Department of City Manager’s Office
Reference: Oil and Gas Lease
To: Mayor Gregory Mills and Members of City Council
Through: Jack D. Bajorek, Esq. - City Attorney
Marv Falconburg, Acting City Manager
Prepared By: Matthew Sura, Esq.
Date Prepared: February 23, 2020
PURPOSE
Consider an ordinance to lease City-owned minerals in Section 17 in Township 1 South, Range 66 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 a lease on behalf of the City and the Acting 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 October 2018, Great Western made an initial lease offer to Brighton for a number of parcels including 17 acres in Section 17, 1 South, 66 West of the 6th p.m. in Adams County, Colorado.
6. The lease was ultimately signed by the City on January 8th, 2019 through Ordinance No. 2301.
7. Three months ago, the City of Brighton was informed that Great Western discovered additional acreage within Section 17 in Township 1 South, Range 66 West that should have been included in the earlier lease offer. Great Western is now requesting to lease that additional acreage.
8. The additional acreage requested is a combined +/-10.2 net mineral acres for a bonus payment totaling payment of $66,300. Details are below.
|
Legal |
Acreage |
Operator |
Bonus |
Bonus Total |
Royalty |
|
Section 17, T1S, R66W |
10.2 |
GWOG |
$6,500 / acre |
$66,300 |
22% |
9. The lease that has been negotiated is fair to the City. The lease terms are above the average rate in the area and the leases were written to ensure that there will be no drilling on City property (no-surface occupancy).
10. The surface location chosen by the Operator to access the leased minerals should not adversely impact City residents.
FINANCIAL IMPACT
1. The fiscal impact to the City will be positive. The City will receive $6,500 / acre totaling $66,300 for the bonus payment alone. This is a very high bonus payment for the area.
2. The royalty rate of 22% is higher than most leases in the state. This lease 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.
STAFF RECOMMENDATION
Staff recommends approval of the attached ordinance. Staff finds the terms of the leases fair and acceptable.
OPTIONS FOR COUNCIL CONSIDERATION
The Council may take any of the following actions:
1. Pass the ordinance by finding that entering into the lease is in the best interests of the City and authorize actions of the Mayor and Acting City Manager to execute and implement the leases.
2. Reject the proposed ordinance.
3. Postpone consideration of the proposed ordinance.
ATTACHMENTS
Attachment A: Proposed leases and order for payments between the City of Brighton and Great Western Oil and Gas (dba Grizzly Petroleum Company, LLC)
Attachment B: City of Brighton leasing policy