Oil and gas companies have approached residents in El Paso County about leasing options to set up drilling operations in the Niobrara shale formation, which is partially located in the county. According to the U.S. Geological Survey, there is an estimated 520 million barrels of oil and .95 trillion cubic feet of natural gas trapped in the Niobrara shale formation.The Niobrara formation is also located in Weld County, Colo., where drilling has begun; and parts of Wyoming, Nebraska and Kansas.To educate residents and address their concerns, Rep. Marsha Looper and Amy Lathen, El Paso County commissioner, hosted a two-day Oil and Gas Summit at Mountain View Electric in August. The main concerns of the 280 attendees were property owners’ rights and water contamination.A panel of experts provided information and answered questions: Vince Matthews, geologist from the Colorado Geological Survey; Kevin Rein, assistant state engineer with the Colorado Division of Water Resources; Dave Neslin with the Colorado Oil and Gas Conservation Commission; Mark McMillan, unit supervisor of the Air Pollution Control Division from the Colorado Department of Health and Environment; Tony Hernandez with the Colorado Department of Local Affairs; Doug Flanders, director of external affairs with the Colorado Oil and Gas Association; Neil Ray, president of the Rockies Chapter of the National Association of Royalty Owners; and Craig Dossey, project manager with the El Paso County Development Services Department. Also invited were George Monsson, county attorney; and Thom Kerr, permit and technical services manager of the COGCC.Matthews kicked off the summit by describing the geology of the Niobrara Shale Formation and the drilling process. To access the shale oil, oil and gas companies must drill through not only the aquifers in the Denver Basin, but several thousand feet of layered rock, he said.Flanders said in a typical well seven layers separate the aquifer and the drill bore. The layers alternate between steel and cement, and to allow the oil and gas to flow through the layers from the rock, the companies use a perforation gun to make small holes in the casings and cement.They then use a ballistic charge to crack the surrounding rock, Kerr said. The cracks are usually one-to-three-tenths of an inch thick, and can be between 20 and 300 feet high, Flanders said. The process can be repeated up to 40 times in an area one to two miles long, Matthews said. The fractures stay within the formation of interest and don’t travel outside the targeted area, Neslin said. The energy force felt on the surface registers less than a negative one on the Richter scale, he said.Once the rock is fractured or “fracked;” fracking fluids, which contain a mixture of water, chemicals and proppants, are inserted into the cracks. About 90.6 percent of the fluid is water; 8.96 percent is proppant; and .45 percent is other chemicals, Neslin said. The chemicals in the fracking mixture vary, depending on the company, Flanders said. “We usually use between eight and 12 chemicals,” he said. “We have 250 to choose from.” The proppant is usually sand or ceramics and is used to prop open the cracks to allow the oil and gas to flow into the well bore, Neslin said.The water source used for the fracking fluids is regulated. In 1973, the Colorado Senate passed a bill giving the land owner the sole right to use water from an aquifer located within the owner’s property lines. Anyone else who wanted to use that water would have to get the land owner’s consent, Rein said.Water can also be shipped in from another location. Another water source for fracking fluids is water discovered during drilling that is a by-product of drilling, or water found that was previously unknown. As long as it is non-tributary (it will not affect surrounding streams, rivers or lakes), the water can be used.Flanders said a voluntary program for baseline water testing has been established to increase the oil and gas industry’s accountability.” The program applies to oil and gas companies that are drilling new wells and well expansions, but it’s still contingent on the land owner’s permission, Flanders said. The drilling samples (before and after) are tested for various contaminates. Flanders said 90 percent of the oil and gas companies are participating.Once fracking is completed, the fracking fluids must be disposed of in injection wells or other waste disposal facilities, Neslin said. The fluids can also be collected in flow back tanks and reused at another site, he said.Another issue is pollution and noise associated with the heavy equipment used in the drilling process. McMillan said the APCD determines the oil and gas companies that need a permit, which authorizes legal emissions of air pollutants under specific terms, and defines those pollutants.Mineral rightsState statutes allow forced pooling – an estate owner of smaller acreage who doesn’t want to lease his or her mineral rights cannot prevent a large-acreage owner from accessing the resources. In other words, the smaller acreage owner is forced to allow development of the resources as long as there is proper compensation. The forced pooling applies to mineral rights only, not surface rights.Some mineral rights have been severed by land deals, and many owners don’t know it. Ray said mineral estate owners don’t have to disclose their mineral rights, so often there is no way to know if the rights have been severed from the surface rights.Kerr said that if the mineral rights below a piece of land have been severed from the surface rights and no land agreement has been reached, the oil and gas company can bond on that land and use it for drilling. The bond amount is typically $2,000, although it can be as high as $5,000 to cover crop and land damages on irrigated land, he said.Hernandez said when mineral estate owners lease their rights to an oil and gas company they will be taxed on the minerals. “They are taxed because they are an asset of the citizens of the state of Colorado,” Hernandez said. The tax – a Severance Tax – is imposed on non-renewable resources, he said. The amount is based on the current year’s gross oil and gas income that each mineral estate owner receives and is set on a sliding scale between 2 and 5 percent.Of the total state Severance Tax revenue, the Department of Natural Resources and the Department of Local Affairs splits it 50-50, Hernandez said. DOLA then divides its amount, with 70 percent going to local government grant projects and 30 percent to local governments, he said. Hernandez said DOLA sent back $32 million to local governments through direct distribution.Another tax – the Ad Valorem Tax – is imposed on real and personal property, Hernandez said. This tax is a direct tax collected by the county and is the “real property value based on the prior year’s net production sold,” he said. The amount is an 87.5 percent assessment rate on oil and gas and 29 percent on personal property like the oil rig and pipes, Hernandez said.Since January 2010, Dossey said five temporary use permits have been issued for exploratory wells. Because there are no specific zoning or development standards for oil and gas operations, companies must seek permits, Dossey said.Of the five exploratory wells, only two were actually drilled and no fracking was done, he said. The permits covered areas near South Peyton Highway and Squirrel Creek Road.Lathen said county commissioners will meet Sept. 8 to determine whether to regulate oil and gas drilling. Monsson said counties and states can set regulations as long as they don’t “operationally conflict” with the oil and gas commission. “If it effectively zones out oil and gas development – that is going to operationally conflict,” Monsson said. “If you have an opinion about what the county should regulate or should not, talk to your county commissioners.”
