Minerals can add value, headache to property - 1

About 32 million acres of BLM land were under lease to oil and gas developers at the end of Fiscal Year 2015. Of that, about 12.8 million acres are producing oil and gas in economic quantities. This activity came from 23,770 producing oil and gas leases and approximately 100,000 wells. The production from wells on both federal and tribal lands accounted for 11 percent of the natural gas and 7 percent of the oil produced in the United States that year. While the program spent about $138 million appropriated from Congress in FY2015, it generated more than $2.24 billion in royalties, rental payments, and $112 million in bonus bids, all of which were split between the U.S. Treasury and the states where the development occurred.

The Colorado Oil and Gas Conservation Commission (COGCC) is set to vote in November on a proposal to move the setback rule for oil and gas drilling in the vicinity of homes and schools from the current 500 to 2,000 feet.

Despite other states having a setback rule of 1,000 feet, the change would make Colorado the state with the largest setback rule.

The setback rule changes results from Senate Bill 181, which was signed by Gov. Jared Polis (D) in 2019. The bill changed focus from promoting oil and gas exploration to promoting health and safety. Polis stated at the time of signing, the bill provides “the industry and residents certainty and comfort and Colorado will be the better for it.”

The oil and gas industry warned that the passage of SB 181 would result in the loss of income and jobs and potentially send the state into a recession without the state making some concessions. The concessions included preventing the state and local governments from imposing unreasonable setback rules, delays or bans on exploration. The COGCC would also be a full-time board appointed by the governor.

The Colorado Petroleum Council said in a statement at the time of the bill’s passage that while the bill is “deeply flawed,” they appreciate the governor and state officials working with the industry “to create a reasonable regulatory framework.”

The bill’s signing came after years of contentious debate between environmentalists and the oil and gas industry. In 2018, voters rejected Proposition 112, which would have put the setback to 2,500 feet from homes, schools and hospitals, as well as areas designated as “vulnerable.” The vulnerable regions included “public open space, public and community drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams, and creeks, and any additional vulnerable areas designated by the state or a local government,” according to the text of the bill.

Colorado Rising in a statement said, “A 2,000-foot setback would be a good start and far more protective than the woeful setbacks under the previous rule.” The group put Proposition 112 on the ballot and was attempting to put another similar measure on the ballot but could not gather enough signatures due to COVID-19.

“Scores of medical studies and scientific research, along with dozens of explosions, gas leaks, and evacuations, demonstrate the increased risk of severe long-term and short-term health impacts of living in close proximity to oil and gas operations,” according to the group’s statement.

Opposition to setback

In a virtual meeting earlier this month, Colorado Cattlemen’s Association (CCA) Executive Vice President Terry Fankhauser and land and mineral rights owners objected to the proposed setback distance.

“A 2,000-foot setback would contradict both measured scientific analyses and the will of Colorado voters, who just two years ago strongly rejected a similar ballot initiative,” said Fankhauser. “Moreover, such an arbitrary decision would result in economic devastation for tens of thousands of private property and mineral owners whose livelihoods depend on revenues generated from energy production.”

The meeting participants stressed the relationship between agriculture and the energy sector, stating they are interconnected and a part of the state’s economic structure. Weld County rancher Susie Magnuson said, “An attack on one is an attack on both,” asking the COGCC to examine the consequences. Mineral rights owner Joe Wigginton from Mead, CO, called the setback “scientifically misguided,” and asked the board to reconsider the matter.

“In my time as COGCC chairman, we gave full consideration to the impacts our decisions could have,” said past CCA President and COGCC Chairman Tom Compton. “The newly appointed commission has failed to so much as estimate the economic impacts of a 2,000-foot setback, but those of us who would face such a prohibition head-on know that it would spell an end to our way of life. Our perspective can help the commission come to a reasonable decision if only we’d be consulted.”

The CCA is not the only group in opposition to the proposed setback rule. In an editorial to the Colorado Sun, William Allison, spokesman for Energy In Depth, a public outreach campaign sponsored by the Independent Petroleum Association of America, stated it makes little sense “to ban one of the state’s more robust industries.”

Allison pointed to a study conducted by the University of Colorado, Boulder, which shows the state’s oil and gas industry supports “80,000 jobs, generates $1 billion in state and local tax revenue and adds $13.5 billion to the state’s economic output, plus 81 percent of the distributions from the School Trust fund which benefits K-12 public education.”

“Polis could also easily fix this. He personally appointed these commissioners as a professionalized, full-time body under SB-181 with the specific purpose of implementing the law, yet they aren’t honoring the spirit or intent of the law that governs their work,” Allison wrote in the editorial.

Dale McCall, president of the Rocky Mountain Farmers Union, calls the action restrictive and that it “will have the unintended consequence” of harming both farmers, ranchers and the oil industry. McCall notes the loss of economic activity will result in the loss of jobs and tax revenue in rural areas which are being affected by economic challenges.

“For the most part, agriculture and the energy industry have complemented each other in their ability to generate economic activity from the ground up. As they share common land, both farmers and ranchers, along with well drillers have found common sense ways to work together,” McCall said. “The new regulation to increase the setbacks takes away local control, preventing the people most impacted by the action to make good decisions based on real world experiences rather than a set of numbers.”

The proposed setback rules do have some exceptions to the 2,000-foot buffer rule. The exceptions include: if an owner gives permission; if the area plan includes multiple drill sites; if substantial protections are taken at the site; and when the wells and tanks are 2,000 feet from homes despite the drilling pad being closer. — Charles Wallace, WLJ editor

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