Officials optimistic oil and gas activity can boost Moffat County economy
January 22, 2011
There's a buzz in the Moffat County Clerk and Recorder's office, a level of activity officials said hasn't been seen for decades.
At one time, anywhere from 10 to 25 people have been filling the back room of the office, combing through hundreds of thick books stacked in neat rows and columns.
Jeremy Mitchell, 34, is one of those people.
He calls himself and the others packed into the office landmen, and their presence has been slowly building, he said.
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Mitchell, who works for Denver-based Timberlake Management, said the landmen are competing against one another, looking for one thing in the books of land records — the names of mineral owners in a certain area of interest in Moffat County.
He and about 25 other landmen representing five different companies sometimes spend up to eight hours a day flipping through land records in the office, mining information for the oil and gas companies.
Moffat County Natural Resources Director Jeff Comstock said those companies are hoping to lease a half-million or more mineral acres in a place far from the usual natural gas production areas of northern Moffat County.
They hope to find resources in a special geological formation thanks to technological innovations, Comstock said.
The landmen's presence in the county means one thing to Moffat County Commissioner Tom Mathers — economic hope.
"Everybody that's got ground that's getting leased up is getting a pretty good paycheck," he said. "And, it means that they are going to come in and do some exploratory drilling or they're going to do it with the new technology.
"It's going to mean dollars coming into our community."
Comstock, who recently gave a presentation to the Craig/Moffat Economic Development Partnership about the subject, said Moffat County is not typically thought of as a large drilling area.
For decades, the Powder Wash and Hiawatha natural gas fields in the northwestern area of the county have provided a large portion of local mineral interest. That drilling activity is small in comparison to some other counties in the state, Comstock said.
Recently, there has been a "tremendous" amount of local interest from drilling companies in a geological layer called the Niobrara formation, which is known for its oil, Comstock said. Recent advancements in horizontal drilling techniques have helped drive the interest in the formation, he said.
"That technology … has opened up tremendous amounts of opportunity for oil, hence the recent leasing activity we have seen in this area," Comstock said during his EDP presentation.
About 550,000 mineral acres in the county are in the process of being leased, Comstock said. Most of those mineral acres are privately owned, he said, and the core leasing area ranges from the Hamilton area to 10 miles north of Craig, and from the Lay area east into Routt County.
"In the last month, we've been learning that area is expanding to over 700,000 or 800,000 acres," he said.
When the leasing activities first started several months ago, Comstock said, the average price per acre was about $100. At that price, Comstock said, leasing companies could have paid out more than $76 million in pre-drilling leases.
"Now we are seeing nothing go less than $250 an acre," he said. "And, this will continue. In fact today, I was talking to two folks that are starting their offers at $300 per acre. As the area becomes more refined, these prices will go up."
At $250 an acre, Comstock said, the leasing of 550,000 acres amounts to about $138 million in mineral owners' pockets.
However, Comstock cautioned that the figures he provided are rough estimates.
"There are no more volatile numbers and no more variable numbers than in oil and gas," he said.
According to records, there have been 758 oil and gas leases and memorandums filed with the clerk and recorder's office since October 2010.
That amount of leasing activity, Comstock said, means a good amount of pre-drilling money has already been spent in the area.
"I think whenever people think oil and gas, they think of a drill rig moving in and, 'Boy, when those trucks get here, my (auto) store is going to sell bearings, or I am going to sell a … truck to these rig hands,'" he said. "I think that is when people think of the economic impact, but I hope you realize it is happening even before they show up."
Comstock said the landmen plan to stay in the area for a minimum of a year and up to three or four years, depending on the amount of future interest in the Niobrara, he said.
In addition to salary, the landmen have a per diem of about $135, which adds up to about $1.9 million annually, if 40 landmen and other employees stayed in the area, he said.
Mitchell, who lives in Broomfield, said he lives in a local hotel. He is unsure how long he'll be working in the area.
But, he said it is not hard to see the benefit of his and other landmens' stay to the local economy.
"I think it is very good for Moffat County," he said flipping through land records. "(It's) only good for Moffat County — nothing bad is going to come out of this. Everything from bonus money, to if drilling comes into play, that's going to produce jobs and a lot more income from hotel stays to eating at restaurants and anything."
Craig resident Nick Charchalis recently leased minerals he owns south of Craig to a Denver drilling company.
"I don't think anybody has seen this level of interest from oil companies," the 57-year-old rancher and farmer said. "I've not seen it before — the level of interest is really high."
Charchalis said he knows four other landowners that have sold their minerals to various drilling or investment companies. He credits Moffat County's November 2010 mineral auction for setting the per acre price of the leases.
The county approved results of a county-owned mineral lease auction on 13,973.73 acres totaling $3,383,527.15 to be split among the Moffat County taxing districts and the Museum of Northwest Colorado.
The price of the minerals leased averaged $350 to $450 per acre and reached a high of $605 per acre, Comstock said.
"That kind of paved the way for some private landowners to say, 'Wait a minute, you are paying the county this much and you are paying me half of that?'" Charchalis said. "So, it gave a little more leverage to the landowners."
Despite its economic benefits, the leasing and potential drilling that could take place hold their share of negatives, Comstock said, including landowner and mineral owner conflicts and various environmental concerns.
In Colorado, mineral rights are dominant over surface rights. That means if a resident doesn't own the minerals under his or her land, then a company with the mineral rights can drill on that land, Comstock said.
But, there are number of regulatory methods that protect surface owners, including the Surface Owners' Bill of Rights and other good faith negotiations and reclamation standards.
"The truth is that there is a highly-regulated process to access somebody's surface if you don't own the minerals," he said.
But, Comstock's best advice, he said, is to "get to know your split estate partner."
Moreover, Comstock said, the county's mission is a balanced and responsible approach to energy development.
"There are cases where there is too much oil and gas development around," he said. "You get the citizen push back and they have legitimate concerns. We use our county land use plan to guide where we are headed with this and I believe it's balanced."
Although the amount of money that has come into the local economy from the recent leasing effort is significant, Comstock said the money that could be generated from large scale oil production in the area could "pale in comparison."
Any royalties derived from production depends on the results of the drilling activity, if such activity even takes place, he said. He noted that the Niobrara play was in its "infancy" and said activity could "go away as fast as it came."
But, signs indicate some sort of future oil exploration in the local portions of the Niobrara, Comstock said.
"I don't think companies that are businessmen spend this kind of money and walk away from it," he said. "I believe you will see oil and gas activity develop in the next … year.
"A few companies have to try it. They have invested in it — they've got to test it. If it pays off, more happens. If it doesn't pay off, less happens."
Charchalis said he feels there is a general sense of hope among those he knows that oil exploration and production will occur.
"I think everybody is kind of cautiously optimistic because we have seen it many times where they lease and they don't really drill," he said. "They don't go any further than leasing, so we kind of hope that they will this time.
"I think everybody would like to see that because then you have a steady income."
Drilling or no drilling, Mathers said the amount of money that has recently come into the county should not be understated.
"They have put millions and millions of dollars into our economy through people that own property," he said. "That means they'll be able to keep their family farms and ranches.
"They are going to go out and all of a sudden they have a check for $100,000, and they're going to buy a new pick-up and buy new furniture. It's good, positive growth for Moffat County."