on the north end of Road 15, the road was regraveled, but the graveling brought the slope up and narrowed the road to the point where it’s barely wide enough to handle regular traffic.

“The [county] commissioners have been looking into some uniform regulations for the drilling operations,” Lerette said. “They realize suddenly we are faced with a whole new situation here and they are considering some requirements for traffic routing, traffic control, dust control, and etc.”

In addition to counties, the state also regulates the industry for factors such as noxious weeds, noise, and reclamation of land when drilling is finished.

Colorado’s legislature last year passed two bills revamping the Colorado Oil and Gas Conservation Commission, the agency responsible for overseeing oil and gas development on private lands, as well as a bill strengthening the rights of surface owners. The commission is rewriting its rules and will be taking public input on the draft rules, which can be viewed at http://oil-gas.state.co.us.

Welcome revenues

Dolores County isn’t actually the second-poorest county in the state, at least not according to Census Bureau data. Colorado’s poorest counties are mostly in the south and eastern parts of the state and include former Dust Bowl areas, with the poorest being Costilla (per-capita income $10,748, median household income, $19,531).

But Dolores and Montezuma counties are far from wealthy, ranking 43rd and 44th, respectively, among the state’s 63 counties in terms of per-capita and median household income ($17,106 and $32,196 for Dolores, $17,003 and $32,083 for Montezuma).

Clearly, the money from oil and gas is welcome here.

In 2007, oil and gas provided 41 percent of the total property-tax revenues in Montezuma County, according to County Assessor Mark Vanderpool. That was up from 39 percent in 2006.

The lion’s share of that came from carbon dioxide. “Kinder-Morgan is the big boy in the mix,” Vanderpool said.

In Dolores County in 2007, oil and gas provided 28 percent of the property- tax revenues, according to Assessor Berna Ernst. There, although CO2 is also important, petroleum products are also significant.

“It’s a mixture,” Ernst said. “We have five oil companies in the county.”

Montezuma County has been aggressive in trying to make sure the industry pays everything it owes. In 2006, Vanderpool asked the county commissioners for permission to contract with an Oklahoma firm to help the assessor’s office do a valuation of personal property owned by Kinder-Morgan and other natural-resource-extraction companies. In Colorado, companies are taxed not only on the income they make, but on the personal property they own.

“None of my people have the expertise,” Vanderpool explained. “Those companies have dehydrators, compressors, pumps — and they all look the same to me.”

The county commissioners approved Vanderpool’s request, “and in Year One, the increased tax revenue more than paid for the cost of the company,” Vanderpool said. Kinder-Morgan appealed the 300 percent increase in valuation and figures were adjusted slightly, “but they dealt with it in an honest and honorable way,” Vanderpool said.

What's a split estate?

Frequently, mineral development involves a “split estate” — where the person who owns the land, the surface owner, doesn’t own the minerals beneath it. It can come as an unwelcome surprise to a new landowner when an energy company comes to the door demanding access to underground minerals.

Many split estates arose during the Depression, when desperate farmers sold off their mineral rights to oil and gas companies, according to Gwen Lachelt, director of the Oil and Gas Accountability Project in Durango.

But often it’s the federal government that owns the sub-surface rights. “In the homesteading areas in the West and Midwest, the federal government [specifically the BLM] retained those mineral rights,” Lachelt said.

And in 2008, he said, “again to the commissioners’ credit, they have approved an annual maintenance contract with the company for a fraction of the original amount” to continue auditing oil and gas personal property.

His office has also contracted with an expert to review and audit oil and gas companies’ reports of production, Vanderpool said.

“In my mind, there will be some peace of mind in knowing these companies are reporting fairly and honestly,” he said. “I feel strongly that if Ma and Pa Homeowner or Ma and Pa Storeowner have to be valued by the assessor and these values are audited by the state, then, by gosh, oil and gas ought to be treated the same way. There is no effective state audit on oil and gas assessment. It’s a self-reported system. And these companies and their tax agents know that most assessors’ offices lack the resources to check it adequately.”

But in Dolores County, the sentiment is somewhat different. In recent years, when the commissioners considered auditing oil and gas companies’ production figures, citizens urged them to halt, saying they were worried the companies would back off on their donations to local charities or even pull out altogether.

‘For it 100 percent’

In addition to providing tax revenues and donations to good causes, oil and gas companies boost the local economy by providing jobs, usually wellpaying, and buying local goods ranging from food to gasoline to housing.

“Gas exploration and development is the best that has happened to Dolores County. I am for this one hundred percent,” read a handwritten letter from local resident Alberta Neely to the Dolores County Planning Commission in favor of Bill Barrett’s drilling.

It’s a common sentiment.

If an economy comes to depend too heavily on energy, however, there can be drawbacks. In addition to the potential for crashes, energy can so skew the economy that it becomes unbalanced.

In Wyoming, the retail and tourist sectors are suffering because stores can’t find workers – they all flock to the better- paying energy jobs.

The ongoing struggle for control of vocational-technical education in Montezuma County is probably partially attributable to the importance of the energy industry, which has a constant need for welders, pipeline workers, engineers, and others.

Having energy development on private property can cause its value to decrease, according to Joswick. He said La Plata County commissioned a study on land values and found they went down with the presence of oil and gas.

A big complaint about having oil or gas operations nearby is noise, according to Gwen Lachelt, director of the Oil and Gas Accountability Project in Durango.

“It’s the No. 1 complaint we get,” she said. “It’s not just the compressor, but it’s a motor that goes 24 hours a day for 30 or 40 or 50 years. I know several people who have ended up just abandoning their homes because they become hard to sell.”

However, she said she believes oil and gas companies are behaving in a more environmentally responsible manner today than in the past. “There is such an increase in activity in urban areas and people’s back yards, regulators are getting pressure to rein them in,” she said.

Joswick said it’s impossible for surface owners to keep the owners of mineral rights off their property, but surface owners have a great deal of say over “how they’re going to go about what they’re going to do.” Agreements can be negotiated; landowners can meet with company representatives and talk about whether trees have to be removed around drill sites, what fencing is required, what reclamation will be done, and othe rissues.

“A land man will come and say, ‘Here’s the surface-use agreement we want you to sign,’ but you have a say as to what’s in that document,” he said.

Tips for surface owners are available from the San Juan Citizens Alliance, with offices in Durango, Cortez, and Aztec, N.M., and the Oil and Gas Accountability Project in Durango.

‘A good relationship’

Many local officials and residents are cautiously optimistic about the coming energy boom, if it really is coming.

Montezuma County Administrator Ashton Harrison noted at a recent meeting that Kinder-Morgan has a good track record in the county. “Kinder-Morgan has always been a good corporate neighbor, but you never know when another company might operate in a different manner,” he said. “We’ve been very fortunate in Montezuma County so far.”

“I know there has been a lot of grumbling about the [oil and gas] activity, but speaking from some one who has had previous experience with pipe line and exploration people, I think they are doing a great job,” Carole Sue Trudeau of Dove Creek wrote the Dolores County Planning Commission.

Renay and Juanita Neely of Cahone expressed similar sentiments in their letter, saying they are landowners and hold mineral rights in the area. “We have some acreage in Yellow Jacket McElmo Dome and when it was developed it does not disturb anything and the wild life are as numerous as ever,” they wrote.

“We’re happy to be here and hopefully we can make it a good relationship going forward,” said Dominic Spencer of the Bill Barrett Corp. at the April 16 hearing in Dove Creek. There was applause.