City hits dry hole in drilling-lease bid

Grand Junction tries to buy control of watershed

Ellen Miller, Special to the News

Published February 10, 2006 at midnight

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GRAND JUNCTION - The West Slope's largest city tried a different approach to protecting its watershed from contamination by oil and gas development Thursday - bidding for the drilling leases itself.

But it didn't work.

"We were outbid, but I felt good about what we tried to do," said city utilities manager Greg Trainor, who went to the auction in Lakewood on the city's behalf.

"Whoever bought them sure wanted them. Every time I bid he was right there topping it, and it was for prices much higher than earlier parcels."

Thursday's auction was one of the largest sales of leases in Colorado since 1988, another indicator of the feverish interest in natural gas development in Colorado as prices soar.

Leases on 129 parcels totaling 134,582 acres in Colorado were sold Thursday for $11.8 million, said Theresa Sauer, spokeswoman for the U.S. Bureau of Land Management. The federal government will split the proceeds with the state treasury.

Leases for parcels on Grand Junction's watershed were included in the auction, despite requests to withdraw them from the sale by the cities of Grand Junction and Palisade, as well as Colorado Democrats Sen. Ken Salazar and Rep. John Salazar.

The identity of the buyers of the three parcels that Grand Junction had wanted won't be known until the pending protests are resolved, Sauer said. "They'll still be considered even though we decided not to pull them from the sale," she said.

The successful bidder was Van K. Bullock, a Denver-based independent landman. Sauer said Bullock and other independent landmen typically work for a number of companies, so the true buyers won't be known until the actual leases are issued.

Trainor said that three wells drilled in the 1970s near the city's watershed came up dry and were plugged and abandoned. Grand Junction's attempt drew kudos from Sam Mamet, executive director of the Colorado Municipal League.

"It's a novel approach and very clever," Mamet said. "This is a new level of leasing activity, so Grand Junction may be unique. I don't know of this approach being done before."

Oil and gas drilling in Colorado has risen sharply in recent years in response to high demand for natural gas and construction of new pipelines to ship the product to far-flung markets. With the heavy increase in drilling have come more accidents and alleged violations of state law.

For example, on Sunday more than 6,000 gallons of salty water produced from gas wells spilled into Mamm Creek just above its confluence with the Colorado River when a truck trailer, operated by a contractor for EnCana Oil & Gas, hauling the water overturned. Results of soil and water samples are pending.

Last week, state health regulators cited EnCana for alleged violations related to erosion and runoff from drilling sites and access roads spread over major gas fields in Garfield and San Miguel counties.

Such incidents helped prompt the protests by Grand Junction, Palisade and the Salazars. All leases come with general requirements to protect the environment from oil and gas activities, Sauer said, and exploration isn't permitted until the BLM conducts further environmental analysis and determines what site-specific mitigation is required.

Sen. Salazar said he was disappointed that the BLM sold the parcels in the two watersheds, calling the action short-sighted.

"This energy crisis wasn't created in a day, and this wholesale rush to sell leases to the highest bidder in sensitive watershed areas is not going to solve the problem," he said.

Sen. Wayne Allard, R-Colo., said earlier this week that he is confident that lease stipulations developed by the BLM will protect the watersheds, and he promised to "remain vigilant."

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