Longmont fracking suit: What if Longmont wins?

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Longmont’s ban on fracking, which was struck down by a district judge earlier this year, appears headed for the Colorado Supreme Court.

So the time has come for Longmont’s city fathers, mothers and taxpayers to give some thought to what happens if the city wins.

There’s not much mystery as to what happens if Longmont loses. The fracking ban goes down the drain and TOP Operating Co., the oil company that controls 1,287 acres under Longmont, starts drilling.

The more interesting question is what happens if the city wins and the ban stays in place.

The issue that’s currently being argued in the courts is whether Longmont has the power to ban fracking within its city limits or whether that power resides exclusively with the State of Colorado (which state law says it does).

The suit doesn’t get to the broader question of whether the ban is constitutional under the Fifth and 14th Amendments of the U.S. Constitution and similar clauses in the Colorado Constitution — that for decades have been interpreted to mean that government may not deny a property owner all uses for his property, without paying compensation for its value.

In Colorado, mineral rights are a property right that may be bought, sold, owned and leased separately from the surface rights on a parcel of land. The legal term for this is “split fee” ownership.

Under Colorado law, the owner of the mineral rights beneath a property has the right to extract the minerals without the permission of the owner of the surface rights. (He may, however, be on the hook for any damage to the surface rights he might cause.)

So if the Colorado Supreme Court ends up ruling that Longmont has the right to ban fracking under the city, Longmont can expect to be sued by TOP Operating Co. — and anyone else who owns or leases oil and gas mineral rights under the city — on grounds that the ban works to deny them any economically viable use of their property and therefore constitutes a “taking,” the equivalent of an outright confiscation in the eyes of the law. And if they win, the city has to compensate them for the value of the property that has been “taken” — the oil and gas in the shale in this case.

So how much could Longmont be on the hook for if it won the right to ban fracking and then left its fracking ban in place?

One way to make an estimate (short of drilling a few test wells in the city to find out what’s actually under it) is to look at how much oil is being produced from wells in the same Niobrara formations east of the city in Weld County.

Based on the results from wells drilled in Weld County, Longmont’s exposure could run into the hundreds of millions if not billions of dollars. Anadarko Petroleum and Noble Energy are routinely completing wells in the Wattenberg Field with an Estimated Ultimate Recovery over the life of the well of 750,000 barrels. At $100 a barrel, the price of crude oil before the current crash in oil prices began a year ago, that works out to $75 million a well. And the companies are drilling a dozen or more wells per square mile.

But let’s make a conservative estimate. Let’s assume that the parts of the Wattenberg Field that underlie Longmont aren’t as rich as those in Weld County, that Longmont wells would ultimately yield only 375,000 barrels each not 750,000, that the price of oil will stabilize at $50 a barrel (half of what it was last year) and that the companies drilling in the Longmont area would drill only four wells per square mile. That still works out to about $75 million a square mile.

Longmont currently covers more than 26 square miles, which suggests it could in theory end up looking at a couple billion dollars in compensation if its ban on fracking holds up.

To be sure, not all 26 square miles of the city would be in play. Chances are that many Longmont property owners still own the mineral rights under their homes and businesses and that the City of Longmont owns the mineral rights under some of its public property holdings. It’s also possible that there are large parts of the city that oil companies aren’t interested in leasing.

But even if the only land in play turns out to be TOP’s 1,287 acres, the city could end up having to pay about $150 million in compensation.

Personally, I think the (almost entirely theoretical) risks from fracking are so small, the economic and strategic benefits from not being dependent on oil imports are so large, and the legal risks from banning it are so great, that leaving the ban in place verges on insanity.

However, if Longmont has its heart set on permanently banning fracking under the city, it should do it the same way the City of Boulder and Boulder County permanently prevented open space from being developed — raise taxes and use the revenue to start buying mineral rights.

More about that some other time.

This opinion column does not necessarily reflect the views of Boulder Weekly.