August 15, 2008

Billion-Dollar Bust Roan Will Enrich the State, but Only in the Long Term

The anticipated boom from new energy leases on the Roan Plateau wasn't entirely a bust. That said, any visions of Colorado reaping a billion-dollar windfall in the near future from bonus payments were dashed when the final tally in Thursday's Bureau of Land Management auction reached only $114 million.

Colorado will split revenues with the federal government, leaving the state with less than $60 million from the auction - but only after thousands of protests against drilling are resolved.

The payday for Washington and Colorado will be much less lucrative than the $2 billion projected by the Alliance for American Energy, an industry-sponsored group. Other industry officials and observers refused to embrace that wildly optimistic estimate, but they did offer estimates that turned out to be way too high.

Who's to blame for the letdown? The energy interests point the finger at those protests to the BLM, led by environmental activists and even a few state agencies - and the delays they would cause - for depressing the bids. "The dark cloud of uncertainty cast by these elected officials and the environmental groups through their lease sale protests, lawsuits and rulemaking efforts grossly impacted the value of the Roan," declared the president of the Colorado Oil & Gas Association.

Not so, shot back Gov. Bill Ritter at a press conference Thursday afternoon. He blamed the disappointing figure on "the BLM's decision to lease the entire top of the Roan Plateau all at once" rather than adopt the phased leasing strategy that he's been pushing since late last year.

We suspect the truth lies somewhere in between. In short, energy companies seem to have "overexaggerated" the bid potential, just as Ritter says (although several recent bids on nearby lands had come in far higher on a per-acre basis). Meanwhile, opponents' obstruction no doubt has driven down the value of the leases.

After all, those bonus payments must be provided in cash, and an energy company might be hesitant to put up millions of dollars if there's a chance that drilling could be delayed for months or years due to litigation or regulatory delays - especially with a new administration due to take office in January.

In any case, it's now clear that the royalties Colorado will eventually receive from natural gas production on the Roan - anticipated to be between $400 million and $550 million over the first 20 years of drilling - will outstrip any windfall it might have immediately received from bids on the leases.

That's one reason you'd think state officials would push to get those wells pumping. After all, recent legislation diverts most new state revenues from federal mineral leases to serve two pressing needs - higher education construction and impacts on communities in energy-producing areas.

Problem is, several state agencies are behind some of the most substantive formal protests to the BLM's drilling plan for the Roan.

Some 17,000 protests were filed with the BLM. More than 90 percent should be dismissed quickly, because they're generic letters organized by a handful of activist groups that don't want any new drilling. The Wilderness Society alone ginned up 13,000 letters from its supporters. The Sierra Club generated an additional 2,300 letters and Earthjustice 1,600.

The more serious protests come from environmental, wildlife, hunting and recreation groups - and the Colorado Department of Natural Resources and Division of Wildlife.

These challenges take issue with the potential impacts drilling could have on migration patterns, fishing streams and water and air quality, among other things. In the DNR's case, it asked Washington to scrap its leasing process entirely and instead adopt a plan offered by Ritter in December that would place an additional 15,000 acres of the Roan off-limits to drilling and auction the leases in phases rather than all at once.

The objections filed by state agencies put Ritter's administration at cross-purposes. On one hand, the governor (and lots of other Coloradans) want to maximize revenues from the Roan. On the other, his administration's protests may have depressed the amount of the bids and delayed the day when royalties start flowing.

Indeed, regulatory delays or litigation could stretch into 2009, when the next president takes office. That administration might side with greens and try to do away with all additional drilling on the Roan's federal lands. Or courts might force the government to start a new regulatory process for drilling, locking both the energy and its revenues beneath the Roan for years to come.

We've always believed the BLM's extremely restrictive drilling plan balanced environmental concerns with energy needs. Now that the auction for Roan leases delivered a disappointing return, we hope the Ritter administration will urge a quick resolution to its protests so those wells can start producing as soon as possible.

Originally published by Rocky Mountain News.

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