To: Mayor Greg Mills and Members of City Council
Through: Lena McClelland, Esq. - Acting City Attorney
Marv Falconburg - Deputy City Manager
Jane Bais DiSessa - City Manager
Prepared By: Matthew Sura, Esq.
Date Prepared: May 24, 2021
PURPOSE
Consider an ordinance to amend a lease of City-owned minerals in Section 13 Township 1 South, Range 67 West of the 6th p.m. in Adams County, Colorado to Great Western Oil and Gas Company (“Operator”) dba Grizzly Petroleum Company, LLC. This ordinance will allow the Mayor to execute the lease amendment on behalf of the City and the City Manager to execute other documents and take other actions necessary for the implementation of the leases.
BACKGROUND
1. The City owns an estimated 1,400 acres of surface lands within and near the City of Brighton. For most of these lands, the City owns at least some portion of the mineral rights.
2. In March 2015, the City passed amendments to its Municipal Code that would facilitate the development of oil and gas resources within the City of Brighton, while mitigating potential impacts to the City’s groundwater resources as well as potential land use conflicts between such development and other land uses.
3. It has always been the objective of the City of Brighton to be open to leasing of its minerals and responsible development of resources.
4. The oil and gas industry is having good success in drilling and developing oil and gas wells in and around Brighton.
5. On December 15, 2015, the City entered into a lease with Ward Petroleum for 341.232 acres of City-owned property in Section 18, 1 South 66 West and Section 13, 1 South 67 West of the 6th p.m. in Adams County, Colorado. The (“Ward Petroleum Lease”) was recorded on December 21, 2015 at Reception Number 2015000105746 (Attachment A).
6. Great Western subsequently purchased Ward Petroleum’s assets in Colorado, including the Ward Petroleum Lease with Brighton.
7. Great Western has started making royalty payments for production that has occurred from its Schaefer wells that are under Section 13. (See Figure 1 below). In the process of the title research to distribute royalty payments, Great Western discovered a small parcel that belongs to the City that was not accounted for in the existing Ward Petroleum Lease (See Figure 2 below).
8. This acreage should be added to the lease through a lease amendment - a common practice in oil and gas development.
9. The lease amendment that has been negotiated is fair to the City. The lease terms are above the average rate in the area.
10. After first reading, Great Western title attorneys requested additional changes in the legal descriptions in the lease amendment. Therefore, the lease amendment in Attachment B has been changed for final reading.
|
Legal |
Net Acreage |
Operator |
Bonus |
Bonus Total |
Royalty |
|
Section 13, T1S, R67W |
0.271 |
GWOG |
$3,500 / acre |
$948.50 |
20% |
FINANCIAL IMPACT
1. The fiscal impact to the City will be positive. The City will receive $3,500 / acre totaling $948.50 for the bonus payment. Given the recent slump in oil prices, this is a high bonus payment for the area.
2. The lease amendment should bring a good return to the City- depending on the number of wells drilled, the production from those wells, and the price of oil and gas. The production will likely be greatest in the first three years, and then will start declining rapidly.
OPTIONS FOR CITY COUNCIL CONSIDERATION
The Council may take any of the following actions:
1. Pass the ordinance by finding that entering into the lease amendment is in the best interest of the City and authorize actions of the Mayor and City Manager to execute and implement the lease amendment.
2. Reject the proposed ordinance.
3. Postpone consideration of the proposed ordinance.
STAFF RECOMMENDATION
Staff recommends approval of the attached ordinance. Staff finds the terms of the lease amendment fair and acceptable.
ATTACHMENTS
Attachment A: 2015 Ward Petroleum Lease between Ward Petroleum and the City of Brighton
Attachment B: Proposed Lease Amendment and order for payments between the City of Brighton and Great Western Oil and Gas (dba Grizzly Petroleum Company, LLC)
Figure 1. COGCC map depicting the Schaefer wells that were drilled north from Section 24 into section 13.
Figure 2. Great Western map depicting the .217 acres of unleased mineral acreage within Section 13.