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HomeMy WebLinkAboutMemo - Mail Packet - 6/7/2022 - Memorandum From Cassie Archuleta And Kelly Smith Re: Oil And Gas - Mineral Interests 1 Environmental Services 222 Laporte Ave Fort Collins, CO 80522 970.221.6600 970.224.6177 - fax fcgov.com MEMORANDUM DATE: May 24, 2022 TO: Mayor and Councilmembers THRU: Kelly DiMartino, Interim City Manager Tyler Marr, Interim Deputy City Manager Jacqueline Kozak-Thiel, Chief Sustainability Officer Caryn Champine, Director of Planning, Development and Transportation Paul Sizemore, Director of Community Development and Neighborhood Services Rebecca Everette, Planning Manager Lindsay Ex, Environmental Services Director FROM: Cassie Archuleta, Air Quality Program Manager Kelly Smith, Senior Environmental Planner SUBJECT: Oil and Gas Mineral Interests Bottom Line The purpose of this memo is to provide City Council with an update regarding information requested at the March 22, 2022 Work Session about the idea to potentially acquire mineral interests to eliminate and prevent oil and gas operations in Fort Collins. Preliminary findings indicate that acquisition of mineral rights and oil and gas leases would be complex and involve substantial time and resources. Additional research and staff time would be required to identify the owners of the mineral rights and leases, determine the value of rights and leases, and negotiate and complete the acquisitions. The definitive total cost of purchasing mineral interests is a difficult number to attain, but with some basic assumptions it is approximately $25M. In order to determine the real number, staff will need direction and resources from City Council. Mineral Interests Overview and Considerations At a March 22, 2022, Work Session, Councilmembers suggested exploring the idea of purchasing mineral rights to eliminate and prevent impacts from oil and gas development within Fort Collins City limits. Preliminary research indicates that eliminating current and preventing future development would require the purchase of both mineral rights and oil and gas leases of such rights. The two following definitions are useful for this discussion: Mineral Rights refer to the right to remove minerals from the land, including oil and gas. In Colorado, ownership of the surface rights and ownership of the minerals beneath the property are or none of the mineral rights. Mineral rights may also be split, allowing several parties to own a percentage of the minerals underlying a parcel of land. Oil and Gas Lease Rights refer to an arrangement whereby a mineral owner enters into a binding cont operator the right to explore and produce oil and gas in exchange for a percentage of any revenue produced. Leases remain valid for as long as minerals are produced and will automatically transfer when the mineral rights are sold. Currently, most of the Muddy Unit in 1978. Preliminary research shows that there are potentially 150+ leases related to the Fort Collins Muddy 2 Unit, estimated at 2,681 acres. All the leases within the Unit remain valid for as long as any of the wells within the Unit are producing or are capable of production. Therefore, to eliminate future and existing development through the purchase of mineral rights, the City would need to purchase both the mineral rights from the owners and the oil and gas leases from the active operators in the entire area. Additional research would be required to determine what scaling might be possible to eliminate existing development by acquiring only mineral rights and lease rights for existing wells within City limits or the Growth Management Area (GMA). acquire rights that may be affected by City regulations, staff would first analyze title work to determine and verify the ownership of mineral rights involved and to identify the owners of any oil and gas lease rights for the affected properties. Based on past evaluation of possible similar title work on City-owned properties, the effort and resources required to determine the relevant ownership interests could itself be significant, depending on the scope of the acquisition plan, and would likely require an appropriation from Council for outside resources and expertise. Determining the value of the relevant mineral interests and oil and gas leasehold interests would require more research and negotiation with mineral owners, with values dependent on existing leases, production history, additional development potential and current title ownership. As a starting place, assuming a minimum $10K per acre for both the oil and gas leases and mineral rights, an estimate for the entire Fort Collins Muddy Unit would be upwards of $25M. Next steps If further exploration is requested, additional analysis and expertise would be required from third party consultants to help determine the ownership of rights involved, values of existing rights and leases, assist in negotiations with mineral owners, and understand the scalability of this approach. In the meantime, staff is exploring newly available options to reduce or eliminate surface impacts from oil and gas operations through State regulations, that went into effect on April 30, 2022. Staff will provide an update regarding these new options available through State regulations in a separate memo.