Fracking Bans Enrage Coloradans Sitting on Energy Riches

Mineral owners left out of the energy boom in Colorado and other states are mobilizing to fight local fracking bans they say are depriving them of billions of dollars in oil and natural-gas royalties.

Colorado Governor John Hickenlooper repeatedly invoked the rights of his state’s 630,000 royalty holders to head off ballot measures that would have given local governments more control over energy drilling. Now owners of royalty interests are going public, organizing in an effort to exploit deposits that cities and counties have blocked them from developing.

“We have valuable minerals in the Niobrara that may be worth some money -- a lot of money,” Bill Peltier said of rights in an oil shale formation that his family has held for five generations. “They should pay me off for those mineral rights.”

Mineral owners are emerging as a potent force in the escalating battle between residents and producers over how to regulate drilling as it moves closer to residential areas. From California to New York, royalty holders are joining forces with oil companies to make their voices heard in the debate over hydraulic fracturing, or fracking. They are coming together through social media and at town hall meetings, offering to be featured in advertising and campaigning door-to-door against local fracking bans.

Fracking Bans

The activism comes as environmentalists are encouraging municipalities nationwide to join an estimated 435 measures to control or ban fracking, in which a mixture of water, sand and chemicals is forced underground to crack shale and release trapped oil and gas. In Santa Barbara County, California, for instance, local residents united with environmental organizations including the Sierra Club and Food & Water Watch to place a measure on the November ballot that would ban “high-intensity petroleum operations.”

“People don’t realize the face of oil is private citizens,” said Ed Hazard, a real estate broker and mineral-rights owner who said he would be unable to develop oil and gas on 228 acres near Santa Maria, California, among other holdings, if the measure passes. “They claim they are trying to save property values. They’ve seriously devalued mineral assets.”

In Colorado, fracking opponents including U.S. Representative Jared Polis, a Boulder Democrat, pushed for statewide initiatives to give local communities more control over fracking. Polis agreed to withdraw support for the measures in return for creation of a task force to study fracking’s impact, after Hickenlooper and others said the proposals would disenfranchise mineral-rights owners, damage the state’s $30 billion energy economy and cost thousands of jobs.

Ballot Measures

Yet as oil rigs move ever-closer to suburbs, the conflict that pits environmentalists and municipalities against oil companies and state officials continues, with residents saying they will seek to put similar measures on the 2016 ballot.

Boulder County, Colorado, has had a moratorium on drilling since February 2012, when it was approved by commissioners.

“We are not trying to harm mineral-rights owners, but we want to make sure that however energy is developed in our county, it’s done so in a way that doesn’t cause harm,” said Elise Jones, a member of Boulder County’s Board of County Commissioners. “That’s a work in progress.”

The county also adopted regulations that require wells to be kept away from schools and homes, and set controls on air emissions and water quality. At a hearing in June that drew more than 500 written comments including scores of anti-fracking form-letters from local Sierra Club members, the commissioners kept the temporary ban in effect. They will review the rule, scheduled to expire in January, again on Nov. 10.

‘Industrial Impacts’

“There are folks who continue to be concerned about truck traffic and other increased industrial impacts on their communities and we value their voices and want to elevate those,” said Catherine Collentine, a Sierra Club representative, referring to other effects of drilling activity. “We want to see the moratorium extended.”

The freeze is economically damaging to mineral-rights owners, many of whom are elderly and depend on royalty checks to pay for utilities and food, said Michelle Smith, president of the National Association of Royalty Owners’ Rockies chapter, and a land manager for The Quiat Cos., a Denver-based oil and gas investment firm.

‘Personal’ Issue

“This has become personal,” said Smith, who uses royalties from wells in Garfield County on the Western Slope to sustain her organic farm about 60 miles (100 kilometers) southeast of Denver. “People rely on oil and gas for their livelihood.”

There is money to be made. In Boulder County, the present value of untapped energy beneath 50 sections of land -- a section equals 1 square mile (2.6 square kilometers) -- is $1 billion to $2 billion, according to a study by Netherland, Sewell & Associates, a Dallas-based petroleum consulting firm.

Royalty owners with a one-fifth interest in a single section could receive as much as $64 million in payments over the life of production, according to the June 3 report, commissioned by the royalty association. Scores of people can own a fraction of interest in each section, limiting the value of their holdings, Smith said.

Mineral rights can be separate from surface land ownership. In 85 percent of the cases in Colorado, the property owner doesn’t hold the oil and gas rights, exacerbating tensions between residents, royalty holders and energy companies.

New Wells

Colorado is the nation’s sixth-largest natural-gas producer and ninth-biggest oil supplier. After thousands of new wells bristled at the foot of the Rocky Mountains in recent years, five municipalities banned or placed a moratorium on fracking in 2012 and 2013. Three of the voter-approved prohibitions were overturned in court in July and August.

Mineral owners will soon take part in an advertising campaign promoting fracking’s economic benefits paid for by Coloradans for Responsible Energy Development, a group backed by Anadarko Petroleum Corp. and Noble Energy Inc. Smith is also raising money to commission a documentary film featuring royalty owners.

In Boulder County, Jones said the county board’s decision on whether to renew the moratorium on Nov. 10 will rest on whether its three commissioners agree there is clarity around the potential health effects of fracking.

Commissioners are also looking to the state legislature to adopt recommendations to tighten local controls on drilling from Hickenlooper’s task force, which is required to report to the governor by Feb. 27, she said.

“We would like more authority so we can do what we need to do to fully protect our residents,” Jones said. “It’s going to require a change in state law ultimately through the state legislature or through the ballot.”

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