Bonanza on the plains? Oil, gas companies focusing on eastern El Paso County

DEBBIE KELLEY and R. SCOTT RAPPOLD Updated: March 4, 2011 at 12:00 am • Published: March 4, 2011

East of Colorado Springs, past a landfill, a motocross track, a shooting range and scattered farms, is Rob DeMasters’ retirement nest egg.

A few years ago, he and his wife bought a five-acre parcel with a house large enough for their family to spread out, enjoy the view of Pikes Peak and revel in the quiet country living.

His intent: work from home doing automotive restoration. Help raise the couple’s children. And, in about 25 years, sell the property and ride his motorcycle into old age.

DeMasters now thinks his plan is threatened.

His nest egg, it turns out, is in the middle of what could be Colorado’s next oil and gas bonanza.

Landowners are being courted by energy companies that want to drill on their land, and drilling rights on huge swaths of state land, nearly 75,000 acres in eastern El Paso County, have been leased since 2007, as industry speculators look for the next big “play.” A few years ago, leases sold for less than $2 an acre. The last sale, in February, fetched $81 an acre.

New and controversial drilling techniques have opened up areas once thought bereft of gas and oil, and companies are increasingly looking at the Niobrara Shale formation, which undercuts much of eastern Colorado and parts of Wyoming, Kansas and Nebraska.

It’s unknown how much private land is being looked at by energy companies. Records don’t become public until a well is drilled, and the companies are tight-lipped about their operations.

This exploration frenzy could be a boon for landowners and ranchers, providing royalty payments and jobs, but others worry about impacts on the environment and rural way of life.

“Depending on what is discovered (and where), this industry has the potential to cause huge changes in a county that has prided itself on great scenery, clean water, clean air and high-quality residential areas,” said Judy von Ahlefeldt, editor of the community newspaper Black Forest News, which has been outspoken about the potential hazards of drilling.

Several companies are courting DeMasters and nearby property owners about drilling on their land. DeMasters doesn’t like the idea, but he may have no choice. He doesn’t own the mineral rights. In Colorado, mineral ownership can be severed from property ownership, meaning one person can own what’s above the ground and another can own what’s below on a section of land. State law says the surface owner must provide access to the minerals, with owners usually compensated by energy companies.

That’s the case for DeMasters and neighbor Sandra Gilsdorf, who also has had knocks on her door from oil and gas brokers.

“We can’t prohibit it or encourage it. We feel really helpless,” said Gilsdorf, who has lived in the area for 12 years and raises mules.

Said DeMasters, “If they ruin my water or my land, I’m sunk.”

History of failure

Colorado has a long history with the fossil fuels industry: the town of Florence has the second-oldest oil field in the United States. Commercial production in Colorado started in 1862, according to the Independent Petroleum Association of America.

Unlike other Colorado counties, El Paso County has never had a commercial well. Not a drop of oil has been discovered, and the only natural gas find belongs to a private resident who was drilling a water well, struck gas and now culls it for private use, according to the Colorado Oil and Gas Conservation Commission.

El Paso County has 98 plugged oil or gas wells — drills that didn’t produce — along with one abandoned well from 1911, four sites that were permitted but never drilled and five active permits for exploratory drilling throughout the county, said Thom Kerr, permit and technical services manager for the commission. The agency regulates energy development in the state, issues permits and monitors environmental aspects of the industry.

Drilling has been sporadic in recent years, but that could change, as the old frontier becomes new again. Technology known as horizontal drilling, as opposed to traditional vertical drilling, has opened new possibilities for striking the lucrative minerals.

“We have the ability to essentially unlock oil and gas resources at a depth we couldn’t get to before because the rocks were too dense,” said Tisha Schuller, president of the Colorado Oil and Gas Association, an industry advocacy group.

Industry is optimistic

Statewide, 15 percent of permitted wells are for horizontal drilling, compared with 5.6 percent in 2010 and 2.8 percent in 2009, Kerr said.

Horizontal drilling also enables companies to set up exploratory equipment several miles away from the property being tapped for minerals, said Greg Wright, a petroleum land man with Continental Land Resources, of Edmond, Okla.

Wright has been talking to property owners in El Paso County about mineral leasing. He said he’s having success but wouldn’t divulge how many acres he’s leased for a major oil company, which he also declined to disclose.

“Oil companies survey an area they think has potential and start purchasing leases in the hopes they’ll be able to drill a well that’s commercially produceable,” Wright said. “An oil company is willing to invest several million dollars in purchasing leases, but oil’s a strange thing — there are no guarantees. You can drill a producing well, and 100 feet away, come up dry. It’s a high-risk business.”

Denver-based Pine Ridge Oil and Gas owns leases on more than half of the 74,729 acres in El Paso County that the Colorado State Land Board has sold mineral rights for in recent years.

The land board sells mineral rights to drill on state land, known as a lease, at quarterly auctions, based on requests by energy companies, with the revenue going to Colorado schools.

The company has 10 producing oil wells in Fremont County, said CEO Andy Lydyard. He is optimistic about striking oil here.

“We see very similar geology to what’s at Florence and we’re looking to expand what we see at Florence,” he said.

Benefits versus risks

Landowners who don’t own the mineral rights can be compensated with a bonus, paid per acre, Wright said, and lease holders can earn royalty income, if a drill is successful. Officials say surface owners usually can influence where a well is located.

As the surface owner, Gilsdorf said she was offered an initial amount of $143, with additional bonuses. The mineral rights owner — she doesn’t know who it is — could earn up to $1,400 a month, according to a preliminary contract she was shown.

Environmentalists, though, say residents should be careful about welcoming drilling.

“In our economic times, everyone needs jobs. But there are impacts to our water resources and to the infrastructure and to a depletion of water, because it does take quite a lot,” said Gopa Ross, oil and gas chairwoman of the state Sierra Club chapter.

At issue is fracturing, or “fracking,” in which chemicals and water are used to blast through the shale and reach oil and natural gas. It’s how most oil and gas wells in Colorado are drilled.

It’s also highly controversial. An Academy Award-nominated documentary film “Gasland” and a recent front page New York Times story, have highlighted the dangers posed by the process, and environmentalists say it threatens nearby water wells, that the chemicals can spread throughout an aquifer.

While the state has not identified a link between fracking and water well depletion or contamination, Ross said anyone on a well should have a baseline test of their untreated water.

“I’ve just heard way too many reports of impacts and if people don’t have baseline testing, they can’t prove it,” Ross said. “It’s like an investment in your property, an investment for your future.”

There are other affects on rural life too, mostly during drilling, including noise, dust and construction of new roads. A well head stands on the land for 20 to 40 years.

As for the State Land Board, spokeswoman Melissa Yoder said the agency has regulations in place to “protect the long-term interest of our land.”

She said the agency’s mission is to lease land for money for schools — $67 million last year — and that before a well is drilled, neighbors and other interested groups can oppose it.

That’s what happened in Park County last month, when the board removed three proposed leases from an auction because they were too close to a water supply reservoir or an important fishery on the South Platte River.

Lack of regulations

El Paso County doesn’t have regulations specific to the oil and gas industry, but county staff and the commission are exploring regulatory and environmental issues, said Mark Gebhart of development services.

Currently, exploratory drilling proposals are reviewed by the county’s development services department, which approves or denies the requests, said Commissioner Dennis Hisey.

But the commission could make rules pertaining to locations of drilling sites and road impacts and require applicants to obtain a special-use permit, which would need commission approval.
They could also have the county’s health department monitor water quality near drilling sites.
Activity so far has occurred on unincorporated areas of the  county.

There have been no inquiries for exploratory drilling in Colorado Springs, said Senior Planner Steve Tuck. In the city, gas or oil extraction is limited to nonresidential zones and would require conditional use approval from the planning commission, Tuck said.

Von Ahlefeldt, the newspaper editor, said she is advocating for “sensible (county) policies, backed up by regulations and enforcement before there is a rush of exploratory permit requests.”

Hisey said he understands such concerns.

“I would not like our landscape torn up; it’s fragile enough out east, and we get so little rain. These are issues we would need to consider,” he said, adding that horizontal drilling is less intrusive to the landscape than vertical drilling because multiple wells can be drilled from one pad.

Weld County benefits

Hisey recently met with officials from Weld County, which has the largest number of active wells in Colorado, to learn about their regulations.

“It’s good for the commissioners to look at the various models that are out there and figure out how we want to handle this and what fits best for us,” he said.

Oil and gas have been good for Weld County, located northeast of Denver. The county has no long-term debt and no sales tax. County Commissioner Barbara Kirkmeyer attributes that, in large part, to energy development.

Property tax revenue from the oil and gas industry was $42 million in 2010 and $50 million in 2009, she said. That amounts to about 42 percent of the county’s general fund, Kirkmeyer said.

And every time a drilling rig sets up in the county, about 100 jobs are added to the work force, she said.

In recent years, Kirkmeyer said, disputes between oil companies and communities have been ironed out, and the companies have realized the importance of giving back. In her county, they sponsor the county fair and the Greeley Independence Stampede, along with a food bank and a county alternative fuel initiative to convert its vehicle fleet to natural gas.

The Colorado Oil and Gas Conservation Commission’s requirements for well drilling, and protection of aquifers ward off potential problems, said Kerr, adding that the agency submits a detailed annual report to the Water Quality Control Commission.

In 2010, the commission received 164 complaints statewide, primarily alleging damage to land or well water, and Kerr’s agency assessed $1.2 million in penalties against 10 operators for violations of rules and orders.

Kirby Hughes, of Colorado Springs, is the conservation co-chairman for the state Sierra Club. He points to the density of gas wells on the Western Slope, and believes the industry will come here full-bore if oil or gas is found.

He also believes it will not go over well, particularly with newcomers who have purchased land out east to get away from the city.

“It’s going to be a huge influence on peoples’ lives in the 35-acre ranchettes that are out there,” he said. “There’s going to be a lot of screaming and crying and moaning. I just hope El Paso County has enough foresight to be able to manage it well.”

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