Drilling and the American Dream: Your perfect home in a Colorado gas patch

 
Thomas Thompson worked 38 years consulting for hospitals and selling railroad materials with one goal in mind – to some day retire with his wife in a quite mountain valley, watching the seasons turn.

They met that goal when they moved from Texas to a 40-acre plot of wooded land in a box canyon near Rifle in 1999. For two years, Thompson said, the only sounds at their place were birds singing, wind in their cedars and an occasional car that would pass on Porcupine Creek Road. It was the silence and clean air that drew the couple to their little corner of unincorporated Garfield County.

“Boy, it was like sniffing a York Peppermint Patty up there. The air was so crisp and fresh,” he said.

Then, literally in a day, their paradise became a gas patch.

That’s when the Encana Corporation hauled in its fleet of earth-movers, water tankers, cement mixers, drilling contraptions, pumpers, compressors and monitoring equipment to set up hundreds of natural gas wells in the valley nearby. Incredulous, Thompson spent a day counting the trucks on his stretch of dirt road where one, maybe two cars used to pass each month. By his tally, there were now 242 trucks, not including those he missed when he went inside to eat, use the bathroom and sleep.

Dust from the heavy traffic and clouds of abrasive dust forced the Thompsons to seal the windows they used to keep open three seasons of the year. Instead of the fresh mountain air, they were blasting heat or air conditioning to avoid the soot and fumes. Still, the petrochemicals became so noxious that the couple would spend as much time as possible away from home — on long drives, in state parks, anywhere to avoid the nose bleeds they attributed to the dirty air.

“Imagine, if you will, a morning as your wife or husband prepares breakfast and has pieces of paper towels stuffed in their nose to prevent blood from dripping on the stove. Then imagine yourself at the breakfast table with the same paper towels in your nose so you don’t drip blood on your pancakes,” Thompson testified to state regulators.

Ultimately, fear of contamination forced the Thompsons not to use water from the well they drilled on their land. They bought a truck to haul in water four times a week.

The couple lodged grievances with Encana, but say the company did nothing to help. They complained to county commissioners, state lawmakers, congressional members and the governor. In 2005, Garfield County formed an energy advisory board as a way for homeowners and industry representatives to avoid or resolve conflicts about drilling.

“During all those meetings, it didn’t take long to see that there was never a single issue that was resolved. The problems stayed the same – the dust, the fumes, the contamination. The only things that changed were the names and faces of the victims. Most of them were smarter than I was actually, and just learned to accept the fact that they were victims.”

The Thompsons fought until they had drained their retirement savings on heating and air conditioning, water they had to haul and the gas they were buying to haul it. Finally, they gave up, selling the home where they had planned to live the rest of their lives. Given the mess that had become of their valley, they felt lucky to recover 40 percent of what they paid for the property, not including improvements. Then they packed up and moved back to Texas – the country’s best known gas patch that, in comparison, seemed far less corrupted by oil and gas companies than Colorado.

“I talked with every level of government. I talked and talked and talked. And I never got one single bureaucrat to help us with anything. They’re all quietly owned by the gas industry,” Thompson said. “At least here in Texas, the politicians have the good grace to admit it.”

ACCORDING to the Colorado Oil and Gas Association, the state has more than 50,000 oil and gas wells in production. It’s home to ten of the nation’s 100 largest natural gas fields and three of its 100 largest oil fields. Colorado produces a quarter of all coal-bed methane in the country. And more than 75 percent of homes here use natural gas as the main source of heat.

The industry reports that it directly employs more than 50,000 workers and supports more than 111,000 jobs in the state. Those jobs provide $3.8 billion in total labor income and $29 billion in economic output each year. In 2012, the industry contributed $1.6 billion in public revenues.

For many Coloradans, the boom conjures up visions of the Beverly Hillbillies – Jed Clampett striking it rich while “shooting at some food” when “up through the ground came a bubblin’ crude.”  For decades, oil and gas booms in certain pockets of the state have packed local businesses and real estate markets with workers willing to pay top dollar while the rough-necking paid. During the latest boom near Rifle, workers scrambled to find apartments and hotel rooms. The effect was a short-term hike in certain property values, and a steady decline for places like the Thompsons’ that were affected by drilling.

For thousands of property owners who happen to own their mineral rights, royalties and lease payments have in fact had a kind of Beverly Hillbillies effect – helping them pay off mortgages, save for college and retire early, maybe with some extras like a souped-up motorhome or a time-share in Baja. The Southern Ute tribe in southwestern Colorado, long poverty stricken, is now wealthy from leasing drilling rights to its land.

[pullquote]Landowners pay the taxes on the property oil and gas companies are using. They end up subsidizing the companies and then their property values drop. These are the hidden costs people don’t realize when they have stars in their eyes about royalties.[/pullquote]

For Coloradans who don’t own mineral rights, the economics are far less promising. In what’s called a “split estate,” a landowner owns the surface rights but somebody else holds rights to – and gleans royalties from — what’s underneath. Energy giant Anadarko, for example, owns large amounts of mineral rights in Colorado through a deal with Union Pacific (which was granted land in exchange for building the transcontinental railroad). The state holds mineral rights to massive swaths of land it was deeded by the federal government.

Energy companies that own or lease mineral rights generally call the shots on how property is used, and where roads, pipelines and well heads will go. As much as some companies may try to accommodate landowners and nearby residents, their concerns often go ignored – as were the Thompsons’ concerns. Residents sometimes have little or no say about how truck traffic, dust, fumes, flaring, noise from compressors, increased air pollution, and 24-hour a day lighting at frack sites affect their days, their nights, their views of the sky. Air quality in parts of northwest Colorado and Utah where drilling has skyrocketed has dropped below federal standards, posing potential health risks for locals. Since 2010, when Governor John Hickenlooper was elected, air quality has become much worse on the Front Range. The increase in ground level ozone levels is undoubtedly caused, at least in part, by increased drilling. Last week, the state released proposed air-quality regulations that environmentalists say are too lenient on industry. Next month’s public comment period is likely to heighten tensions between the two sides.

OIL and gas law is tricky, full of arcane language and legal jargon that most lawyers who don’t specialize in it can’t begin to understand.

In general, landowners are woefully uninformed about split estates, which run counter to the notion of western, don’t-tread-on-me land ownership. For generations, farmers and ranchers generally sophisticated in matters relating to water rights and land leases have been suckered by knotty contracts drafted by energy companies.

More recently, conflicts are playing out in suburban and urban areas as drilling encroaches on housing tracts, schools, parks, churches and playgrounds. Some builders are selling homes but retaining mineral rights, leaving buyers who didn’t read the fine print surprised when a fracking truck or pump jack turns up outside their their back yards. Residents in Denver’s Green Valley Ranch are outraged over a nearby drilling deal between their developer and energy giant Anadarko. And Greeley residents are indignant that oil and gas well pads have been approved in the center of their city.

Some communities are fighting back. This Election Day, voters in Lafayette will decide on a charter amendment that would ban oil and gas development. Voters in Boulder, Broomfield and Fort Collins will consider measures to impose fracking moratoriums. The initiatives may keep royalties from flowing into some residents’ bank accounts but, in the long term, backers say, are sound investments in protecting property values and quality of life.

Although political questions raised around energy development traditionally fall along party lines, those lines are being blurred. U.S. Sens. Michael Bennet and Mark Udall, both Democrats, each have accepted about $150,000 in oil and gas money. In Colorado’s House delegation, Republicans Mike Coffman, Scott Tipton and Doug Lamborn have accepted $30,4504, $23,500 and $6,500 respectively. Republican Rep. Cory Gardner has set records for taking oil and gas money in his Front Range gas patch district, and Democrat Ed Perlmutter has accepted $5,200. Democrats Diana DeGette and Jared Polis have taken no oil and gas money.

Hickenlooper, a Democrat and former oil and gas industry geologist, is championing drilling in the state. Last year, he told a congressional committee that fracking fluid – a chemical concoction whose ingredients the industry has fought bitterly to conceal — is so safe that he has sipped it.

Some Republicans are bucking their party’s laissez faire agenda by trying to regulate drilling. Republican Longmont councilman and self-professed “drill-baby-driller” Brian Bagley, for example, is one of many in his party joining the movement toward local control over the industry.

“You pick us to do research and vote our gut. I’m not just voting with my gut, I’m voting with my head,” Bagley told constituents critical of his support for an ordinance to use zoning to regulate drilling. “We need to have the ability to look at the industry and say Not right there folks. Scoot it back a little bit.

“I for one don’t want a pad right behind my home. Not because I’m scared of dying of cancer, but because my property values will decrease. Everybody needs their property values protected.”

ALTHOUGH drilling policy is debated statewide, basic information about to what degree property values are affected is curiously hard to find. For all the talk – pro and con — about impacts on the economy, water and air quality, local officials, real estate agents, mortgage brokers, tax assessors, chamber of commerce boosters, environmentalists, oil and gas companies and economists collectively come up short on hard numbers and statistics.

The industry long has said that, on average, drilling doesn’t impact housing prices. There are no studies specific to Colorado to support that claim, and the Colorado Oil and Gas Association did not return messages asking for comment.

County assessors have all sorts of matrices to measure property value impact, but often don’t take those factors into consideration when assessing land for tax purposes.

“As long as there’s not a well right outside your front window, the feeling here is that it’s not so bad,” said Craig Larson, La Plata County assessor and co-chair of the Colorado Assessor Association’s oil and gas committee. Members of the committee talk more about the list values of drilling- and other extraction-related equipment than about property values, they say.

Commissioners in energy-rich counties rely heavily on drilling for their budgets – and, frequently, for their campaign contributions. Many downplay the pockmarks left on their landscape, and play up, for example, the new rec centers, dog parks or fishing ponds that energy extraction has bought their communities.

Some mortgage companies on the east coast have grown reluctant to grant loans for properties leased for gas drilling. So far, there are only whispers about the possibility of curbing lending in Colorado. But as drilling encroaches on more populated areas, more home loans will be affected. Banking experts say Fannie Mae and Freddie Mac may stop buying mortgages from banks that don’t require drilling leases to conform with the terms of home loans.

Insurance companies quietly are starting to weigh potential liability in Colorado, especially after September’s flooding wreaked havoc on drilling sites. Elsewhere in the country, some companies are dodging the risk by not covering damage from fracking, which has been known to shake foundations of homes and contaminate well water. In 2012, Nationwide Mutual Insurance became the first company to announce it won’t insure damage from fracking. If such policies become the industry norm, property owners may reconsider leasing their mineral rights, banks may hesitate to lend money for homes near drilling sites, title companies may get skittish and homeowners may be exposed to uncomfortably high risks.

Out of 16 real estate brokers contacted by The Independent, only five agreed to speak on the record about how drilling is affecting their business.

From the buyers’ side, each said that clients are increasingly hesitant about properties near drilling sites.

“Some don’t want to even look at anything remotely close to any existing or proposed well sites,” said Nanner Fisher of Goodacre and Co. Real Estate in Boulder County.

The North Fork Valley is facing the prospect that drilling will come to nearby federal Bureau of Land Management tracts.

“The great majority of realtors have experienced attrition of prospective buyers who have pulled back on considering property because of the threat of BLM leases,” said Bob Lario of Remax Mountain West in Paonia.

On the Front Range, brokers say buyer concern is growing both in intensity and breadth from north Denver to Loveland.

“There’s the health issues, the safety issues and what I call the emotional issues of just knowing that something’s going on around you that you can’t quantify,” said Sharon Rouse of Mock Realty in Boulder. “Buyers are deterred, because they don’t feel like there has been enough done by the public entities to ensure there aren’t hazards.”

Rouse hasn’t seen direct effects on appraisals and loans but expects they will come.

“The increasing perception is that there aren’t safeguards in place,” she said. “We have to give buyers a disclosure about lead paint being in the house and about water. The title company addresses mineral rights. But there’s nothing warning a buyer that there could be fracking going on very close to their property.”

Adam Cox, who brokers at Zip Realty in Morrisson, wrote a guest column in The Colorado Statesman describing a snowballing effect on real estate.

“Besides the obvious intrusion of 100 foot drill rigs and 24 hour construction schedules next to bedroom windows, many nearby homeowners describe feeling like they are on the deck of an aircraft carrier rather than enjoying the solitude of a quiet suburban neighborhood or a rural ranchette,” he wrote. “Because of drilling and fracking, we are seeing a high inventory of homes in communities where it is prevalent. There are a high number of sellers and a lack of interested buyers, leading to long turnaround times on homes in the area.”

LACK of transparency can make it especially tough to know the risks drilling can pose for real estate values. Owners whose properties have been damaged by serious drilling-related leaks and spills often accept legal settlements with confidentiality agreements that keep their horror stories out of the news media and rumor mills in their communities.

“If there’s a major problem, those people get silenced, and quickly,” said Tom Stevens, who spent 20 years selling real estate in Boulder, Weld and Larimer counties before fleeing to the North Fork Valley to escape the intrusion he felt drilling is imposing on the Front Range.

Thompson – who was offered no mitigation by Encana — hopes the story of his 40 percent hit in property value serves as a cautionary tale to Coloradans eager to drill baby drill. He testified to the Colorado Oil and Gas Conservation Commission that, in addition to their frequent bloody noses, he and his wife regularly coughed up mud and blood from the petrochemicals polluting their valley.

“Two of my neighbors have died, another remained so ill from the fumes they could not work and lost their home. A nearby rancher became so ill, he was forced to sell his ranch to a gas company. Another neighbor’s water well was exploded out of the ground and the water… forever poisoned,” he said.

“Anybody who says that drilling doesn’t have an effect on home values or people’s health, they either don’t know the facts or are just plain lying to you,” he said.

After a long history of booms and busts and decades of controversy about drilling, there are less than a handful of credible studies quantifying the effect on property values. In 2001, research in La Plata County showed a 22 percent decline in value for properties with wells. Last year, the National Bureau of Economic Research studied more than 19,000 home sales over five years in southwestern Pennsylvania’s Washington County, where oil shale is booming. The report noted that the boom created jobs and generated income for local residents through land leases. It also noted that properties connected to public drinking water supplies jumped in value by 10 percent because of lease payments. But, “by itself, concern about groundwater contamination reduces property values by up to 24 percent,” the economists reported.

Gwen Lachalt, a La Plata County commissioner and longtime fracking watchdog in a community with 3,500 wells, said a statewide study about property value impacts is needed to help inform regulation decisions in Colorado.

“It’s possible to come up with numbers but there hasn’t been a lot of political will to do the research,” she said. “It’s harder for Americans to talk about money than sex. It’s a taboo subject, certainly when it comes to people’s investment in their homes, their life savings. People don’t want to admit that, over time, their property is being devalued. Realtors don’t want to talk about it. Politicians don’t want to talk about it. That’s why the data isn’t there.”

LANCE Astrella, a Denver oil and gas attorney, has dealt with thousands of land-owners throughout the Rockies. Many, he says, are “blinded by the prospect of royalties” which, on a 40-acre plot, could bring in thousands of dollars annually. His job is to balance clients’ eagerness for royalties with a long-term strategy to protect their surface values.

Astrella’s message is simple: Buyer beware.

There is essentially no consumer protection for surface owners faced with drilling on or near their land. The closest Colorado comes is what’s known as the “Accommodation Doctrine” of 2007. At the urging of landowners and environmentalists, state lawmakers wrote the law to say that companies must minimize intrusion and use only so much of the surface land as is “reasonable and necessary.”

As in the Thompsons’ case and thousands of similar cases in Colorado, what’s reasonable and necessary is debatable. Astrella strongly urges his clients not to sign surface use agreements drafted by energy companies. Those agreements often create “blanket easements” allowing companies to drill whenever, wherever they like. He also encourages property owners to protect their rights to build roads across easements so they retain access to their land.

Astrella points out the unfairness of the tax structure around drilling. He says county assessors are over-taxing because they’re not taking into account the decline of surface values. He also notes that landowners pay taxes on property that gas and oil companies are using.

“What’s happening on a wide scale is that landowners end up subsidizing oil companies. These are the hidden costs people don’t realize when they have stars in their eyes about royalties,” he said.

Rod Brueske, a landowner in unincorporated Boulder County, warns Coloradans not to rely on state regulators to protect their land and the health of their real estate investments. Encana started drilling 538 feet from Brueske’s land the year after he and his family moved in. His seven year old had regular, hours-long bloody noses and the whole family would wake up with sore throats and headaches from the flaring. When Encana was found to have exceeded air quality protection standards, Brueske said the state Health Department heavily downplayed it and reduced the company’s fines.

“This is what people really need to know about the state: They’re not here to protect the health and best interest of the people. They’re here to protect the industry and the multi-national corporations behind it,” he said. “The money may be good for some of my neighbors in the short-term. But in the long term, someone has to look out for our investments.”

Elise Jones became a Boulder county commissioner in January after having worked 13 years leading the Colorado Environmental Coalition. Fracking and how it will affect local health and Boulder County real estate market were by far the biggest issue on her campaign trail. They continue to be the biggest issues for her in office.

“It’s all anyone wants to talk about,” Jones said. “It’s the question that won’t go away.”

As drilling leases keep getting approved and more Coloradans are living closer to wells, people are demanding answers. In the absence of such answers from the state, Jones and other policy-makers are looking to a National Science Foundation study being conducted over five years at the University of Colorado. The project, designed to shed light on environment and economic impacts of fracking, is a collaboration between air and water quality researchers, medical experts and social scientists. One objective, CU mechanical engineering professor Michael Hannigan has said, is to build stronger links between regulatory decisions and science.

“We need basic numbers and figures, like How much am I going to lose in property value if they start drilling in my subdivision?” Jones said. “These aren’t unreasonable questions to ask. I think people deserve some real answers.”

[ Top photo: Howard Avenue, Rifle, Colorado, 1968. All images by judylcook. ]