Commission approves February mineral leases, joinder agreements with Shell

In other action ...

At its regular meeting Tuesday, the Moffat County Commission:

• Approved, 3-0, hiring a part-time crisis intervention specialist for the youth services department.

Shell continues to conduct its due diligence as the oil and natural gas company prepares to resume exploratory operations in Moffat County.

On Tuesday, Jeff Comstock, Moffat County’s natural resources director, and Dan Davidson, director of the Museum of Northwest Colorado, appeared before the Moffat County Commission seeking approval for a variety of lease agreements, lease amendments and unit joinder agreements with Shell Western Exploration and Production, LP.

Comstock presented the commission with the first collection of contracts, which entailed a lease agreement between SWEPI and the county for a three-acre parcel not previously offered in past mineral lease auctions.

“It’s a very similar situation we had with Quicksilver (in the past),” Comstock said. “We didn’t know we owned the parcel, but Shell discovered that we did in their title work and asked us to extend the same treatment to them that we did for Quicksilver.”

The three-acre parcel, Comstock said, is located in close proximity to other parcels Shell has leased in the Williams Fork River Valley near Hamilton.

“I think we came up with a very fair price of $800 per acre,” Comstock said. “The rest of the agreement represents our standard lease of 3/16s royalty (on production) and a term of three years.”

The new lease would yield $2,404.80 for the county and its taxing districts, if approved.

But SWEPI is in the process of combining its parcels through federal exploratory unitization, a legal tactic employed by oil and natural gas companies to combine a collection of leased parcels into one entity to drive down yearly lease payments in instances where a contract extension is exercised.

Mineral leases commonly feature extension clauses to give oil and natural gas companies the ability to complete exploratory operations it can’t finish in the primary term. Extensions are usually two to three years and typically tied to the parcel.

When a company creates a federal exploratory unit, which must be a collection of parcels located in the same area and meet certain landmass criteria, it has essentially created a new entity not technically bound by the original lease agreement.

SWEPI has already created two federal exploratory units known as the Williams Fork Unit Area near Hamilton and the Dry Sage Unit Area located about 15 miles north of Craig.

Should exploration activity extend beyond Moffat County’s standard three-year term, SWEPI would not be bound to the same payment outlined in the original lease agreement.

In an effort to ensure the county would be paid in full, it limited the new mineral lease agreement to a period of three years.

To get the company to sign off, the county provided SWEPI with exclusive right to renew the agreement at the end of the term for the agreed upon price of $800 per acre, or dissolve it.

Because the parcel is contained within SWEPI’s Williams Fork Unit Area, the lease was accompanied by a joinder agreement to allow SWEPI to absorb the new parcel into its federal exploratory unit.

The commission approved, 3-0, the mineral lease agreement, amendment and joinder.

Comstock and Davidson presented the commission with three more joinder agreements for leases SWEPI won during the county’s February auction.

Two of the parcels are located in the Dry Sage Unit Area and the third is located in the Williams Fork Unit Area.

Those joinder agreements were approved, 3-0, with the county’s amended lease terms.

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