August 15, 2008

Roan Leases Come in Low Industry Blames Dems and Ritter; He Faults Bush Administration

By Todd Hartman

The long-debated sale of 54,631 acres of natural gas leases on the Roan Plateau in western Colorado netted a continental U.S. record $114 million Thursday, but that figure came as a stunning disappointment to state and industry leaders.

And it was far below the more ambitious predictions of energy boosters.

Gov. Bill Ritter and an industry group both called it a dismal day for Colorado - but each cited different reasons for why sales on the gas-rich Roan failed to live up to expectations. In the end, the state came away with its half-share of only $57 million, money earmarked to help higher education and Western Slope roads and facilities.

The final haul is about 1/20th of the amount predicted last year by an industry lobbying group - Golden-based Americans for American Energy - that suggested the Roan sale could fetch $2 billion, with Colorado getting $1 billion of that.

Industry blamed Ritter and green groups for mucking up the sale with administrative protests that put a "dark cloud of uncertainty" over drilling prospects on the Roan.

"Colorado was robbed today," said Meg Collins, president of the Colorado Oil & Gas Association. She blamed Ritter, Sen. Ken Salazar, Rep. Mark Udall, all Democrats, and environmental groups for "disappointingly low" bids.

The governor, however, never expected that kind of money. Indeed, he long called the $2 billion prediction outlandish, and a ploy by industry to raise unrealistic expectations as a way to build public support for drilling on the site cherished by conservationists for its scenery and wildlife.

But Ritter said the sale was a big letdown, and could have netted hundreds of millions of dollars for the state had it been handled otherwise.

At an afternoon news conference, he blamed the Bush administration, saying the U.S. Bureau of Land Management discounted his proposal to lease the Roan's public lands in phases. That approach, the governor argued, would drive up the bids in part because the value of natural gas is expected to rise over time.

"Today is a sad day for Colorado," Ritter said. "It's a missed opportunity - one we will never get back, one that falls squarely on the shoulders of the Bush administration, which is rushing through bad fiscal policy in its waning days."

As it happened, energy companies swooped up 31 parcels atop and below the massive Roan in an auction in a hotel ballroom that lasted just over an hour. It brought a speedy end to eight years of planning rife with controversy and still dogged by legal fights that make it unclear when and if drilling will actually begin.

About the only satisfied party was the federal BLM. Spokesman Steven Hall said the $114 million marks the agency's largest take ever in a lease sale of BLM lands in the lower 48 states. Only Alaska has netted more.

A more typical lease sale nets in the $20 million to $40 million range, he said. Colorado's previous record was $11.8 million.

"We're happy with the results," he said.

BLM's less-antagonized position might be explained by its own prediction last year of how much the lease sale would net: About $100 million. The agency, it turns out, was nearly spot-on.

But all other parties were casting blame.

COGA president Collins complained the average bid price of $2,083 per acre on the Roan was dismal when compared to the $40,690 per acre Marathon Oil paid last May on nearby gas-imbued land. Indeed, the $40,000-per-acre price is how the lobbying group AAE figured its $2 billion prediction for 50,000 acres on the Roan.

Said AAE chief Greg Schnacke, "Our numbers were based upon public documents . . . we didn't make things up." He blamed the low results on "the political poison" he said Ritter and Salazar had injected into the process.

What neither Collins nor Schnacke pointed out, however, is that the Marathon bid was for private land, with none of the federal restrictions and oversight accompanying public lands.

Those BLM restrictions on the Roan include drilling timeouts to protect wildlife, off-limits areas for roads and rig work, and the use of a single operator to do all the drilling atop the plateau on behalf of all the leaseholders.

The latter requirement, especially, is an approach companies are uncomfortable with, said Steve Cumella, a senior geologist with Bill Barrett Corp. With wells costing $3 million to $8 million apiece to drill atop the plateau, companies want to have direct oversight.

"If the operator doesn't know what they're doing, that's a lot of money to have exposed," Cumella said. He believes that element was a key reason bids atop the plateau were lower.

Pete Morton, an economist for the Wilderness Society, said industry lobbyists were unfairly casting blame on environmental protections for lower bid prices.

Industry, he said, "knew full well of the stipulations included in the Roan plan for protecting wildlife, water and our environment. And yet they still insisted the sale would bring in $2 billion.

"So it is very disingenuous of industry lobbyists to now say that the stipulations were the reason the bids were so low," he said.

Originally published by Todd Hartman, Rocky Mountain News, Burt Hubbard, Rocky Mountain News and Gargi Chakrabarty, Rocky Mountain News.

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