An environmental group and an oil company are at odds over the value of gas reserves in Thompson Divide and the cost of extracting them.
The Carbondale-based Thompson Divide Coalition released a consultant’s report Wednesday that contends that the cost of drilling gas wells would be too great given the questionable returns. The coalition hired MHA Petroleum Consultants LLC ,of Denver, to perform the mineral analysis.
“MHA finds little to no economic viability for the drilling of oil or gas wells on the leases within the Thompson Divide area,” the report said. “With the enormous infrastructure capital costs required, in conjunction with low potential reserve numbers, little value can be assigned to these leases.”
The conclusion section of the report added, “Any attempts to find and exploit hydrocarbons in the (Thompson Divide area) will likely fail, in a commercial sense, and would leave lasting visual scars on a pristine landscape.”
The phrasing of that conclusion alone was enough to deflate the report’s credibility for Don Simpson, vice president of business development for Ursa Operating Co. LLC of Denver. Ursa is one of two companies applying to drill wells in the Thompson Divide area, generally considered to be 221,500 acres of federal land stretching from Sunlight Mountain Resort outside of Glenwood Springs to McClure Pass outside Redstone. Thompson Divide is west of Highway 133. SG Interests, the other company applying to drill in Thompson Divide, didn’t respond to a request for an interview.
Simpson said the use of the phrase “scars on a pristine landscape” wouldn’t be used in any viable engineering assessment. His criticism of MHA’s work went beyond the choice of words.
“There are, we think, lots of flaws in that report,” Simpson said.
Ursa purchased a significant number of leases in the Piceance Basin from another oil-and-gas firm a few years ago. Thompson Divide is on the eastern edge of that gas-rich basin. The consultant for the Thompson Divide Coalition said the geologic evidence indicates the leases in Thompson Divide are too far out of the gas-rich zone.
“There is concern that being on the flank of the basin and far shallower than producing wells to the west, that the target formations may be out of the gas window, leaving the formations ‘dry’ (barren),” the MHA report said. The report noted that most gas in the area is extracted from the sands, coal and shale of the Mesaverde Group of rock.
Simpson said Ursa believes there is great potential in the Niobrara sandstone, beneath the Mesaverde Group. The formation has hosted big oil plays in Colorado and Wyoming in the ast five years with advances in horizontal-drilling technology and hydraulic fracturing, according to an industry website called the Niobrara News. Natural gas also has been tapped recently in the Niobrara of the Piceance Basin in Garfield County.
Simpson said his company’s policy is not to share its own geologic assessment of areas such as Thompson Divide. He said common sense should indicate Ursa has high hopes for its holdings.
“Why would an oil-and-gas company purchase assets there if we thought they had no value?” he asked.
The conservation group’s consultant and Ursa also disagreed on infrastructure costs for drilling. MHA’s report said the cost of upgrading roads to support the equipment necessary for drilling ranges from $17 million for one pad to $28 million for as many as 60 pads. The report cited estimates by an engineer retained by Pitkin County.
Simpson countered that the road-improvement costs are “grossly exaggerated.” The access to the leases it wants to explore would be from south of Silt, he said, where existing Garfield County and Forest Service roads would be improved.
Simpson said only a small portion of its holdings are in Thompson Divide. Its leases total about 10,700 acres.
Some of the leases of federal land held by Ursa and SG Interests are scheduled to expire this spring. Both companies have applied to the Bureau of Land Management to extend the leases. That would give them more time to work the leases and see if gas prices increase. The Thompson Divide Coalition is rallying its members to oppose the extension.
Simpson said he suspects that the Thompson Divide Coalition released its petroleum analysis to try to sway public sentiment in that battle.
Thompson Divide Coalition Executive Director Zane Kessler said the report was performed as an “important step in the negotiation process with industry.” The Thompson Divide Coalition wants to buy out existing leases held by the gas companies and get Colorado’s congressional delegation to support legislation that would prevent future leasing of federal lands in the area. Kessler said the petroleum assessment had to be performed to determine how much to offer to the gas companies.
“I can’t imagine any reasonable businessperson agreeing to a major transaction without first understanding the true value of the assets on the table,” he responded via email.
He said the coalition is committed to making the leaseholders “whole on their investments.”
“We are also willing to offer a reasonable return on investment for the leaseholders, but our community should not be expected to pay an unreasonable amount for leases that are largely deficient and have little to no market value,” Kessler wrote.
Simpson said the Thompson Divide Coalition’s offer thus far hasn’t come close to offsetting the company for its expenses let alone its potential returns from development.
“It’s well below what we purchase it for,” Simpson said.
“There are, we think, lots of flaws in that report.”
Ursa Operating Co.