Forest study would help set Noble Basin sale price
Environmental impact statement should outline development options.
By Mike Koshmrl, Jackson Hole, Wyo.
June 12, 2012
A U.S. Forest Service plan expected within weeks will help set the value for any negotiations that might prevent development of a gas field near Boudurant by purchasing energy leases there.
The study, an environmental impact statement, is expected to outline to what degree Houston-based Plains Exploration & Production Company could develop the Noble Basin area. The company has proposed drilling 136 gas wells from 17 well pads, but conservationists are keen on buying the company’s leases and retiring them.
The study could curtail the company, known as PXP, from realizing its complete plan due to environmental constraints. There’s also the possibility the study, being conducted by the Bridger-Teton National Forest, would OK substantial development.
In either case, conservation groups and the energy company would finally have an idea to what extent PXP would be allowed to drill and, correspondingly, how much the energy leases might be worth.
Three conservation groups — Citizens for the Wyoming Range, Wyoming Outdoor Council and the Wilderness Society — have publicly expressed interest in organizing a buyout of the leases. PXP has also said it is open to discussions.
Both PXP and the conservation groups are withholding comment on the state of negotiations.
For years, the groups have criticized PXP’s plan to employ fracking, a means of natural gas extraction with a dubious environmental track record, in the watershed that forms the headwaters of the Hoback River. According to “Drilling Dysfunction,” a 2012 report from the House Natural Resource Committee, PXP has eight fracking violations on record.
The report doesn’t include details.
Meantime, an online petition signed by Citizens for the Wyoming founder Dan Smitherman, a Bondurant outfitter, urges the Houston-based gas company to sell its leases to a “conservation buyer.” As of Tuesday, the petition had garnered 1,300 signatures.
What is clear is that the study, actually a supplement to an earlier, incomplete EIS, has the potential to curtail the number of permitted pads and wells.
Wildlife impacts critical
The decision to conduct a supplemental EIS was made last December, because the original draft failed to incorporate restrictions that were already in the Bridger-Teton’s forest management plan, Smitherman said.
The most significant restriction ignored was the 1947 Jackson Hole Area Oil and Gas Lease Stipulation, known as the Krug Memorandum. If enforced, the 65-year-old rule could pare the development proposed in the initial plan from 17 well pads to five, due to a provision that prohibits drilling within 1,250 feet of public roads.
“It’s my understanding, informally, that the two alternatives would include one option that’s fully compliant with all the lease stipulations,” Smitherman said. That includes the 1947 rule “and all of the other issues that may have been raised in the first round,” he said.
Those issues include a mule deer migration study that identified a number of critical “stopover sites” within the project’s 22,700-acre footprint. The study, wildlife biologist Hall Sawyer’s “Stopover Ecology of a Migratory Ungulate,” is groundbreaking in that it determined mule deer spend 95 percent of their migration in the exact same high-density forage areas year after year.
If well pads overlap the stopover sites, Sawyer determined it would be more damaging to the mule deer population than locating the pads in the actual migration corridor.
A study of moose populations, in part funded by PXP, is also in the works by Gary Fralich, Wyoming Game and Fish’s South Jackson wildlife biologist. Fralich’s findings, which won’t be complete until 2013, could also have bearing on the extent and layout of the gas development.
What the conservation groups don’t know for certain is if one or both of the two new alternative options will try to incorporate all of these factors, Smitherman said.
“We’re encouraged that, at minimum, the two new alternatives are going to indicate that the cost of doing business is not going to be as cheap as [PXP] originally thought,” he said. “There is going to be the potential for significant restrictions on their development plan.”
The revised plan could also significantly nudge the price tag south.
PXP, which would not comment for this story, confirmed in a May email to the News&Guide that it would consider selling its leases to a conservation buyer.
“PXP has consistently maintained we would be willing to evaluate any commercially viable offer we are presented,” John Martini, a Plains Exploration official, wrote in the email. “Any evaluation we conduct would be done on the economic merits of the proposal.”
Citing sensitivities, Citizens for the Wyoming Range, the Wyoming Outdoor Council and the Wilderness Society also declined to comment on the subject.
The retirement of 110,000 natural gas leases in Northern Montana’s Rocky Mountain Front is the most pertinent precedent to such a buyout. The Coalition to Protect the Rocky Mountain Front, headed by former Lewis and Clark National Forest Supervisor Gloria Flora, accomplished the task in 2006. She said a similar buyout could happen at Noble Basin.
“It’s perfectly doable,” Flora said in a telephone interview from Washington state. “There are no restrictions or limitations that prevent or preclude a company from entering into negotiations.”
In the Noble Basin, conservation groups would benefit from the Wyoming Range Legacy Act, signed by President Obama in 2009. The act prohibits new leasing on 1.2 million acres in the Wyoming Range and allows voluntary buyouts of 77,000 acres of existing leases in the area.
Included are PXP’s grandfathered leases, which date to the mid-1990s. If they were to be bought out, the land would be set aside in perpetuity under the act. That’s an important factor for groups trying to raise funds, Flora said.
“The thing about actually buying out a lease is that it’s a legacy,” Flora said. “It’s not just paying people to go out and do good things for a year.
“I’m sure that the organizations involved understand this already,” she said. “I’m very optimistic about them being able to find the funds.
“You’re essentially buying a conservation easement on that land forever,” she said. “That has a lot of appeal to certain foundations.”
Estimates on what PXP values its Noble Basin leases at are unknown, but Smitherman said he guesses the company has sunk $5 million into the investment in total.
Besides the expense of the winning bid, there’s a transferable bond of $10,000 attached to each lease, said Shelley Gregory, the public affairs officer for the Bureau of Land Management’s Pinedale office. Most additional value of the holdings is tied to attainable underlying natural gas, a Wyoming professor said.
“They’re giving up the profit stream that they would obtain were they to retain the lease and put it into action,” University of Wyoming petroleum and natural gas economics professor Chuck Mason said.
PXP’s “back of the envelope” extraction costs are somewhere in the neighborhood of $1 per thousand cubic feet of gas, Mason said.
“They’re going to sell for at least $2 a [thousand cubic feet],” Mason said. “If you’ve got a good size deposit of millions of [thousand cubic feet], there’s millions of dollars at play.”
Because seismic testing and exploratory drilling has not been conducted, PXP geologists’ internal assessments are the best gauge of the true amount of accessible gas. The professor was skeptical that a deal could be made.
“If you want to get them to walk away from this, you have to bring money to the table,” Mason said. “Firms don’t sell valuable assets very often for pennies on the dollar.
“They’re not in business to make folks feel good,” he said. “They’re in it to make money.”
The loss of the Noble Basin leases might not have a significant impact on PXP, a $4 billion company with no other gas holdings in the Rocky Mountains. A search of several years of transcriptions from PXP’s quarterly conference calls with investors turned up no references to the Noble Basin project.
“This project is not even big enough to make their balance sheet,” Smitherman said.
Resolution in sight
After the plan’s original environmental impact statement was released in 2011, there were nearly 60,000 public comments. The supplement is due this month.
“We’re still on track for that,” Bridger-Teton National Forest spokeswoman Mary Cernicek said. The exact release date has not been determined, she said.
Following the draft’s release there will be 45 days for public comment and then a final EIS. By the end of the year, Bridger-Teton National Forest Supervisor Jacque Buchanan is expected to make her final decision.
Cernicek said she anticipates another round of heavy input when the public meetings on the supplementary EIS begin. The Forest Service is planning meetings in both Pinedale and Jackson at the end of July or early August, she said.
For Smitherman, who has been imbedded in the drilling controversy for seven years, the meetings could be the beginning of the end.
“This particular project has been kicking around since the end of 2005,” Smitherman said. “It needs to be resolved. I’m confident it will happen by the end of the calendar year.”
The release of the supplemental plan, assuming no lawsuits are filed, is the last step in the process, Smitherman said.
“Either the company will look at [the plan] and they will say ‘It’s too expensive to do business here, we need to get rid of these leases,’” Smitherman said, “or, the Forest Service will make its decision and the project will go forward.
“The wildcard in this is litigation, which is a path I’m not going down,” he said.