Denver and the West
Mineral owners assert property rights in Colorado’s oil and gas fight
Access to underground assets must be protected as drilling restrictions proliferate
- LA SALLE — The devastating floods of 2013 sent water from the South Platte River cascading across Chuck and Roni Sylvester’s farm and into their home, creating a high-water mark 17 inches above their baseboard.
The damage to the couple’s house on the outskirts of La Salle was $250,000 — an amount that could have led to financial ruin for the 78-year-old semi-retired farmer and his wife had the 11 oil and gas wells on his 200-acre property not been spinning off a consistent stream of royalty income year after year.
“Having those royalties made it possible to repair my house,” said Chuck Sylvester, who bought his home — and the mineral rights underneath it — from his mother in the early 1970s.
But Sylvester and more than half a million mineral rights owners like him in Colorado increasingly feel like their underground assets are under attack as communities opposed to oil and gas exploration call for temporary drilling bans or well-siting restrictions.
Compounding their troubles has been a dramatic drop in the price of oil — from more than $100 a barrel in mid-2014 to around $35 a barrel Friday. Michelle Smith, president of the Colorado chapter of the National Association of Royalty Owners, said royalty revenue has plummeted up to 70 percent in some cases.
“We are all having to tighten our belts just like industry and reduce expenses,” she said. “It is most difficult for those who are on a fixed income who depend on their royalty checks to survive.”
The upshot: Mineral owners are fighting back more ardently than ever.
At a contentious meeting in Adams County in January that carried on until the early-morning hours, several mineral rights owners stood up before the commissioners and lambasted a proposed 10-month drilling moratorium as an abrogation of their property rights.
In late February, a group of mineral owners appeared before a state House committee to support HB-1181, a bill that would require communities that ban drilling to compensate mineral owners for lost royalties.
And on Tuesday, those who own minerals are being encouraged to attend a Greeley City Council special meeting in which the council will consider an appeal from Extraction Oil & Gas to drill up to 22 wells on the city’s west side. The plan was turned down by the city’s planning commission earlier this year in the wake of strong public resistance.
“It’s all about protecting the economic foundation of our country, which is private property rights,” Smith said. “The issue is this is my property, and I have every right to realize the benefit of that property right.”
That right, she said, is enshrined in the very fabric of the state constitution and reflected in Colorado’s long history of mining.
No simple line
But Rep. Michael Foote, D-Lafayette, said the issue is not that cut and dried. Where one person’s property right ends, he said, another’s begins.
Foote was one of five Democratic legislators on the State, Military and Veterans Affairs committee to vote to kill HB-1181 on Feb. 24.
“It can’t just be that someone has mineral rights and they say they can exploit those rights any way that they see fit,” he said. “You have surface property owners who are losing value in their homes when drilling is done right next door.”
Foote characterizes the clash of property rights revolving around oil and gas activity as a “big issue” playing out across the state. It has even reached the Colorado Supreme Court, where the high court is set to decide in the coming weeks on how far a local community can go in limiting oil and gas development.
Emily Hornback, a community organizer with the Western Colorado Congress, has spent the past few years advocating for residents of Battlement Mesa. They worry about the impacts of a plan by Ursa Resources to drill 53 natural gas wells in the neighborhood.
In December, the company got special use permits from Garfield County but still must get approval from the Colorado Oil and Gas Conservation Commission before moving forward.
Hornback said residents of the 5,500-person community, many of whom are retirees, fear for their property values in the face of heavily industrialized activity on their doorstep.
But they don’t have the political power as an unincorporated community to do much to mitigate the impacts, she said.
“For the adjacent landowner, the world appears against them and they don’t have much legal recourse,” Hornback said. “Whose property right is winning and whose property right is losing?”
Doug Saxton, a retiree who has lived in Battlement Mesa for 11 years, said his wife has asthma that is exacerbated by emissions from oil and gas activity.
Saxton said with the dramatic advances in horizontal drilling technology in the last few years, Ursa should be able to get to the natural gas deposits under Battlement Mesa — and in turn pay the mineral rights owners for their assets — from a much farther distance.
“They have tremendous technology they like to brag about,” he said, “and they ought to be using it when they’re going to impact this many people.”
Lance Astrella, a Denver-based attorney who has represented landowners and mineral owners alike, said providing “reasonable” access to minerals beneath the surface is the key issue under Colorado law.
That’s because the state operates under a “split estates” rubric, in which the surface rights and the subsurface rights are often owned by different parties.
Under state law, the mineral estate is considered the dominant estate and operators cannot be prevented from “entering upon and using that amount of the surface as is reasonable and necessary to explore for, develop and produce oil and gas.”
But that dominance isn’t unbridled.
Astrella helped draft a 2007 state statute that introduced the concept of “reasonable accommodation” for a surface owner affected by nearby drilling activity. The law states that an operator shall conduct its operations in a manner that minimizes “intrusion upon and damage to the surface of the land.”
The industry insists that it has made numerous accommodations to surface owners and communities over the years, buffering noise with berms and walls and reducing pad size through the use of directional drilling.
In some communities, oil and gas operators have agreed to abide by memorandums of understanding, which are specific agreements between companies and local governments spelling out stricter standards of operation than what the state mandates.
But Astrella said the people who own the oil and gas deposits that the companies are trying to extract find it hard to prevail in the court of public opinion.
“The ones who have the intrusion and negative effects of oil and gas drilling — their situation is obvious and they have the public’s attention,” he said. “The mineral owners are less likely to have that benefit.”
Smith, with the National Association of Royalty Owners, said that’s because the conflict is between a property you can see — a home — and one you can’t — a pocket of natural gas.
“We don’t have the same voice because the legislature will take care of the property right on the surface rather than the property in the mineral estate,” she said. “It’s out of sight and out of mind. However, it’s a property right you can buy and sell like any other property right.”
Paying the bills
Minerals rights can also be inherited. That’s how Mike Paulsen, a wine and spirits deliveryman in Denver, obtained his minerals in Weld County. He said he used to get $200 a month from his holdings, but the industry’s recent price and production drop means he now gets a $50 check every few months.
It’s harder for him to keep up on his bills and pay off his debts.
“I not only used it to pay my bills but to have something to pass on to my kids,” said Paulsen, 53. “There’s not going to be anything left by the time I get my bills paid.”
He worries about the rising movement to limit oil and gas operations spreading to where his minerals are and impinging on his property rights.
“It really bothers me,” Paulsen said.
The total amount of royalty income in Colorado is hard to determine, Smith said, because agreements between oil and gas companies and mineral owners are privately negotiated. But based on the $475 million in royalties paid out in 2014 on state and federal lands, Smith extrapolates that total payouts statewide were around $1.1 billion.
Jon Isaacs of Adams County showed off a measley $102 check from Anadarko Petroleum Corp. The money represents a year’s worth of royalty payments off a 30-year-old oil and gas well on Isaacs’ property.
It’s not much, he concedes, but the real value under his 40-acre spread located just 4 miles north of Denver International Airport lies in the future. He smooths out a spreadsheet in his basement office that shows estimated royalty collections should a firm using the latest highly productive extraction methods drill new wells on his land.
At $31 per barrel, Isaacs says he’d get $19,000 in royalties a year. That rises to $37,000 annually by 2021, assuming a rebound in prices to $75 per barrel.
It’s his retirement fund, he said. No different than someone who invests in stocks, bonds or cattle futures.
“It’s so I can stay here at this house that I’ve improved and plant crops on my land and stay in Adams County into retirement,” said the 58-year-old, who bought this windswept parcel only because it came with mineral rights. “I bought this land as an investment.”
Roni Sylvester of La Salle is also looking to the future, which she now deems “uncertain” given recent anti-oil and gas efforts in the state. Her husband was planning to donate a ranch he owns in Wyoming to Colorado State University’s agricultural college.
That plan is now on hold because the couple can’t be certain their royalty income stream will remain intact.
“There’s no way you can plan,” Sylvester said. “It knocks the foundation out from underneath you. You have to plan for the absolute worst-case scenario.”
John Aguilar: 303-954-1695, email@example.com or @abuvthefold
Oil production in colorado (millions of barrels)
2015 — 122.2*
2014 — 95.7
2013 — 65.4
2012 — 49.5
2011 — 39.4
2010 — 33
Natural gas production in Colorado (Mcf, thousands of cubic feet)
2015 — 1.7 billion*
2014 — 1.6 billion
2013 — 1.6 billion
2012 — 1.7 billion
2011 — 1.7 billion
2010 — 1.7 billion
Source: Colorado Oil and Gas Conservation Commission
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