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Publish Date: 10/31/2005

Workers move around the deck of Ensign United States Drilling Rig 17 west of Platteville on Wednesday. The three largest oil and gas extraction companies in Colorado are proposing a state rule change in oil production in Northern Colorado to accommodate more wells on existing sites, which would give them more access to untapped reserves. Times-Call/Richard M. Hackett

Age-old land fight
Oil and gas companies, developers at loggerheads over drilling rule

PLATTEVILLE — Two of the most lucrative and fastest-growing industries in northern Colorado — land development and oil and gas extraction — are butting heads as they fight for access to the same pieces of land.

The three largest oil and gas extraction companies in Colorado are proposing a state rule change in oil production in Northern Colorado to accommodate more wells on existing sites, which would give them more access to untapped reserves.

Lawyers representing major developers, however, are countering the proposal, calling for more limited access and less land displacement, and less cost to surface land owners.

The fight between mineral rights and surface development rights in Colorado is not new. But with oil and natural gas prices reaching new highs, there have been record increases in production in the state. That is happening at the same time that oil- and gas-rich regions such as Weld County also are seeing record housing growth.

What sparked the controversy most recently is a complex drilling rule called 318a and cooperative efforts by energy giants EnCana, Noble Energy and Kerr-McGee to change the rule so they can increase their drilling of new wells by 60 percent.

On Nov. 17, the Colorado Oil and Gas Conservation Commission, which regulates and oversees wells in Colorado, will consider the proposal, which is exclusive to the Wattenberg Field, a rich deposit of gas and oil stretching along the Rocky Mountains into Wyoming, where 12,000 wells are in operation — 660 drilled in 2005. It’s the seventh- largest gas field in the United States, and the 26th-largest oil field.

Wattenberg’s western borders also happen to cross into the fastest growing area in Colorado in Weld County, including the Tri-Towns, Erie, Milliken, Johnstown, Windsor and other municipalities along the Interstate 25 corridor where thousands of new homes are planned.

In general, the oil and gas company representatives say the 318a rule change could increase the number of wells allowed on 160 acres of land from five to eight, but it would minimize land disturbance by drilling diagonally (called directional drilling) to untapped reserves from existing well sites.

But it may not be that simple, said attorney T.R. Rice, who’s representing land developers against the rule change.

Depending on the number of mineral owners in the numerous formations below the surface, the well increases, or at least land set aside to accommodate future wells, could be much more on some pieces of land.

Rice said one if his clients developing land in southwest Weld County now has to accommodate 18 potential wells on 160 acres, when before he had only five to plan around.

“Depending on how you want to portray this, you could paint a horror story,” said Ken Wonstolen, vice president and general counsel for the Colorado Oil and Gas Association.

He said the displacement of land by the rule change will be minimal, less than 10 percent of the surface.

Oil and gas officials say the change in the longtime producing Wattenberg Field is needed.

“The full potential of the field can’t be realized the way it’s set up,” said Doug Hoch, a spokesman for EnCana.

He said current drilling regulations have resulted in untapped oil and gas resources staying in the ground at a time when nationwide production is waning.

Wattenberg is considered a “tight” field, meaning that several wells are needed to drain the sludgy mix of gas, oil, water and mud.

Just how much more oil and gas can be retrieved isn’t exactly known, and even the increase in wells is a fuzzy number. But industry experts believe getting at the reserves could prolong steady production in Northern Colorado for another 10 to 20 years.

Without the rule change, the Wattenberg Field will begin to go on a long, slow decline,Wonstolen said.

That means less access to local natural gas by Front Range homes, jobs, tax revenues and company profits, Hoch said.

But on the surface, landowners are always skeptical about accommodating more wells, especially when they don’t know how many and how much more surface area it will take to cater to the wells, Rice said.

Giving up ground for wells equates to thousands of dollars in lot sales.

Even without the rule change, land developers in hot growth areas get a raw deal, said attorney Randy Feuerstein, who represents the Colorado Association of Home Builders and other industry groups.

“If they take an acre of ground that cannot be used for development, that acre could be worth $15,000,” Feuerstein said. “If it’s been plated, it could be $80,000.”

With five wells on 160 acres, the companies accommodate between 8 and 40 acres, depending on house-to-well buffer zones ranging between 150 feet to 350 feet, according to Rice.

Though mineral companies compensate farmers for crop losses, they don’t pay for high-dollar lot losses, Feuerstein said.

And in many cases, the ground developers currently give up goes for wells some believe may never get drilled, Rice said.

When it comes time to plat land for development, Rice explained, oil and gas laws say the developer must provide access to all oil and gas, even if the mineral owners or lease holders have no plans to drill there.

If they don’t, developers pay the extra costs up front for directional drilling, usually about $100,000, without guarantees that the drilling will ever happen.

“Whether it’s hypothetical or not, it becomes a reality because you have to take that into account in planning,” Rice said. “You end up with one hell of a lot of wasted acreage out there.”

The rule change just means accommodating more wells in a system that Rice and Feuerstein believe is already swayed to the oil and gas industry.

“It’s an oil and gas commission, not a surface protection commission,” Feuerstein said of the commission that will make the final decision.

Rice said 318a and the proposed rule change works in some places, but there are better ways when it comes to developments.

“Times have changed,” Feuerstein said. “The land’s highest and best use is for development purposes, either for commercial or residential.”

Feuerstein, Rice and other attorneys representing landowners, agricultural groups and developers are teaming up to not only fight the rule change, but they are also taking the opportunity to try to change drilling rules altogether.

They want two drilling windows on 160 acres, instead of five, which significantly reduces surface coverage, Feuerstein said.

Wonstolen pointed out that nearly all the homes being built today will heat with natural gas, and it will have to come from somewhere.

“We have 11,000 to 12,000 wells out there today, but somehow ranchers still ranch, farmers still farm ... and we have booming residential development, as well,” he said.

Douglas Crowl can be reached at 303-684-5253, or by e-mail at dcrowl@times-call.com.

Mineral, surface rights means all things equal in Colorado

LONGMONT — Norm and Holly Steiner didn’t mind the oil and gas well on their property when they moved to their Boulder County rural home about nine years ago.

“We were not aware of the fact that they could expand it,” Holly Steiner said of the production on their land.

They found out this summer that, indeed, another well was being planned near their home.

Any day now, they expect to see a drilling rig arrive on their property, hired by EnCana, to drill a new well just a few hundred feet from their home on Niwot Road near North 115th Street.

“It’s very frustrating to have a nice home and then feel like you live in an oil refinery,” Holly Steiner said.

But property rights are much more than a person’s ownership of land on the surface.

Colorado laws recognize property rights in several forms, from water rights, surface rights and, of course, mineral rights.

In terms of mineral rights, the owners or lessees of the oil and gas, for example, have the right to access their property. Therefore, companies have the right to come on private land, tap a well and essentially obtain the property they own or lease under the ground.

“In Colorado, the common law is that if you own the mineral rights or you lease them from someone who owns them, you have the right for reasonable use on the surface,” said Brian Macke, executive director of the Colorado Oil and Gas Conservation Commission.

The commission itself has little authority over the relationship between surface and mineral owners, except that they encourage the two parties to enter into a “surface-use agreement,” he said.

“We try extremely hard to have surface agreements before we come on,” said Curt Moore, field land manager for Noble Energy.

He said it’s better to do work when the surface owners and his company can come to terms on the project.

The agreement usually includes the amount of money the oil and gas company will pay for crop damage and land damage. If an agreement isn’t met, the companies post a bond with the commission, which will cover those costs, Macke said.

Those are the state laws, which oil and gas companies follow, Macke said.

But sometimes, when drillers come knocking to make new wells, landowners don’t know how many more wells can be drilled near their homes, and the answer comes as a bitter surprise.

“It just doesn’t seem fair,” Holly Steiner said. “I would like to see nothing expanded out there.”

Douglas Crowl can be reached at 303-684-5253, or by e-mail at dcrowl@times-call.com.

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