Amid drilling bans, mineral rights owners mourn losses

By Jennifer Yachnin | 01/13/2015 01:04 PM EST

DENVER — Colorado resident Bill Peltier can trace his roots in the Centennial State back four generations, and since the time his great-grandfather arrived in the mid-1800s, the family has relied on its ownership of mineral rights to produce income.

DENVER — Colorado resident Bill Peltier can trace his roots in the Centennial State back four generations, and since the time his great-grandfather arrived in the mid-1800s, the family has relied on its ownership of mineral rights to produce income.

But Peltier is worried the income source could dry up for future generations as Colorado jurisdictions put temporary or permanent restrictions on new energy developments within their boundaries.

"We’re not a big company, we’re not rich," said Peltier, who owns about 1,500 acres of mineral rights in places including Boulder, where the Board of County Commissioners approved a moratorium on new energy development through mid-2018. "We’ve been here for 150 years, and we’ve never left the state. We’re a regular family, we’re nothing special."


He added: "Everybody thinks it’s big businesses, and there’s no one impacted but Anadarko and whoever … but there’s a lot of regular people who depend on the royalties for the minerals."

Mineral rights owners like Peltier are hoping a pair of bills introduced in the Colorado state Legislature could help guarantee an income stream, even if voters or local lawmakers opt to halt oil and gas developments — something that a half-dozen cities and counties in Colorado have pursued in recent years.

Both state Rep. Perry Buck (R) and state Sen. Jerry Sonnenberg (R) have authored bills this session that would require local jurisdictions to compensate mineral rights owners when moratoriums or bans on new development limit access to their properties.

"I have people come to me and say if they do some of this, I won’t be able to access my property rights, and that didn’t make sense to me," said Sonnenberg, who serves as chairman of the state Senate Agriculture, Natural Resources and Energy Committee.

Although mineral rights owners would still be required to file lawsuits to procure a payment — suing the government via "takings" law, in which a property owner argues that regulation of his or her land is equivalent to eminent domain and the landowner should receive compensation — Sonnenberg said his bill would help ease that process.

"What my bill does is actually clarify those takings statutes … that indeed according to the Colorado Constitution mineral rights are property," Sonnenberg said.

The Republican lawmaker, who said he is not aware of any takings cases filed to date over bans in the state — although lawsuits have overturned bans in Fort Collins, Longmont and Lafayette, and could also do so in Broomfield — described the bill as a pre-emptive measure.

In an effort to fend off a host of ballot initiatives in the 2014 elections, Colorado Gov. John Hickenlooper (D) proposed a special Oil and Gas Task Force charged with issuing recommendations on how to balance state and local control of energy development.

The 21-member panel, which meets this week in Greeley, is faced with a February deadline to issue its proposals, and the Legislature could be asked to pass related bills this session.

But Colorado legislators have expressed doubt that the task force will achieve its mission and warned voters could be faced with a new round of local or state initiatives (EnergyWire, Jan. 6).

Sonnenberg said he believes his bill could draw bipartisan support in the narrowly divided Senate, where Republicans claim a one-seat majority, and projected optimism about its chances in the House, where Democrats claim a three-seat majority.

"I think it has a good chance of passing. It’s common sense to protect somebody’s property. That value needs to be protected," Sonnenberg said.

The state lawmaker has previously helmed an effort to punish communities that opted to limit oil and gas development. Sonnenberg sponsored a 2014 ballot initiative that would have prohibited those jurisdictions from receiving state revenues devised from energy production but withdrew the measure under the compromise agreement that scrapped all drilling-related initiatives from the ballot.

Buck, who noted her bill varies somewhat from Sonnenberg’s proposal, said she hopes the measure serves as an "educational process" for citizens and lawmakers unaware of the difference between property rights and mineral rights.

"If people look at their mineral rights as private property rights, it’s no different than [the government saying] ‘We’re going to put a highway through your front lawn and we’re going to compensate you for that,’" said Buck, who is married to freshman congressional Rep. Ken Buck (R).

According to a study produced last year by the National Association of Royalty Owners, hypothetical takings lawsuits filed by mineral rights owners in the Wattenberg Field could cost Boulder County more than $1 billion in settlements.

But even if Sonnenberg’s or Buck’s proposals were to be signed into law, pursuing takings claims can be a challenging option for mineral rights owners.

"Takings lawsuits are difficult but very fact-specific," explained attorney Wayne Forman, who specializes in water law and land-use litigation at the Denver offices of the firm Brownstein Hyatt Farber Schreck.

"Whether you’ve got a legitimate takings claim will depend very much on the facts that are presented, including the impact of the governmental action on your property rights, in this case on the mineral interests," Forman said. Other factors can include length of ownership, how much has been invested in developing the resources and "whether a moratorium or a ban was something that could be reasonably anticipated or did it come out of whole cloth?"

When takings claims are successful, mineral rights owners are entitled to the fair market value, typically viewed as the worth of the property before the government’s actions made it difficult or impossible to reach the minerals, oil or gas, Forman said.

But he said such market values might differ from those determined in property rights lawsuits: "Courts have made some adjustments based on the fact that a mineral owner continues to own the minerals … because they’re not conveyed to the government."

Avoiding surprises

At a public comment session held as part of a Colorado Oil and Gas Task Force meeting in November 2014, dozens of citizens addressed the panel to express concern about drilling facilities close to their homes, voicing anxieties about the impact on their property values, along with complaints about noise and traffic and even health concerns.

But Peltier, who said he has not attended any of the task force’s meetings to date, said he too has been blindsided in the fight over natural resource development in the state.

"If I was notified, I would at least go and say there’s a family that’s been here a lot longer than any of you have been here that’s been really negatively impacted by this," Peltier said of moratoriums in Boulder County, where he estimates his family has about 1,000 acres that cannot be developed, unlike the 480 acres in Weld County that the oil and gas industry has access to.

"If you’re a property owner and they’re going to put a stop light in the corner … they send you a notice and say we’re going to do this. If you’re a mineral owner, you don’t get a notice at all on a moratorium," said Peltier, who added that he now monitors local government websites to avoid such surprises.

Peltier also accused Boulder County officials of hypocrisy, noting that while he is unable to develop his mineral rights, he still must pay taxes on the properties each year.

"The least you can do is lease the minerals from me while you figure it out, and I would say sure," Peltier said.