Mineral leases profitable for county; property issues remain

Story at a glance

• Bureau of Land Management officials voided a mineral lease contract for about 30,000 acres near Lay on Feb. 1.

• Moffat County - which owns mineral rights on about 10,000 of those 30,000 acres near Lay - stands to benefit by re-leasing the land for current values, worth about three times as much as when lands were leased in 2000.

• Some area landowners are upset the county owns minerals under their property and that the county has a right to extract those minerals without their consent.

• County officials also worry about violating property rights and have included new provisions in lease contracts requiring natural resource developers to reach agreements with surface landowners.

— Northwest of Lay, 10,000 acres of possibility rolls across the horizon.

Lands previously tied up in old natural resource leases now are open for the county to lease under new, more profitable terms.

Effective Feb. 1, the Bureau of Land Management nullified a natural gas unit lease held on about 30,000 acres north of Lay since 2005.

According to a letter signed by Duane Spencer, BLM Branch of Fluid Minerals chief, the Durango Pipeline Company - the unit's operator - did not drill wells it was contractually obligated to drill, and the BLM voided the contract.

Moffat County owns about 10,000 acres worth of minerals in the unit, which different companies leased since 2000.

Because those leases now are defunct, the county can release them for more favorable terms, said Jeff Comstock, county Natural Resources Department director.

Which, in addition to more money during a shorter guaranteed time period, the new leases include provisions to protect wildlife - such as seasonal restrictions on lands around sage-grouse mating habitats - and the property rights of surface owners.

The Moffat County Commission at Tuesday's meeting signed four new leases worth roughly three times more than previous leases.

Termo Co., from California, leased about 2,300 acres for $110 an acre, compared to about $35 an acre on the old, now void leases.

Under previous terms, those old leases could have lasted for another 20 to 25 years, Comstock said.

All together, the county will see $233,050 from the new leases, not counting royalty payments on production, which also are higher than before. The county now requires 18.75 percent in royalties, compared to 12.5 percent in 2000.

More leases should come next week, Comstock said.

Mineral lease profits are split, with about 53 percent going to the Moffat County School District, 40 percent to the county, 6 percent to Colorado Northwestern Community College and half a percent to the Colorado River District. Each party's share changes with local mill levies each year.

However, Comstock added mineral leases are not really a cash cow for the county.

"We've got an opening," he said. "Most of this leasing is paperwork management. Moffat County is an exploratory area for these companies. Very few wells really hit and then we see royalties from that."

County ownership

Moffat County owns about 60,000 acres of mineral rights, out of the county's approximate 3 million acres.

The county obtained those rights when landowners defaulted on either land or tax payments around the Great Depression era in the 1920s and 1930s, said Dan Davidson, Museum of Northwest Colorado director.

"When these lands went to auction, no one had much money to bid for the liens on these properties," Davidson said. "In many cases, the liens reverted to the county."

Around the late 1930s, the county commissioners decided the county should hold onto mineral rights when selling property, as an investment.

Since 2004, the county has profited about $2 million from natural gas leases on county-owned minerals, not including royalty payments.

Royalty payments are generally smaller amounts than acreage leases. The county made about $161,000 in royalties in 2007, a reflection of both the smaller value of older leases and of the nature of the industry, Comstock and Davidson said.

Not everyone in Moffat County is glad the county owns mineral rights in the first place.

In many cases where the county owns mineral rights, those minerals are underneath land owned by county residents.

In Colorado, and most places across the country, mineral rights trump land rights, which calls into question a landowner's property rights when the mineral owner decides to develop, Comstock said.

Les Hampton, who served as a Moffat County commissioner from 2000 to 2004, said county officials have commonly had issues with owning those rights.

"Split estates is almost like a trespass," Hampton said. "A person who owns the surface is basically at risk from the person that owns the minerals."

To address that, the county adopted mandatory surface use agreements in all its mineral lease contracts around 2001, Comstock said.

Companies leasing mineral rights from Moffat County must negotiate with landowners before starting any construction and must pay for any damages to property, livestock or water.

County officials have discussed how to redistribute mineral rights so property owners can control the destiny of their land, Comstock said.

"But how does the Commission justify selling such a valuable asset that does so much good for the community at prices most landowners can afford?" Comstock said. "Most people don't realize somebody else owns the minerals under their land.

"The county has done a tremendous amount to protect those people's rights. It's a double-edged sword. We have a community benefit, and we have a less-than-ideal situation for landowners."

Collin Smith can be reached at 875-1794 or cesmith@craigdailypress.com

Comments

taxslave 6 years ago

This amounts to about 1/7th from the loss of taxes from Colowyo. We've got about another $600,000 to go folks. Also, we awake to $3.45/gal. gas this morning and it's going to get worse. The price of gas will cause damage to everyone's budget, including my own. Oil hit $112/barrel this week.

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