Government group frets over proposed Roan gas deal
August 8, 2014
A proposed settlement regarding natural gas drilling on the Roan Plateau northwest of Rifle that has been hailed as a potential "win-win" by energy companies and environmental groups alike still could leave local governments holding the bag, according to Associated Governments of Northwest Colorado.
The deal, which is not final, would reimburse Bill Barrett Corp. for federal leases on top of the Roan that it purchased from the original winning bidder five years ago. In exchange, it would allow development of less-controversial leases held by several different companies below the Roan, explained AGNC Executive Director Scott McInnis, who briefed the Garfield County commissioners Monday on the organization's stand.
In question, though, is how up-front federal mineral lease distributions already paid out to the state and local communities on those leases would be handled, and whether they would have to be paid back over time through withholding of future royalty payments.
Governments are paid so-called bonus money at the front-end of federal land leases, and royalty payments after they begin producing.
While the settlement could still be restructured so that local governments are held completely harmless when it comes to future mineral lease distributions, "right now, it's not a win-win, and you are on the losing side of this proposition," McInnis said.
"At this time, Associated Governments opposes this settlement until the day that the counties and the communities are held harmless," he said, urging the commissioners to join in that position and prevent having future lease payments withheld.
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McInnis also had harsh words for Barrett for "miscalculating" the risk of purchasing leases that were already subject to litigation by environmental interests when the company bought them in 2009, for what was considered a bargain price of $60 million, then trying to "shift" that risk "onto the shoulders of local communities."
"It allows Barrett to come away unscathed, while we pick up the tab, and that is fundamentally unfair," McInnis wrote in a July 22 letter to AGNC members that was distributed at Monday's meeting.
The main concern for AGNC and its member governments, including Garfield County, is that the state could seek to recoup mineral lease grant funds that have already been distributed and spent by local communities by withholding future distributions.
Local governments should have a seat at the table in negotiating a settlement, McInnis said.
Instead, "It's like a game of musical chairs, and when the music stops there's not a chair for the communities that will be impacted," he said.
Garfield County commissioners have taken a position seeking to be held harmless if any of the existing Roan leases are canceled as part of the Bureau of Land Management's court-ordered review of the leases.
However, the commissioners also want to know what the costs would be of any settlement that could allow some natural gas development to proceed.
"It could be only bonus money we're looking at," Commissioner John Martin said, drawing a distinction between a refund of one-time bonus payments on the undeveloped leases versus distribution of later production payments.
Martin said the county should know more next week from state officials how lease funds would be recouped, and whether future mineral lease grant dollars might be impacted.
"It's premature to have this discussion until we have those numbers," Commissioner Tom Jankovsky agreed.
David Ludlam, executive director of the West Slope Colorado Oil and Gas Association, said that any settlement that allows production on leases below the Roan to occur is better than holding up all of the leases within the Roan study area through years of continued litigation.
Future royalties on producing leases could also more than offset any refund of the initial bonus payments, he said.
"Without a settlement of some kind, all of these leases will be locked up for well over a decade," Ludlam said.
Barrett Corp.'s Doug Dennison was also at the Monday meeting. He said the settlement that is now on the table is an attempt to "break the logjam" and hold onto some of its leases on the top of Roan, while freeing up leases held by other companies below.
Otherwise, "there's no end in sight," he said. "Our intent is not to keep folks in the dark, or try to cut a deal that is detrimental to the communities on the Western Slope."