The ‘X factor’ in the forest
December 25, 2011
GLENWOOD SPRINGS – The White River National Forest is updating its rules for oil and gas extraction for the first time in nearly 20 years, but economics rather than regulations will likely solve the biggest controversy over drilling.
The forest supervisor’s office in Glenwood Springs is working on a plan that will determine what parts of the 2.28 million-acre forest are available for leasing by the oil and gas industry and stipulations on how they can drill. A draft of the plan is under review by the regional office of the U.S. Forest Service. A final plan might be out next year.
“It’s a big deal. This is setting the stage for the next decade or two on where and how and under what conditions we’re going to allow leasing,” said Forest Supervisor Scott Fitzwilliams.
The draft proposes legally withdrawing 857,512 acres of the forest from leasing and making another 1,159,796 acres administratively unavailable. That makes 88 percent of the forest off limits for oil and gas extraction.
That leaves 266,599 acres, or 12 percent, of the forest available. That is a significant reduction from the 396,124 acres available through the 1993 plan.
Geology has a lot to do with that decision. A lot of the forest – essentially anything east of Highway 133 and east of Glenwood Canyon – doesn’t contain oil or gas underground.
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“There are parts of this forest that have the potential for gas development, but there are parts where there will never be because the geology just doesn’t fit it,” Fitzwilliams said.
It’s the remaining 266,599 acres of the national forest where goals often collide. The western portion of the forest is within the Piceance Basin, a gas-rich area that experienced a boom in the mid-2000s. Drilling spilled into the forest to a higher degree than anticipated, mostly around Silt, Rifle and Parachute.
A 1993 leasing-availability decision anticipated that no more than 23 wells would be drilled in the forest by 2013. But by December 2009 there were 89 drilled wells, and more were approved.
Hundreds more wells could be drilled in the forest, the Forest Service’s planning efforts have determined, but Fitzwilliams said prices will dictate activity.
Natural gas is selling slightly below $4 per 1,000 cubic feet. In 2008, it spiked at $13, and it has typically hovered around $7 per 1,000 cubic feet.
“That’s what really drives our activity level,” Fitzwilliams said.
The 12 percent of the White River National Forest available for leasing includes lands in Thompson Divide, an area that stretches from Sunlight Peak southwest of Glenwood Springs to McClure Pass. Gas companies have leased 75,500 acres of public land there, often at prices below $5 per acre.
A Houston-based company called SG Interests has the most aggressive drilling plan in Thompson Divide. It has applied to the Bureau of Land Management to “unitize” or lump together 18 leases comprising about 32,000 acres. If the proposal is approved, SG Interests could hold the leases longer than through standard rules as long as it meets certain criteria for long-tern development.
Gas leases typically expire after 10 years if the gas company has started any activity. Many of SG Interests’ leases are set to expire in 2013.
A citizens group called Thompson Divide Coalition, which includes everyone from ranchers to hippies and environmentalists, is trying to prevent drilling. The land is too valuable because of its water supplies, wildlife habitat, summer grazing for cattle, hunting and recreation, the drilling opponents say.
The Forest Service’s updated oil and gas analysis probably won’t do much to solve the dispute. Some people place a higher value on natural conditions than on economic opportunity, Fitzwilliams said. But the agency also has the responsibility to make resources “reasonably accessible to development,” he said.
“There’s no way I can make everybody happy on this one,” Fitzwilliams said.
Randy Udall of Carbondale, a nationally-recognized expert on energy issues, said the economy will provide time to work on solutions to the Thompson Divide dilemma. It’s generally viewed in the energy business that new wells on the edge of the Piceance Basin probably won’t be as big of producers as those in the heart of the area, he said.
It is understandable that gas companies wanted to lock up leases at cheap prices, banking on gas prices coming up, Udall said. “However, drilling it in areas where there’s few roads and pipelines is a losing proposition at today’s gas prices,” he said.
Drilling a single well can cost $2 million to $3 million, depending on the hydraulic fracturing techniques required to release and extract natural gas. The high cost of production coupled with the low price of gas – and the risk of coaxing production from a fringe area like Thompson Divide – is likely why there hasn’t been greater pressure by more companies to drill there, according to Udall. “My general belief is that if the larger companies thought the basin edges were potentially profitable, you’d have the bigger dogs already there,” he said.
Udall believes many of the leases in Thompson Divide will expire without being drilled.
“A return to $6 or $8 gas would change the economics dramatically, so it’s premature to say that companies won’t someday be clamoring for access again,” Udall said.
During this recess from high prices, Thompson Divide Coalition is scrambling to accomplish a couple of goals: first, to prevent further leasing in the Thompson Divide area; and, second, to retire existing leases through trades, purchases or donations. Hundreds of the group’s supporters have signed petitions opposing SG Interest’s proposal to unitize its 18 leases and allowing it to hold onto the leases longer-term. The Bureau of Land Management’s decision is pending.