MINERAL, SURFACE RIGHTS AT ISSUE IN COLORADO

Conflict between owners of mineral and surface rights in the busiest drilling region of the U.S. may set patterns for similar disputes elsewhere in the country. Developments in the 170 sq mile Wattenberg area of Weld County, Colo., point to increasing government involvement in matters traditionally covered by leases and other private agreements. Citing Wattenberg area special rules adopted last month by the Colorado Oil & Gas Conservation Division, Commissioner Logan MacMillan offered a warning

Oct. 25, 1993

5 min read

Conflict between owners of mineral and surface rights in the busiest drilling region of the U.S. may set patterns for similar disputes elsewhere in the country.

Developments in the 170 sq mile Wattenberg area of Weld County, Colo., point to increasing government involvement in matters traditionally covered by leases and other private agreements.

Citing Wattenberg area special rules adopted last month by the Colorado Oil & Gas Conservation Division, Commissioner Logan MacMillan offered a warning to the Rocky Mountain Oil & Gas Association annual meeting in Denver:

"I just wonder if you really want government between your contractual agreements."

Under the new rules, for example, a landowner can ask the commission to make the operator post a bond before oil and gas activities begin on a lease if no surface agreement is in effect, MacMillan said.

The agency received praise at the meeting for confining the rules to the Wattenberg area. But government involvement in conflicts between surface and mineral owners probably won't end there.

The Colorado legislature this year considered but defeated two bills that would have addressed the issues. And the state Department of Natural Resources is believed to be working on a bill for the next session.

The main industry concern with legislative remedies is that they might compromise property rights existing under current leases and surface use agreements.

The issue is complicated by attempts by city and county governments to assert regulatory authority over oil and gas operations. Two Colorado towns have recently implemented regulations of this type. Industry representatives say they are reasonable.

COMPENSATION QUESTIONS

"Just compensation" for surface damage is the main issue in the surface-mineral rights dispute, said John Evans, general counsel for the Front Range Land & Mineral Owners' Association.

The group has been the main representative of surface owners in the 2 year old controversy.

Surface owners don't question the rights of oil and gas operators to enter their land, Evans said.

"Many of the farmers are royalty owners," he acknowledged. "Some of them have done very well by their royalties."

But they want payment for crop and soil damage and other economic burdens that result from oil and gas activity.

Evans showed Rmoga members a series of photographs of farmland damaged by drilling and production.

He cited these main effects:

Disruption of irrigation equipment and water flow.
Improper stacking of excavated soil, which makes the soil less fertile or even sterile.
Ruts from movement of heavy equipment, which disrupts irrigation flow.
Damage to soil from bentonite or buried plastic.
Soil compaction.
Improper burying of pipelines. "What you need to do is start double trenching," Evans said.
Leaks from production equipment.
Threats from fluids in pits. "What we'd really like to see is no pits whatsoever, everything above ground," he said.

Evans also said occupation of farmland by oil and gas operators creates psychological stress in farm families.

He criticized operators' use of independent contractors for drilling and production operations and for land reclamation.

"Your span of control is out of control," he said, noting that operators recently have been drilling 33 wells/week in Weld County. "You're not supervising your field closely enough."

THE BURDEN

Ken Wonstolen, a lawyer and government and community affairs representative of Gerrity Oil & Gas Corp., Denver, acknowledged that industry can improve its performance.

Gerrity, he said, improved its reclamation operations by buying one of its contractors.

"But the issue still comes down to who bears the burden?" he said.

Weld County, is not only the top U.S. drilling county but also one of the country's leading agricultural counties, he noted. He said nearly 1,000 wells will be drilled in the country during 1993.

The large county produces high-value crops and has many severed surface owners with no stake in mineral rights, with tenant farmers in 40-50% of the properties.

The busy Denver-Julesburg basin has blanket sands and multiple pays that yield high value crude and condensate and high BTU, rich natural gas.

With recent advances in drilling technology, such as diamond-coated drill bits and mud motors, operators can drill to 8,000 ft in 1 week vs. 3 weeks a decade ago.

Although the new state regulations, which took effect Sept. 30, cover notice requirements, consultation, soil preservation, reclamation and grading, reseeding, and waste management, Wonstolen said, "it still comes down to money issues."

He said the Front Range group's stance has been that whenever oil and gas operations affect the surface, the surface owner should be compensated.

Under traditional property rights, however, mineral owners receive the right to occupy the surface and make reasonable use."

"If we make our use in a reasonable fashion there is no compensation, even if it results in some burden to the surface owner."

Issues include whether operators should pay only for losses of growing crops or for continuing productivity loss and whether compensation should be limited to the fair market value of the land or be determined on the basis of lost cash flow.

"There are legal documents that set out these property rights," Wonstolen said. "It's not a situation of uncertaintY."

He said the Front Range group has sought payment at fair market value of the surface occupied by oil and gas operations. The industry position, he said, is that surface occupation is the 11 essence of the mineral right, our window to the minerals. That's not compensable."