Glenwood Springs opposed to Thompson Divide natural gas lease extension
February 13, 2014
GLENWOOD SPRINGS — Armed with not one, but two reports questioning the economic viability of drilling for natural gas in the Thompson Divide region, local governments are renewing their appeal to requests by two energy companies seeking to have their federal land leases extended for two more years.
Glenwood Springs City Council unanimously agreed at a special Thursday meeting to join Pitkin County and the town of Carbondale in asking the U.S. Bureau of Land Management to allow the leases to expire in April, following a one-year extension that was granted last year.
"This is not about being anti-natural gas," Glenwood Springs Mayor Leo McKinney declared. "This is all about balance, and getting our resources in appropriate areas while protecting the areas that need to be protected."
Pitkin County Assistant Attorney Chris Seldin, who prepared the administrative appeal and presented it to the Glenwood council, pointed to two independent studies released this week that suggest the lease extension requests by Ursa and SG Interests are purely speculative.
A year-long study prepared for the county by John D. Wright, chief engineer for Wright Consulting of Golden, concludes that the infrastructure costs to access gas reserves within the 221,500 acres of mostly U.S. Forest Service land southwest of Glenwood Springs would be too great to justify drilling at this time.
Unlike a geology consultants' report also released this week by the Thompson Divide Coalition that questioned the extent of natural gas reserves in the region, Wright concludes that wells, if developed, would likely produce as much gas as other wells farther west in the Piceance Basin.
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But, given the costs to develop roads and other infrastructure to access the remote Thompson Divide region, and until natural gas prices increase, it doesn't make economic sense to tap that resource, Wright's report concludes.
A report by Denver-based MHA Petroleum Consultants that was released by the Carbondale-based Thompson Divide Coalition on Wednesday also looked at production potential, capital costs, gas prices and the likelihood of producing wells being developed, Seldin said.
"Both experts indulged in an analysis that was favorable to the operators [in terms of the potential to find gas]," he said. "Still, their conclusion was that it is not financially feasible to develop these leases."
Concluded Wright in his 102-page report, "It is my opinion that attempting to develop oil and gas on the subject leases is not an economically viable venture and that it is highly likely that any attempts to develop the leases would lead to a substantial loss of money for the operator."
Wright said the actions taken to date to keep the leases in place are an attempt to buy time, hoping "economic conditions will improve sufficiently to allow economic development of the leases, or that other factors may come into play that may allow the leases to be economically developed."
SG Interests, in particular, which has since applied with the BLM to drill exploratory wells on the northern end of the Thompson Divide area, near Four Mile Park, waited until the leases were about to expire last year before taking action.
"SG's actions to date do not indicate that they previously intended to or currently intend to develop the leases to produce oil and gas," Wright says in his report.
Eric Sanford, land manager for Houston-based SG Interests in Colorado, did not return a phone call Thursday seeking comment on the latest studies released this week by the county and the Thompson Divide Coalition.
The coalition has been working to try to buy out the existing leases in Thompson Divide and is backing a bill by U.S. Sen. Michael Bennet of Colorado to prevent further leasing of federal lands in the area for energy development. It hired MHA to look at both the geologic and economic viability of drilling there.
"MHA finds little to no economic viability for the drilling of oil or gas wells on the leases within the Thompson Divide Area," that report said. "With the enormous infrastructure capital costs required, in conjunction with low potential reserve numbers, little value can be assigned to these leases."
Don Simpson, vice president of business development for Ursa Operating Co. of Denver, criticized the MHA report for its conclusion that drilling in the Thompson Divide "would leave lasting visual scars on a pristine landscape."
Such language wouldn't be used in an engineering report, he told the Aspen Times when the report was released on Wednesday.
Simpson also said Ursa would not have invested in the leases if it didn't think the area had potential to produce natural gas.
Seldin's appeal, which will be filed Friday with state BLM officials on behalf of Pitkin County, Carbondale and Glenwood Springs, suggests that Ursa and SG's original lease bids "indicate the Thompson Divide is a marginal play at best."
The appeal also notes impacts in an area that generates some $30 million in economic activity, from ranching to hunting and other outdoor recreation, and that provides water and other resources to local communities.
One of Glenwood Springs' primary concerns is the potential for industry truck traffic up and down Four Mile Road and through the city. SG Interests, in its application for the exploratory wells, has said it intends to use Four Mile as its primary haul route.
However, if full-scale gas development occurs, it's largely believed access would be gained by upgrading a series of forest roads into the area from East Divide Creek south of Silt and New Castle.
The Carbondale-based Wilderness Workshop also provided its own comments to the BLM on SG's lease extension requests, and issued a press release on Thursday.
"BLM put these undeveloped leases on life support last year," said Wilderness Workshop staff attorney Peter Hart in the release.
"That decision was in error," he said. "Now the companies have asked for another two-year suspension plus additional time to actually drill the leases. These leaseholders are speculating on a payout and playing the system."
Procedurally, Hart also said it would be inappropriate for the BLM to extend the leases when the original suspension decision is still under review by the agency.