Differing estimates color debate on Roan revenues
RIFLE With some state lawmakers already making plans for how Colorado should spend bonus revenues from gas leasing on the Roan Plateau, a side debate is brewing over just how much money is at stake.Mary Ellen Denomy, who performs oil and gas accounting for mineral lease owners in Garfield County, says the bonus money that might come to Colorado from leasing on the Roan Plateau near Rifle may amount to little more than $5 million, not the $500 million to $1 billion the industry says is possible.Industry spokesman Greg Schnacke on Friday fired back by calling Denomy’s estimate “flawed.” And state Rep. Josh Penry, R-Fruita, said it “just doesn’t have any credibility.”Penry and state Rep. Al White, R-Winter Park, have said the state should put half the Roan’s bonus revenues and mineral royalties into a state trust fund for higher education, and the other half into a similar fund for communities impacted by energy development.Their proposal has drawn fire from Denomy and others who don’t want the top of the Roan sold off for gas development to help meet state financial needs. State Rep. Kathleen Curry, D-Gunnison, said this week that she worries that fabricated industry figures that are creating excitement among state lawmakers could drive policy decisions.”Let’s wait and see. Let’s not get our hopes up high, let’s not use that as the primary reason to be making a decision,” Curry said.Penry notes that the federal Bureau of Land Management already has decided to allow drilling on the Roan. However, U.S. Sen. Ken Salazar and U.S. Rep. John Salazar have been trying to prevent leasing from beginning, and Colorado Gov. Bill Ritter has asked for more time to review the Roan plan.Ritter has not opposed drilling on top of the Roan but says it is one of the last places that should be drilled. He also hasn’t taken a stance on Penry and White’s plan. Penry said Ritter’s office recently asked for more information about the revenue estimates behind the proposal and the methodology that was used to derive them.Schnacke, executive director of the Colorado Oil & Gas Association, said he has talked to energy companies about what the Roan Plateau might lease for per acre. He said two recent sales on nearby private lands went for about $40,000 per acre in one case, and $50,000 per acre in another.If the 52,000 acres approved so far for gas development on the Roan were leased at $40,000 per acre, that would create more than $2 billion in lease bonuses, half of which the federal government would pass on to the state. However, Schnacke said it’s possible the restrictions aimed at minimizing the impacts of drilling on the plateau could cut its lease value in half, which would result in about $500 million in bonus revenue for Colorado.Denomy arrived at her estimate by analyzing 19 other federal leases near the Roan. They fetched anywhere from $2 to $8,400 an acre, for an average of $220 per acre. For 52,000 acres, that would bring in less than $6 million for the state after the federal government gets its half.”I have no idea how Mary Ellen Denomy comes up with her number,” Schnacke said. “You’re talking about a very valuable, resource-rich area. The only factor that is the “x” factor, if you will, in terms of what will the lease sale bring is what the governmental restrictions will bring.”Duane Spencer, branch chief of fluid minerals for the BLM in Colorado, said he didn’t doubt that Denomy came up with a $220-per-acre average in her lease analysis. But he said lease values can vary widely, depending on a number of factors.He said leases of between $3,000 and $8,000 per acre are typical on public lands in the Piceance Basin, the gas-rich geological area of which the Roan is a part. He said the BLM sold four parcels on the Roan for $660 an acre in 1999, but gas prices are four times what they were then.Spencer said it isn’t unreasonable to think the new Roan parcels could bring in $100 million or more in lease revenue, and even approach industry estimates. The Roan is surrounded by wells and considered to have high potential for gas development, he said.Also, it offers a rare opportunity in the continental United States for a company to try to buy all the leases there and develop more than 50,000 acres from scratch.”It is what some people call a company maker,” Spencer said.Penry said the debate over the leasing revenues ignores the fact that the Roan also could bring in $100 million per year over the next 20 to 30 years in royalties and state and local energy taxes.But Denomy wonders why there’s a rush to drill the Roan when limits in pipeline capacity to lucrative markets have made gas far less valuable in the region than elsewhere in the country.”Why would you want to speed this up when there’s no place to take it?” she asked.Spencer said the Roan won’t necessarily become a more valuable place to develop if drilling waits. Drill rigs may move on to other areas of intense energy development in the future, making them even harder to get locally. And if gas production is dropping off elsewhere in the region, it could be hard to justify new investments in pipelines.”From my perspective it’s not always a correct assumption to think it will be more valuable in the future,” he said.