Town Council - Regular Meeting

All right with that, I'm going to call to order the town council meeting on June 2nd, 2026. this is a study session and we have 1 item to discuss tonight and that is the potential sale of the town's mineral rights. And with that, I've got a few comments logistically. That'll probably be important to many people here. 1st, we're not going to be making any decisions tonight. If we come, we come out of the study session and we, and there's no major changes or anything. It will come back to us on June 16th for discussion public input. And a decision would be made at that particular meeting, the terms of the agreement were settled today. And so it is back in our attorney's hand who will be looking through it tomorrow. The goal is to publish the actual agreement as soon as that's possible with a, an ability to put questions attached to it. So that we can gather additional feedback from the community on the actual agreement. We're also working on a Q and a document for all the questions that have been asked. It'll be updated based upon the discussion here tonight. So, the goal is to also get that published this week as well for tonight's meeting. We are also going to have the opportunity for the audience to ask questions that have not already been asked. And so Debbie is here. She's got no cards are posted. She's going to hand them out. And what I'd like you to do is write down your questions, even write them down now 1 question per per card. And then when we get to the end of the meeting, I'll ask, are you holding any questions that were not asked tonight? And if they weren't asked, then we'll collect those and we'll do our best to work on that and get those answered tonight as well. Okay, with that, I think I'd like everybody at the table here to introduce themselves tonight. Maybe the council members can just also say what district represent. and then we'll launch into the presentation with Mr. Franks. John Mortolaro, Council Member, District One.

Matt Owens, Alameda Mineral Advisors. John Sullivan, Sullivan Green, CB Jarvis, outside council for the town.

Dan Hovak, Council Member, District Two. Anil Pasimili, Council Member, District One.

Kimberly Baer, Council Member, District Three.

Uh, David Frank, I'm the director of environmental services for the town of and I'm also a resident of district to town attorney.

You're just news interim town manager, Brian O'Connor council member 3.

We're in the bell mayor pro town council 2. all right. And if I didn't say it earlier, I may answer more on the mayor of the town. All right with that, I'll turn it over to this price. All right.

Thank you so much. Mayor and council members. So, this will be a lot of this material is the same as we discussed a couple of weeks ago in the open question answer format. But we want to review it here again. There's also a lot of new information. Thank you. John and for making some of this available this afternoon. So, um, quick, quick recap. Uh, I 1st heard about probably would have been early to mid 2023. Obviously, there was a lot of work by the operator well, before I, or well county. I was informed that there was an application to Weld County for a facility just outside of Erie that began conversations with then Civitas now SM Energy about what that facility would look like. What engineering control would be present, et cetera. Weld County heard that application in February of 2024. And then it was brought to ECMC that fall, so October, November of 2024. They ultimately made a stay.

Stay with the ECMC.

Oh, sorry. The Energy and Carbon Management Commission, formerly COGCC, the Colorado Oil and Gas Conservation Commission. So the portion of the Department of Natural Resources of the state of Colorado. Uh, they, they ultimately decided on March 26, 2025, um, to grant an approval for the Draco facility. So that is a, what's referred to as informed to a. Um, and that is the permit to construct and operate the surface facility. Um, which is which included 26 wells. After that, then the state's procedure is to then get into the underground and that's through a form 2, which is an application for permit to drill. Those have not yet been filed. Because prior to those being filed, you have to go through what is called pooling, which is to. Obviously, oil and natural gas are liquids and they flow. So it's not like influence to these wells. And so in the state of Colorado, other states do this differently, but in Colorado, within the spacing unit, the operator is obligated to demonstrate that at least 45% of the mineral interest is either within, either owned by the operator or leased to them. Sometimes it's through a sublease from another oil and gas company or mineral rights holder. Once you've achieved the bar of 45%, the other up to 55%. can be what's called force pooled, provided that they have been offered fair lease terms. So everyone with mineral rights has to have been given the opportunity to lease or sell their minerals. If they decide, hey, these lease terms aren't good enough, or for principled reasons, I don't want to sign this agreement, then you can be what's called force pooled, which is they're that the state of Colorado has defined and says these are the terms under which your mineral rights will be produced and you will be compensated. In January of 2024, legislation went into effect in the state of Colorado, which restricts force pooling of local government-owned minerals within the jurisdictional boundary of that local government. And since we are acting on their behalf, the Colorado legislature has decided that we are offered these additional rights whereby we can decline to be force pooled. I know that was a lot, but I think it's important to back on information. So, in the spring of 2025, we are approached. With with an offer. within the Draco spacing unit that are proposed for production. We hired two consultants. One, a title expert to review what Civitas was saying we owned to say, hey, do we in fact own this and is this the extent of what we own? We also hired a gentleman who specializes in assessment of mineral rights valuations. That report, which was reviewed, I want to say over the summer in executive session by this council. Essentially said, here's what your rights are worth. But this estimate is extremely conservative because there's not a good way to account for the additional leverage that the. Because the normal procedure is you're made an offer. You can make a counter offer. If both parties declined. You end up force pulled. So, there's a real incentive to come to terms. The leverage is with the oil and gas producer in normal circumstances. In this circumstance, the leverage and instead of coming to terms. Then our minerals cannot be forcibly pooled and therefore must be avoided, which is. A headache from an engineering and geologic perspective to say the least. So, for the past. Negotiations have been ongoing and it's my understanding that those have essentially come to an end. Negotiations are complete and the council can now consider whether it is in the interest of the town of Erie. So let's talk about Draco. Draco exists or will exist, I should say, Near the intersection of county road 6 and county road 7 on the eastern side of town. So that's north. Of the landfill, if you've ever driven down county road 6, it's kind of half paved and half almost unmaintained and there is a large. Oil and gas regional collection hub, and it will be just north of that existing facility near the, the. currently being constructed neighborhood of westerly. Draco will drill 26 wells down between 7,500 and 8,000 feet, depending on the specifics of the geology into units called the Niobrara and Codel formations. This is again a mile and a half down and then westward NEARLY TO HIGHWAY 287. WITH PRODUCTION TO BE FROM THIS PURPLE BOX THAT I'VE LABELED THE DRACO PRODUCTION AREA. THE FORMAL NAME OF THAT IS THE DRACO SPACING UNIT. SO LET'S ZOOM OUT TO THE ENTIRE TOWN OF ERIE. WHAT WE SEE HERE, THERE'S A LOT GOING ON IN THIS MAP, SO BEAR WITH ME A SECOND. The yellow lines are the existing underground. Laterals, this is the existing boards that have been advanced in this part of the. In teal, you see the 26 wells. That are that are planned for Draco. This is from a document that accompanied the oil and gas development plan considered and approved by the state of Colorado back in March. Um, and I'm just kind of showing here that, uh, where, where we sit, uh, in old town, um, this was, this was drilled under and I believe 2017, maybe late 2016, uh, from the Becky Sosa pad, which is just north of us a couple of miles, uh, just off the county line road. Um. Yeah, most most of your neighborhoods have been drilled and fracked on. in many cases after. And so this is not a terribly unusual process. As you go to the other side of I-25, you can see it's pretty much everything. And you can imagine these pieces here and there that don't have yellow lines probably will eventually. This oil and gas basin Is is nearing maturity where all available areas that could be drilled will have. That's that's where the DJ sits. We're kind of operators are finding these last little pieces and infilling where they can. Also shown on this map, and I apologize, it's a bit hard to see because I chose blue and teal. I now regret that. There are a series of blue X's within that purple box. Those represent 22 existing, mostly very old oil and gas wells. Who they, they continue to exist to to hold these, the existing leases in these areas under the original terms until they could be replaced by these these new wells from Draco. These are these are old vertical wells drilled in the late 20th century for the most part. These 22 wells will be plugged in abandoned within 5 years as terms of the oil and gas development plan, the permit granted by the state of Colorado back in March. There are also a series of red X's here. Those red X's are 17 wells. Which are part of this negotiation should the town decide that this is this, uh. The interest of the town, these 17 wells will also be plugged in the band. And I know what you're saying. Hey, I've counted your X's Mr Frank and these numbers don't add up. A lot of these X's represent pads, which have 567 wells. They overlap each other to the degree. You can't see that these 17 wells are in old legacy facilities. These are these are old wells that don't have onsite leak detection. Don't have remote shut off capabilities. Most of them produce not directly into pipelines, but into large tanks. On site trucks have to come and empty those tanks. This is aging aging equipment, more prone to leaks and those leaks are found when the operator, the state of Colorado, or the town of Erie physically goes on site and says. That's not right. And in the case of underground flow lines, a lot of those leaks may not be found until those lines are excavated because those leaks may be below the surface. Modern facilities like Draco, every piece of equipment has a plethora of monitoring going on real time via telemetry. And if you see odd pressure drops by you, I mean the operator, if they see odd pressure drops Changes in temperature 1st, course of action is to shut the wells in remotely and get someone on site to figure out why the equipment isn't operating as expected. None of these old facilities have any sort of capability to do that. And it's very much in our interest. We've been working really hard for years. To get these old what we call legacy wells plugged and abandoned and off the books and out of town. These 17, in addition to the 22 already within the permit, essentially represent all of the legacy wells owned by SM Energy. So we still have a handful from other operators that obviously we can't compel Civitas to make another company do anything. So we'll continue to work on those. But this is, you know, In my mind, a pretty big, pretty big issue. These 17 wells are at end of life. They produce very little oil in most cases. There are a couple that could certainly chug on for a while. But there's no incentive for the operator to plug and abandon these facilities. It costs money to plug them when they plug them that freeze the mineral. Rights, which are currently under lease that ends those leases. So they have to renegotiate those leases. Um, likely under more favorable terms than. Whatever your grandparents signed back in the seventies. So, yes, they will eventually be plugged in abandoned as will every well in the state of Colorado. But the timeline of when that would occur without this agreement is very uncertain. Certainly a longer timeline than with this agreement. And it could be in some cases, many decades before these walls are retired. So, yes.

In what neighborhood or what area are the, you see the cluster up in the.

Yeah, so this is Kenosha farms, Erie village that area. So, this will pretty much remove all production facilities from those neighborhoods. There's also a well, it's a bit hard to see basically where the laterals come up to the Northwest and then make a job due West. That facility is at the corner of Erie Highlands. Um, where the, where we're going to be, uh, where we're developing some, some commercial activities out there. There's 1 down there and then there's the 1 to the South. Yeah, it's, it's kind of near the airport. It's on the Eastern side of county line road. But that facility in Erie Highlands, that is very much a productive facility that is right next to the residents of Erie Highlands and will be right next to the businesses opening up there that Erie Highlands. That development predates our current oil and gas setback standards. So it's grandfathered in under the old setback. So. I'm, I'm a bit uncomfortable with how close development is occurring to that. Well. going to be plugged and abandoned.

When was that one drilled?

Wait.

Oh, sorry.

Don't worry. I just don't know that off the top of my head.

I think what I'm going to try to do is let David get through his presentation, and then we can come back for the Q&A portion.

I believe 2011. So, not the oldest well in the world. It's again still got another. 51015 years of productive life. It's certainly not a low producing. Okay, so the town's mineral rights, the town has plus or minus 183 acres of mineral rights. About 80 acres of already least mineral rights. Those are shown in blue. And roughly 103 acres of unleashed mineral rights shown in orange. But wait, I don't understand the blue area is clearly larger than the orange area. So those numbers don't math. In a lot of cases, the mineral state has been severed and split many times. And so we may only own 25% of the mineral rights. So the acreage shown here, though large, we only own a portion of that. And that's why this map doesn't doesn't pass the eye test when I tell you the numbers. So, the blue area, those are already under lease terms in many cases. Those leases were were assigned prior to those talent, those lands being dedicated to the town. And in some cases, those leases were entered into by the town in the early 20th century. I found active leases assigned by the town of anywhere from about 2003 to about 2012. Uh, so those areas that in blue, those would those are subject to to production, regardless of what the town decides today. And if the town does not sell its mineral estate, then we will receive production royalties per the terms of those leases. The orange areas are those that are subject to this relatively new. Act by the state of Colorado, whereby those areas could not be forcibly pulled. They could be leased. They could be sold, they could be voluntarily pooled, but they can't be forced pool. So those are the areas that are that are really the focus of this. So, the contents of of the potential agreement, obviously, we've discussed the additional 17 wells that will need to be plugged and abandoned the timeline on that. I would have to refer to to counsel.

So, the, um. Draco abandoned wells will be within 1 year of commencement of operations for the Draco. The non Draco wells will be within 5 years from the date of closing. even if we sign an agreement on June 16th, there are some steps that need to happen before we actually close inspections and the like. So it'll be five years from the date that we actually, if council approves, do close. And then there's an additional well, which is the Young 431 well, and that one will be, there's two potential trigger dates. It will either be, it'll be the later of January 1st, 2030, Or within a year of receipt of a development notice, if we do decide to, if the council approves this deal, this particular well is located on 1 of the parcels and is still a producing. Well, and so we would then have the obligation to let them know that we are going to begin development on that particular personal, which would then trigger the date or the later date would be January. 1 of 2030.

Um, this, the Draco facility is not within area. It is in unincorporated well county and, like, all the facilities that are near, but not in Erie. We don't have access to those sites. Our inspectors can't visit those sites. Can't look for leaks can't look for operational improvements. This agreement would allow us onsite inspections.

Um, I believe quarterly monthly monthly during drilling and production and then quarterly during just production, which is.

The frequency at which we inspect most facilities in the town. It would not afford us any sort of actual. Penalty. But that's but that's fine. Um, I have no issue with that because the state of Colorado will obviously enforce its regulations. Um. What's important is that we can find those issues. Um, and if anyone's been reading our inspection reports. In basically every circumstance, every single circumstance with with SM energy. Every issue we found has been corrected promptly by the operator and we haven't had any occasion to even reach out to the state of Colorado or consider him sort of punitive penalty. As far as compensation, there are 3 parcels currently owned by a subsidiary of SM energy. Um, that would be needed to the town about 158 acres there near county line road. I've got a figure coming up to show you those parcels. Uh, we had those parcels appraised at about 13 and a half million dollars. I think it's also important to note that while 13 and a half million dollars is certainly a significant sum to the town. It's not a whole lot of money for an oil and gas company. And so, when, or if these parcels may ever become available to us, or any of anyone else who would like to develop them is really hard to say. This may be the, the town's best chance in a generation to to see development on the East side of county line road. I'm speculating a bit, but that's that's my read of the situation. We've also negotiated production revenue, and this is this is pretty substantial though. The production is occurring in Weld County. I know. It's occurring under Erie, but. will benefit from taxation, from the sale of this oil and gas. Erie has negotiated a cut of this as well to the tune of 2%. I know it's pretty complex, the actual terms. I don't really want to get into that. There's a lot of funny time stuff because they need to From their perspective, they have to make sure they recoup their losses. And the facility is actually profitable before we start taking our cut. But if you map this out, it results in something like 17Million dollars over the course of the. Of the facility, which will be 20 plus years. These wells, when you turn them on, they flow like gangbusters and then. Asymptotically, you get diminishing returns over time. Same with the revenue that we'll see. So the vast majority of that will be pretty upfront probably in half in the 1st, 5 years, another quarter in the next 5 years and then. Less and less and less until you're getting checks that are 2 dollars and 67 cents once a year. And then an upfront cash payment of of 4.5Million dollars. This is the location of the 3 parcels. I'm happier with my color choice here. The bright green stands out. Part of parts of these lands are adjacent to existing open space and within the flood plate. So they'll probably that'll probably be their fate is to be added to areas open space portfolio. But a lot of them enjoy being right along that stretch of county line road. That is already we've already seen some commercial development. This will help move that South and obviously the location. property so that if Julian were here he probably has a lot more to say about these these three parcels I'm I'm not a land man that's not my forte here's kind of a close-up view of these there are some existing oil and gas facilities on these parcels those will all be plugged and abandoned either per the original Oil and gas development plan with the state, or. Through this through this agreement, should it be adopted. Okay, so that's that's basically the nuts and bolts of what happens if we do sell. All right and obviously those parcels can be developed at the town's discretion. Future tax revenues, et cetera, et cetera as well as businesses that the residents can patronize. If we don't sell again, we would receive royalty payments per the terms of the leases in existence. On those on those these plans and again, the only portions could not be forceful. Those 100 acres. Can't be pulled unless voluntarily. So. We could insist that since they are not part of the pool. No production can occur from those areas. Thus, they would have to be avoided. What avoided means is sort of an open question. That has not been addressed because this is the 1st time the States dealt with the repercussions of passing this law. I can speculate a bit. It could be that. The, the overall direction of those laterals changes. Um, to avoid physically contacting those, those areas, right? You drill some this way and then you have the southern ones you drill and then turn north. And you produce everything around that, but you never never get underneath the towns on least mineral rights. That's that's 1 way. It could be done. It's also possible that they may drill right through our mineral rights and simply not perforate and frack those sections of the casing. I don't know if the state would entertain such a proposal. I don't know what the town's position on such a proposal might be, but those are some of the ways I can see them being avoided. At the end of the day, if the town wanted to make an accusation that, no, no, we think our minerals were, I think our oil was in fact produced, the burden of proving that would fall to the town. We would be... Accusing trespass and of course, us as the claiming wrong would have the burden. It's 7500 feet down. That's going to be a tough, a tough hill to a tough bargain. I'll say that. So the next steps sounds like we'll be back in two weeks, give the public a chance to read this thing in its entirety. And we will bring a proposed ordinance for consideration by this council. Obviously, that'll be a public meeting. So there will be public comment taken. And I assume vigorous discussion by this council. If no agreement is reached, then there's not really anything else to talk about here until we see a pooling order from the state of Colorado. Okay, I think that's it. I think that's all I had to say. So I'll go ahead and show myself out. Of course, and I'll answer as many as I'm capable, and I'm sure everyone else at the table will have things to say too.

All right, we're in a study session format, because I find it much more conducive to having a conversation. And so I'll likely facilitate this any council member can ask a question and a follow up question. I just asked that if you have a question on whatever topic it is we're talking about, let's get your questions out while we're actually on that topic. And then we'll move on to the next topic. It doesn't mean we can't come back. But just trying to to group the questions. For the audience, once again, you should have a note card, write down the questions you have. If your question has been answered, just crumple up that note card and then whatever's left in your, your hand at the end. We definitely want to hear those questions so that we can hopefully shed some light on on those as well. All right with that, I think I'll just open it up to to counsel if anybody would like to start the questions.

Quickly, so in the event that we don't agree to this. I understand that they, there is some level of avoidance they have to do to access our minerals and I realize you don't exactly know what that looks like. But is there a risk because you're dealing with the substance that could be traveling through fissures and rock. They could extract those minerals from an adjacent property.

Those minerals, the answer to that question sort of hinges on the definition of deplete. Well, would use to put some incidental production occur from an adjacent property, either outside the spacing unit, or these parcels owned by the town. It's entirely possible. Rocks do weird things. There are existing fissures. It's a non-isometric porosity and permeability issue. The rock is non-homogenous and the oil will flow where it wants.

On that question, I'm going to bring Matt Owens into the conversation. So, just so everybody knows Matt Owens used to be the chief operating officer for Civitas 3 years ago. He has his own business, which deals with mineral rights and basically acting on behalf of the mineral right owners. That was brought in for his unique knowledge of knowing the inside workings of if you're negotiating. You always want to have information from those you're negotiating against. So, Matt, I would love your perspective on the question that was just asked about. The permeability of the rock and how that might happen.

Yeah, it's, um, they're drilling the formation that could out there micro Darcy permeable permeability, which means they barely flow any oil outside of where the cracks are. Um, the way the state has dealt with this over the last couple of years is they kind of. Have you go anywhere from 200 to 460 feet from baseline boundaries? So, um, you know, if you, if you're a company and you own on both sides, then you can go closer. But, uh, typically, if a company is permitting a unit to drill and they don't own anything, offset it, um, The state usually allows you get between 200 and 460 feet from the edge of the adjacent lease. And that's usually based off the testimony that their engineers give saying that's how much they think the drainage radius is. And just so, you know, the, when they go down and complete these wells, they complete them in about 200 foot increments. So they also think that it flows about maybe 200 feet.

So, kind of on that question, um. I gotta believe, you know, avoid is kind of a vague term, right? So they have to in good conscience. Avoid, so are there options that they can do around about around our minerals? Um, to technically avoid it.

Yeah, David tried to address this and it's hard because this hasn't happened with a municipality yet. It's happened in the past with normal mineral rights owners, but there's. 2 kind of options they can drill again, right? Just right through everything. Just like the blue lines you see up there on the map. And then what they'll do is not complete that say, 1000 feet where. Eerie minerals are, but they'll do either side of it. That 1000 foot section would be removed from the spacing unit. So there's no royalties that are paid for it and it wouldn't be completed probably within 200 feet or ish on either side also. That would be the production of where the wells coming from. And the other option is, if they can, they can just steer around the pieces. So. It's probably isn't the best maps look at, but if you look at the 1 that shows the orange on there. They can turn these wells and all sorts of different shapes right here is the. ideal way to drill it where everything's just symmetrical in a straight line, but they can turn them in 90 degrees. They can make them look like a Tetris shape. They can make them turn 180 degrees and do U-turns. Those are kind of all over the basin now. So they have the ability to get pretty crafty with where the wells go if that's the way that they want to move forward.

So they could basically go through them and the sleeve that they put in the bore, they don't perforate. So, you have solid steel. Yeah. Yeah. So. Or they could take that and drill around it and still go West. Just not go through, depending on how they felt may. Yeah, yeah. Yeah.

And I'm sure they would have discussions with them beforehand, trying to figure out what they would do. Um. It's the easiest to just go straight lines, but if they can't, there's, there's all sorts of examples now where they do have to drill them in these weird shapes just because of if there might be a floodplain or surface access in some areas is difficult. And so they have to do that, but. They would have either option here, and I think they would have a discussion with the, and then try to go the. Path that would allow them to get their permits the quickest is what I would guess that would be.

Okay, so so let's go to the attorney and then we'll go to council member.

The other factor that bears on this is the language of the statute itself, because it basically says, if the municipality. Does not want its minerals force pool refuses to lease. Then the commission shall deny. Be pooling application, unless it is amended to not include. In this case, the town's minerals. Yep. Okay. So that to me means you don't drill through them. You do a new drilling and spacing unit that doesn't include them. You go around them basically basically. Yeah. And engineering wise, I'm not an engineer, so I can't. Say how that would look, but okay.

So, John, my question probably is for you as well. So. It's my understanding the town has the right to grant a subsurface easement or that SM Energy would have to apply for a subsurface easement underneath town owned or property or town owned minerals. Is that right?

That is correct. Correct yes, if the town, we're not going to lease the minerals, then there would need to be some sort of an easement granted by the town.

What does it look like? If the town doesn't grant an easement.

Then you shouldn't be drilling through the town's property basically. Yeah, because it would be a subsurface trespass.

So what does that mean? Does that also grade the town perhaps the ability to have surface, monitor surface impacts as well?

I'm not sure I'm following the question.

I wrote it down better than I just asked it. Okay. So is it possible, I'm going to find it though wherever. Do we have the authority to regulate surface concerns and risks of a pass-through bore under our own oil and gas regulations? Our Title 12.

If there were surface impacts, yes. Yes. But it's a mile and a half. Yeah, I think at that depth, it's unlikely there'd be surface impacts. But as David was saying, rock fractures, things do come to the surface.

Yeah. Okay. So, but that subsurface easement would have to be granted in order for them to go through our, so that's, it's not entirely up to SM Energy or the state. Town of Erie has some say.

For the easements, yes. Because it's, to the extent it's town property that's being used, the town has to consent to it the same way it would consent to any use of town property.

So, if I really understand this conversation 1st, the law says you can't go through it. If we don't agree to this. 2nd, if for some reason we said, okay, we don't want the minerals, you can go through it. Then we need to have this subservice lease. There's no reason that I can see that that would happen. They would go around us. Am I missing something in this conversation?

If they want to go through your property, they need permission to do it totally. They get that through a lease through an easement. The license, something like that, right?

And just from what you said before, with the way this law is written, I can't imagine. That that would be the play because both paths, right? I either go through it and don't frack. Would require us to do a subservice lease. So that's not going to happen. Or, um, they would have to go around us, which means all these things we're talking about don't apply because they don't.

In your hypothetical, they wouldn't be going through the town's property or under the town's property. Don't ask this question.

See, see all this area right here. Yeah, it's drilled through isn't least. There's no easements granted out there, right? So, how does it certainly allows the boards to advance through all of these mineral. Holders properties with no with no lease or easement.

This is a legal theory. Sure. Okay. And so the legal theory also says what you own on the surface goes to the center of the earth. And, of course, because the earth is round. That surface gets narrower the deeper you go.

No, I'm confused. What is the final answer for this one? Can they go around? And if they go around, how far is it? Like you said, some miles. Or when you showed that it is, they're already doing it without permission?

I've spoken with engineers at the state, and they don't have a firm answer to this question. Their response is. The applicant can propose what they think is best and the commission can either grant that or deny it. And the staff at the state is not willing to speculate on what the commissioners will do. It also cost more.

Okay, I'm going to come back to John. So if you had other questions. Um, not on. Okay, but so I can ask you later, let me make sure that you've addressed the drilling through the drilling around the drilling under the legal piece around that.

Okay, go ahead, John, if you have another question, so it came up a conflict of interest hiring Matt as our consultant on this. Is there any conflict of interest from the town standpoint?

The town defines conflict of interest from the perspective of the town council members, town board and commission members and town employees. It does not put an. A conflict provision on any other entity than those entities.

And so, Matt, is there any conflict between you and SM energies to you being an art consultant? Not that I'm aware of so, and they've been negotiating with. With you with with no concerns. Do you want to stop message?

All right other questions.

Um, well. I don't know. I do have questions about that. I think that that's been a major concern in our community and, um, I don't know how we get to the. To a place of feeling like all of those concerns have been addressed, but, um.

I think what everybody needs to know about the agreement with Alameda Minerals is that Alameda Minerals makes $0 unless we strike a deal. So it's based, the incentives for Matt and his company are to do the best for us because it's a percentage of whatever we get. So if we get a lot, Matt and his team get a lot. If we get little, Matt and his team get little. So just by the agreement, it's incentivized to be acting in good faith with us.

paid, they're getting paid based on the information that they're using from that company, right? Whatever it is, they're getting paid because of it. So you want me to finish or you want to interrupt? So it's not the same thing, right? You're not getting paid if the sale doesn't move. So all the interest is

When you're doing any negotiations, you could hire whoever you want. I mean, I've been doing negotiations for decades, and I always want the smartest team on my side. And the smartest team is often people that know the other side really, really well. And so that's just basic negotiations.

That's not smart, actually. They're using confidential information from there. It's not confidential. Well, let's let me ask that.

Are you are you negotiating confidential information from?

Yeah, yes.

So, on this information is public information that is using in the.

It is information that elevator minerals has.

So, the was submitted the long ago 2024.

Okay, other questions. So kind of easy one. The real estate valuation, we have appraisals on that? Yep.

Completed last year and this year, like December to a month ago. They're very recent.

Okay. Thank you, Julian. So you said we have 103 royalty clickers that are supposed to be a part of this deal?

I think it's a plus or minus 183 total acres of mineral estate 103 of which are currently unleashed and roughly 80 of which are subject to. Yeah, and what.

I'm not sure this is a little hefty estimate. Do you know what percent of the total Rico area that might represent?

Oh, man, I wrote that down the only story is like, 5%, it's a 3700 acres and we're looking at 100 acres of that.

Yeah, the 1, the. Drilling and spacing unit that was approved last March for March of 25 was 3951 acres. There's a.

Now, to avoid that area, you're going to have a larger area that's going to have to be excluded. And let me just do some real quick drafting. We're looking at maybe 300 acres, so 10%, a little less than 10%. 8% of the full spacing unit would probably have to be avoided to avoid our 2.7%. So, 90% of the spacing area could could move forward into production and we'd prevent production on about 8 to 10%.

How much of that would require going around on properties in a hazard zigzag kind of a way.

I'm not going to speculate how they're going to propose avoiding our property. I don't know. That would increase potentially the length of laterals. 1 of the various primary concerns are that these laterals are very long. The longest attempted in the state of Colorado. Is it in our interest to make them longer?

All right, so put this in. Sort of context. Our royalties are projected to be $17 million-ish over time. At 2%, that's $850 million of gross revenue. If we're 2.7%, this is about a $31.5 billion project for SM Energy. Sure.

Yeah, gross gross proceeds right now.

I don't know. I mean, they're. The gross revenues on this pad will probably be somewhere in the neighborhood of 1 and a half billion.

What number did you say? 31.5Million billion, right? So you're saying 31.5, you're saying 1 and a half billion. So we've got a math discrepancy there somehow.

Uh, yeah, we have a severe math discrepancy because. We're saying 17M to the town of Erie at 2%. That implies 850M. Okay, sure. And that's only 2.7% of the whole project. So the whole project, backwards math, 31.5M. You did that twice.

Yeah. Yeah, you just do it once. 17M divided by 0.02. Yeah, we're getting the 0.2.

We're getting 2% of the total proceeds of all the production.

Oh, not just our share?

That's right. Everything that comes out of the tap, we're getting 2% of that.

Which we think will be $17 million?

Projected. Could be a little more, a little less. All right. Heavily dependent on the current price accrued, which has been volatile. And that $17 million, that was calculated before the Iran conflict, right? Yeah, that was back in January. So that's assuming things go back to a regular stable market that we enjoyed in 2025.

$60-ish a barrel, I'm guessing. What was stable before the Iran?

What we used was we were like $65, and then it gradually stepped up to about $74 over a five-year period.

So where do we stand with the title work?

We are all in agreement except for one area where title opinions are opinions. And our opinion and their opinion does differ, but there is a portion of this agreement to address that, whereby we agree... not to claim to own that piece, right?

That is correct. There is a provision for what we're calling the disputed minerals. There's two places in which we don't know if we own or if we have already leased out those mineral rights. And so there's a process in which we would disclaim and waive any right we would have, assuming we had any interest left. There would also be a provision for if, after closing, we discover additional areas within the pad We would be compensated assuming we sign the agreement for those additional minerals that we find.

So, but at some point here, in the next couple of weeks, we'll get a full map with partial numbers and everything that's being sold. That's that's this map. I can give you all the process if you like. Okay.

We believe it is complete, but the title work might show something different. We don't believe that is the case, but it's theoretically possible.

Are any of those highlighted areas parks or open space?

Not with a capital O and a capital S. I mean, are some of these areas undeveloped? Absolutely.

Okay. What are they currently designated as? What do you mean designated?

Has this council designated them?

No.

Have they been zoned?

Hang on just a second. I need to get onto my laptop. Absolutely. In 20, well, I said that and now I'm going to speak extemporaneously, which is not a good idea. In 2024, The then council passed ordinance number 017-2024, an ordinance of the town council, the town of Erie, amending Title 10 of the Erie Municipal Code to create a new reserved open space zone district. In the finding of the fact, the town noted that the current agricultural open space district does not meet the intent of the town's home rule charter regarding open space designation and desires to create a new zoning district to do so. excuse me and so the then council designated abbreviation ro for reserved open space that would be the charter compliant open space designation it is my understanding that we have no ro designated in the town what about open space ag

There is no zone parcels, so there's no other whatsoever. Not in this area. None of these parcels are are zoned as open space. Most of them are under PD overlays. They're all mostly zone either medium residential or.

Um, what competitive bids and comparative analysis that we.

Probably refer to that on that 1. We received a formal lease offer from, which we declined. Because it was a pretty standard lease offer and didn't wasn't reflective of. We received 2 other formal lease offers from other oil and gas companies for. Parts of the estate, not the entirety, but again, those were pretty standard 18%. Uh, lease offers, um, what was that? Over the past year, so. 5, 6 months ago. Okay. And again, we declined those because they were an order of magnitude or two below what we're currently talking about.

Okay. But you didn't do any competitive bidding? Before I was hired by you guys, I worked for another client in this unit that had a bunch of minerals at the end of last year. I solicited a bunch of bids for leases and for him to monetize those. I followed up Early this year with those folks to see if their bids were still in the same range before we had remember which meetings with the 1 where we went over the longer presentation. And I talked about what those where those ranges were showing up in there. And like David said, it was. Substantially lower than what what this deal would be. And so, at that point in time, it was determined to just focus on this deal since the value discrepancy was so large.

Okay, that does not sound like a competitive process to me.

So, just following up on this a 2nd, and if memory serves before we had contracted with Alameda. We received another offer from still toss at that time. I believe that memory serves. The land value was only, I think the 2 parcels on and 1 of them was like, contingent. They weren't giving us land. It was, we had to meet certain criteria or something. And the monetary value was way below what we were even able to determine just stuff.

Yeah, the initial offer was for the just the southern most of the 3. at that time for 2.8 give or take 2.8 million dollars uh and the lease terms the back of the napkin math would have resulted in total payment of about four maybe four and a half million over the life of the wells if i remember it and correct me if i'm wrong we actually approached civitas because we wanted to buy a piece of property and at that point they said

No, but we'd be interested and we're not, we were not willing to sell you that property. But if we might negotiate. If you were open to selling your mineral rights. Yes. And then we talked about when they came back with the. Other piece of property that was just north of there. And both were lower than what we would ever. have considered going into a deal with. So we kind of revised that. At that point, it was after that that Matt was hired. Okay.

I have a question.

That's my recollection.

Okay. So is there a possibility of Civitas sending these low-bond offers and put this later on? Is there a possibility of coming with all these global offers and. Then come up with this current situation of the minimum.

Yeah, I think I think over the course of the last year, um. The, the town said, hey, we're going to need, um. This is where we plan as far as compensation. We said. We don't just want this 1 parcel or these 2. we want all of all of your land in this area. We said, we want to cut a cut of the production. just to be clear we had that information that this might be possible because of alameda minerals we didn't have that perspective right before we heard matt we were talking about the the two parcels um which in total were 70 80 acres um and that's that's about all that was on the table in december okay um it's one thing to have you know

Prior discussions and going back to them, and that is still is not a competitive bidding process. And your scope of work says you will complete the competitive bidding process.

Because that's why, in that executive session, we had a specifically asked that we not talk about things that happen in executive session.

I mean, that's.

That's the only way to determine if we have are getting fair value for the product. Um. I think that's it for now.

Um, so following up on that, um. I have some language from the contract. the scope of services and consultants' duties. The consultant shall conduct a competitive bidding process to secure optimal lease proposals, including valuations of monetary and non-monetary terms for town-owned mineral rights and property in the Draco Plan area. The consultant shall solicit bids for the sale of town-owned mineral rights and property within the Draco Plan area with comparative analysis The competitive bid process was required in the contract that we that was approved for Alameda minerals So then council, I guess we could ask you We would like I'd like to see other offers beyond from SM energy so I want to make a point of order here because we have two sort of competing things here because we cannot talk about what was talked about an executive session and

However, I feel this line of questioning is completely disingenuous because you all know what you heard. Absolutely not. All right. All right.

Hold on. Hold on. Hold on. So tonight we're here to talk about the agreement.

I have never heard another offer from any other entity. So that's good that we can't talk about executive session things, because that is not something we've ever talked about.

So whether we did or didn't, obviously, we're not going to talk about executive session. What we're here to talk about tonight are questions about the agreement that is in front of us. And so I'm going to bring it back to that and to see if there are any other questions with that. I'll start with 1 that came in and that was. Where's the water going to come because the process is. Water intensive is my understanding and maybe you can talk about what water intensive means and where the water will come from.

That is not part of the agreement. The water will not come from the town of. it. Where they choose to buy water from, it is going to be a lot of water. Matt, do you know off the top of your head what their, I don't remember what's in the OGDP, but it was, it is a lot of water.

Probably somewhere in the neighborhood of 500 million gallons.

And is that water lost in the process or is it reclaimed? What happens to that water?

Nearly all of it will be lost. We'll need to be subject to deep injection for permanent sequestration. A little bit will be.

So, this goes back to, I think all of us would not like to see that water used, but regardless of whether we accept the lease or not accept the lease, we've been told Draco will go forward. It's just in what what is the drilling plan for it. So, it's frustrating. I get that. But we, as far as I know, I'm looking to our attorney. We don't have a legal way to use that as a way to stop the Draco control over our jurisdictional boundaries. We would limit it. We would reduce it. Small percent. Small percent, yeah. Okay. Let me bring in some of the other council members. Council Member O'Connor, any questions?

Regarding the proposal, is there any mention of Coyote Trails in there?

There is no.

So that's been approved.

There is no mention of Coyote Trails.

Okay. And regarding the 158 acres in the appraisal, did it have an indication of how much of that land is actually developable?

I knew there was going to be a jillion questions. Let me do a little reading.

Okay, while you're doing that, I want to go back to a question where David and John were going back and forth around whether rock formations could impact. Uh, surface, and I think John, you said yes, they could impact surface and I think David, you said it's a mile and a half down. It won't impact surface. Do we have any cases actually go back 1 side? I think it is to the, um, where we're already fract under. So, Vista Ridge, for example, or, um, call yours Hill have been fracked under, um, have we had instances where there's been surface. Changes due to the fracking that has happened in those cases. Not to my knowledge here.

This this base in the DJ basin. Let's go back to the time of the dinosaurs. There was an ocean here, the Cretaceous interior seaway that deposited 5,000 feet of shale. That shale is. Very impermeable and and somewhat prone if there are fractures to sort of self heal if you will. That's not to say that hydraulic fracturing. of reported, and in my opinion, scientifically valid accusations of what's called induced seismic activity, especially in places like Oklahoma, where the injection of these high pressure fluids has slip where previously the strains hadn't been overcome, thus resulting in small to medium-sized earthquakes. We have not seen that here in the DJ Basin, to my knowledge. If there's a scientific paper out there, somebody send it to me, because that's, of course, of great interest. There are also other places where oil and gas production, whether through hydraulic fracturing or otherwise, has resulted in communication between these aquifers near the surface. This often occurs either through existing fractures or through the annular space of the wellbore. So they drill a bigger hole than the casing they put in the hole. Obviously you can't put a bigger pipe in a smaller hole. Anyway, the state of Colorado has about the strictest regulations Logs have to be run to verify that the bonding of that cement between that steel casing and the rock. Other states are less. Judicious in that in that protective. In those protective procedures, and there are certainly cases where it is at least. It has been accused and perhaps validly that a lot of aquifers have been contaminated. I've not seen that in the state of Colorado. I've seen valid studies on that phenomenon. But yes, that's always a possibility. Just to say that it hasn't occurred or it hasn't occurred to a significant degree in the state of Colorado or near Erie doesn't mean it couldn't. Got it.

But there's no evidence that it has occurred in Erie at this point.

Not in my late review. Again, if people have papers, please send them to me. Right. Okay. Because I love reading stuff.

Mayor, I can answer a little bit of your question. Julian left me some information. It's not in acres. It's in square foot long-term.

Could you re-ask the question just for context for those who might be listening in late?

So Julian says the long-term build-up potential was estimated at approximately 700,000 to 1.1 million square feet of non-residential development, generally for aviation-related businesses, including hangars, aerospace suppliers, aircraft services, those types of things. The hope would be a greater airport.

But that's on that lower end.

Well, I'll probably have to follow up with Julian because it seems like that. That's on the lower two, but that's what he says on the full 153 acres is what would be.

And Julian regrets not being here this evening. I believe he will be back in two weeks.

Yes, he's actually on vacation. That's good for him.

Yes, we do let him have vacation occasionally. How did that happen? And then immediately regret it. This will be the last vacation for Julian.

Star minerals, we could either choose to sell or lease them to. Or another option was would be to go out. To a public market and to essentially sell it or lease it to a 3rd party. Who would then probably lease it back to. So, but for having that kind of deal. The land was owned by what was it? 7 end or so? Yeah, which is. So, for the land portion of that. We could not, we could not. Lease with a 3rd party and. Well, I guess with with the landing consideration, that was a constraint. Yeah, that's fair to say obviously the parcels would be off the table.

The 17 expedient and abandonments would be off the table. Inspection access would be off the table. You'd be talking about some combination of. Upfront cash in the form of a lease bonus, and then some production royalty on just that acreage.

Over the term, okay, so it's fair to say that money was not the only consideration here.

Yeah, no, there's, there's a lot here that SM energy can uniquely provide. And they obviously have the most incentive to. Um, the town doesn't need to lease its minerals. We certainly could say, hey, we want to make a principled stand. We're not under the illusion that Draco is going to go away. There will be a large number of wells, probably 26 wells drilled. Um, and. You know, and and we'll, we'll take what production royalties we get from our existing leases, but there's no, there's no reason.

Yeah. Is there a possibility? This is, um.

No, this will never see value this high ever again. We are moments, especially geologically speaking from from imminent production. There is a, there's a permit. to produce these minerals. This is absolutely peak value. Anybody in that purple box that would like to receive monetary benefit from their subsurface estate, today's the day.

And is there a chance that if it is delayed, deliver something within time frame, right?

Yes, they are constrained. They must be in production no later than May of 2028. And the ECMC, the commissioners, gave direction that they should do everything within their ability to be in production by October of 2027, which is not long, 15, 16 months from now.

So what happens if they don't do it by October?

Your guess is as good as mine. That will be a matter between the state of Colorado, this operator, and the adjacent landowner of Southern Land. I'm sure the town will have a role to play should it come to that, but I think everyone involved

It's highly unlikely that Draco, which is 1.5Billion dollar operation. Is going to go away or any, any attempt that we've tried to delay it isn't going to really affect what they're going after.

If I were sitting on that on the other side of the table, if I was an oil and gas operator with 1 and a half billion dollars at stake, I would, I would try to fulfill the requirements of my permit. And I would try really, really hard to do that.

Their attorney has told me that they will go forward without the townsman.

Yes, that would be my guess. Okay, I'm going to pause for a minute here and I think if there's any questions that are in the audience that we haven't asked yet, if you still here, maybe you can collect those and if maybe Meredith, I can ask you to just. Look at them, read them and we'll go from there.

So, in the meantime, I have a question that, um. It's in the energy 10 K from last month. Um. They submitted that, um, to the, that with respect to our operations in the DJ base in Colorado, some cases we do not own more than 45% working interest or mineral interest perspective area of development, which is now required. Because of 1 of the 1. to pursue statutory pooling or achieve voluntary pooling agreement with 100% of the applicable interest owners. So I'm curious if we have more leverage than we think. And since we don't have a competitive bid, I worry that we're leaving potentially Not money on the table. I mean, it's money on the table, but I mean, while it was sort of made known to them that we were interested in the parcels of land, they sort of shift their focus to dangling Matt carrots in front of the town rather than.

Yeah, I guess the way I look at this is the 1st offer was 2.85Million. This is that land. And now we're up to roughly 35Million plus the value of the land going forward, which goes to over 200Million. And so, yeah, maybe this isn't the best deal we can get, but maybe it is by far the best deal.

Where are you getting the 200Million dollars?

There was a question that staff had answered earlier. The question was, is there an estimate future economic value of 158 acres? It estimates that a build out to the highest and best use of a 30 year tax projection is anywhere from 46.2 to 209Million. And I think what that basically is saying is that that land, which we don't control today has. Locked up value and so the appraised value is basically for open land, right? That it doesn't have any benefits to it yet. But once you unlock that, and then the economic value potential can be achieved, then the numbers go way higher than that. I think the other thing from the land perspective, by the way, the land is the biggest piece of this from from my lens, because there's economic, but there's also town benefits. Especially right around the Lee on a world service center, where we're looking for space to expand that for parks and rec. And we don't control the land and if we don't go forward with this, I think we should all get prepared that the economic development and the ability to get that land from some energy. May not materialized because, you know, we basically had an adversarial relationship with them for for years and. You know, now that we have an opportunity to turn that around, if we say, no, they're going to hold that land, or at least that's what I would do if I was in their, their shoes. That's the hard business reality just for punitive reasons. They would hold the land in the fact that the oil and gas doesn't really need the land. They don't really, they're not in the land business. So, my guess is, it's not a big deal to them to just hold it. Yeah, they invest in these properties, um.

To negotiate when when leverage is needed. Um, that end to potentially site oil and gas facilities on that was probably their original intent. But after SB 181, this isn't these parcels aren't a viable location. There was at 1 point. Um, it was called the vessels pad.

Okay.

Um, to be located here. Thankfully, that didn't come to fruition on on. 1 of those parcels that is in northern 1. um. And so, yeah, if a deal is not struck today, it could be that the economics become right and they, they want to sell it to the developer. I can't say that that won't happen.

Has in recent history, because the acne pad was supposed to be on finance and highway 7, and they sold it back to a developer to be developed.

It could also be that they hold these lands until the next. The next time they need something from the town.

Yeah.

So, I mean, we even approached them to buy. I mean, that's how we, this whole thing started. We approached them to buy the piece of land and they told us no. Um. Initially, but they said they would enter into a discussion if we were willing to talk about. And, you know, we talk a lot about the compensation part of it, but, you know, to me, the 17 plugged in abandoned wells is a huge benefit. I live 500 feet from, uh, from an active. Well, that they're currently plugging. Um, and it's been taking them. It's been a very frustrating process, but I'm going to be extremely excited. When that well is plugged and abandoned, and I got to believe the people who lived around these 17 wells are going to be excited to know that there's a timeline that these things are going to address. I mean, to me, that's the compensation. There's some strong health and safety improvements that we're getting out of this.

Uh, O'connor council member to go back to your question for the appraisals. You're looking at about 5.4 to 5.8. about 3.5% of the parcels. Okay.

Is any of it restricted because of the airspace?

I do not dabble in FAA regulations at all. I'm sure there are some weird height restrictions and some weird light restrictions. Definitely the light, the flight path. Don't build anything that looks kind of like a runway. How about that? Yeah.

All right, I'm going to look to our acting town manager and see if we have other questions that have not been addressed tonight.

There are a few questions that I believe relate to items from the executive session that I'm not going to ask. Does the absence of an RFP when hiring Alameda constitute a breach of town charter? Does the lack of soliciting competitive bids construe a breach of contract?

That's quite a contract question for you, or there is no requirement in either the town charter or the town code for solicitation. There is a requirement that was adopted in a purchasing policy approved by council to conduct or solicitations for.

Services like this that did not happen. Just as an aside, I will say that. The last couple of months, since we found that this was done, not in accordance with our purchasing policies that the town is putting in procedures with the finance department. So it. Something like this wouldn't happen again.

Okay.

So it is a violation of our purchasing policy.

And we don't have a sole source type.

There is a process source process in the purchasing policy that does not follow either 1. Uh, will any type of environmental impact studies be conducted prior to the deal agreement being signed? I can answer that.

Um, there is a 50 day period after assuming a deal is signed for the town to conduct what's called a phase 2 environmental. That would be an invasive testing process where we would be able to select a vendor to go on site and conduct some analysis. The reason we put 50 days in there is because we have heard from vendors that takes approximately 5 to 6 weeks to conduct a phase 2, 6 weeks. six weeks would then give us a little bit two weeks buffer time for us to have a unforeseen delays or additional testing so yes there is a phase two built into that in which if the town doesn't like what it receives it can walk away okay um with the 17 wells um to be plugged is there a possibility they would be plugged outside of this deal eventually all the wells in the world will

I have no idea. In the case of a couple of them, no, they wouldn't be plugged for decades. Maybe the case for all of these. The wells that are up near Kenosha Farms and Erie Village, those are on the Boulder County side of the line. You can look at this map and see how difficult it is to get wells located such that they can cross the county line. And those walls aren't going to go away until another very large Draco-like facility is approved somewhere in the area. Of that I can assure you. Maybe one or two of them, but not all of them.

Has SM ever said Draco would not go forward if Erie declines to sell or lease their rights?

No. In fact, they've told me quite the opposite.

Is the Thomas Reservoir zone is park or open space? Not zone, no.

What's a zone? I believe it's part of the PD.

Basically, I think the question is, if the town sells their mineral rights, would that bump Civitas' Or over the 45% needed to force pull everybody else.

No, they've got more than 45% with or without us. And I'll also say a subtlety of this agreement as I understand it is we're actually only selling. In other parts of the DJ base, and there are other geologic units that are productive not so much here, but technology may change that. There's also a lot of strata below those units before you hit the basement and maybe a future oil discovery would be made there. In those cases, if we see a project proposed in this area for. specific formations, we still maintain the mineral rights in those other units. And so we would, we could prevent pooling or renegotiate those rights separately at some future date should geologic knowledge engineering or a combination thereof revisit this location.

Just to add to that, there's a new exploratory well two miles to the southeast of Draco that's in a new deeper formation that's producing right now. There you go. Approximately how thick are those two formations?

Yeah, it's not in the whole package very thin. If they were sitting here, pretty thick.

Yeah, a couple hundred feet. And that, and the size of that drill is about nine inches. That's going to go through that.

Yeah. Usually production casings five and a half. I don't know how tight they try to drill these days.

Five and a half inch casing and then they'll drill like a eight inch hole. Six and a half inch hole.

When they begin advancing the bore at the surface in order to facilitate Like I said, all the cement that has to be driven all the way through all of the viable aquifers, that hole's more than a foot in diameter. Those are scary. Those are big enough to fall in. But then it tapers down stepwise. By the time they get down there, it'll be, yeah, eight inches or so.

Is an earthquake a surface impact? I mean, isn't that a possibility?

Sure. Yeah, I would definitely consider that if there is demonstrated induced seismicity and earthquakes occurring as a result of this or any other fracking. Yeah, depending on the magnitude. You could have anywhere from minor shaking and you need a

I think I heard you say earlier that Oklahoma has this problem, but did you say Colorado doesn't have this problem?

It is not well documented in Colorado. There's always going to be some questions, scientific This is a very seismically inactive area, especially for a mountain range.

And so there's already seismic activity and I don't understand. Yeah.

So, yeah, and you can sort of look at the frequency and magnitude of earthquakes prior to that field being developed. Oklahoma, but we haven't seen it here in Colorado. I'm just trying to make sure that I understand. And there's been a lot, of course, a lot of scientists varying

activity attributed to the Rocky Mountain Autosol when they were pumping stuff down into the ground decades ago?

Typically, you'll get induced seismicity when you do injection adjacent to That's quite a ways away from where these wells are fracking and much, much more an issue when you look at deep disposal well development. Because, as Matt said, the porosity in these units is terrible. When you're doing deep injection, you need nice sandstone that you can push lots of fluid into. In this part of the world, the only sandstones that are deep enough, nasty enough, and porous enough are the lion's sandstone and the fountain. And in some places, you can find the Entrada formation, and that can be a target. EPA says if you start injecting into the fountain, you may in fact be injecting into existing faults in the granite. And that's what tends to cause earthquakes.

Yeah.

Okay.

But then we have Class 6 injection wells nearby in Erie?

Or outside Erie? There is a deep injection well just outside of Erie near Highway 52 and I-25 at the Hammer facility. Again, they're What they can inject into the fountain is very, very little and it's resulted in that. Well, not being a terribly good deep injection. Well.

All right next question I grew up in Oklahoma and, um, did not experience. Earthquakes growing up and then we moved to Colorado in 2000. And sometime after that soon after they started having earthquakes. So none of the homes were built with like. Earthquake technology, or, you know. To try to mitigate those effects, but my, all my family still lives there and my sister lives in a house. It's 106 years old or something and. It's a major concern for. Yeah, she lives, like, right in Oklahoma City. So.

1 thing I'd like to point out on that topic, most of the earthquakes or seismicity that happens in Oklahoma and Texas and New Mexico, Southeast, New Mexico. water. So to put in perspective, in the Permian Basin in Texas, they inject somewhere between 25 and 30 million barrels a day, which multiply that by 42 and you're, you know, billions of gallons of water every single day into those disposal wells. And here, here we inject next to nothing compared to that. I don't even think we inject a couple hundred thousand barrels of water. This basin doesn't produce water. So we talked earlier, when you pump the water in the ground, doesn't really come back. A little bit comes back, but only about 15%. In Texas, if you pump a million barrels in the ground, you're going to get 10 million barrels back for every barrel you put in the ground. And so it's all those injection wells. There's probably 3 or 4 million just injection wells down there. And in this basin, there's probably 30. It's completely different.

And permitting a deep injection well in this part of Colorado Notoriously difficult to get a permit from.

All right. I'm going to bring us back to the questions for this. Right. We're talking science.

It's exciting.

Does it require a super majority of the council? To approve the sale of real. No, it requires an ordinance. What's the best case scenario of not taking a deal or selling the minerals with the timeline? Do we have any chance of minimizing environmental impact or stopping the project?

We've addressed that one.

Yeah, I don't think we're going to stop the project. I think you're going to lose the ability to inspect the site. These 17 wells are going to hang around for a long time.

But it does shift the dominant mineral estate doctrine in favor of those folks who don't want to have their homes fracked under, and that they don't have implied rights, so they wouldn't be able to drill through those neighborhoods that are in orange on the other map?

Yeah, that goes both ways. Homeowners that own their mineral rights in those neighborhoods, yeah, they may be drilled under, may not, certainly wouldn't be fracked under. They also would not receive any compensation for their minerals.

But they, we would have to grant an easement for them to be drilled under. Correct.

That's a legal theory, but they can go around, but if they go around, it should affect people that would have been affected by going straight. You're going to affect different people by going around and you're actually going to make make the tunnel longer.

I think we know that it takes five years to plug the wells. How long does that usually take, and what incentive do they have to plug the wells, and what if they don't plug the wells? So how long would it be for them to plug the wells if they weren't required to under this?

I mean, to plug a well is two to five days. So, but there's a question of rig availability. They have to have to hire a company subcontractor to come out and do this work. There's also then potential remediation from any, any leaks that occurred at the site and went. Unnoticed unreported. We've got 1, we've got 1 active remediation project. That's. Just crossed the 2 year mark very frustrating and then you have reclamation all of that. You've got to grade the land and establish seed. That's another 2 year process from my understanding. They have, they have to initiate the plugin. We'll work with them on the order in which they occur so we don't just have an army of rigs land on Kenosha farms because that would be a terrible nuisance to have an army of rigs up there.

These are commencement dates, so they have to begin this work within those timeframes.

Is the agreement contained monitoring and potential mitigation near a number of previously capped wells, such as the 1 at Amber court in the middle street farm neighborhood.

So there are 6 wells and I'm sure if that exact point is 1 of them, but that was negotiated with the operator during the hearing. Uh, free hearing conferences, so they will be monitoring of of those 6 wells. The other point in abandoned wells in the town is launching a pilot program this summer. To start looking at wells, collecting soil, vapor samples and assessing if there's a potential for leaking. Depending on how that pilot program in the summer goes, we will be launching a full scale program and we're going to, we're going to do our best to look at every single well, which we can gain access to obviously wells on private land. to look at the well, and if somebody doesn't want us to collect samples on their behalf, we won't.

For the minerals that are already leased out, the blue area, what are the terms of those leases? Who holds those leases? Will they be up for renewal during this? Can they be refused as part of Draco?

That's a very complex question. There are dozens of Some had heavy cash upfront payments that went to whoever signed that in 1974. Um, some have higher royalty payments, um, you know, some approaching 20%. Um. Those were made with a myriad of different companies, most of which don't exist anymore and they've been. Traded about on the private market. I have no idea who those leases today. I'm going to guess. Most of them have found their way to SM energy sense. No, they won't be renegotiated the terms of those leases. They are active until. After production has ended.

What laws are in place for the proximity of wells near a school and how far is Draco from the school?

It is, oh geez, John, how far is it? Is it 2,000 feet strictly with no exceptions?

Yes, pretty much. There is a rule, an ECMC rule that allows you to get closer if you can demonstrate adequate mitigation measures.

And we've seen that to individual residences, but not to schools.

Very high school isn't that close to the Draco pad or it's.

So the school itself is a little over a mile to the edge of the school property is right at a mile, but they have to be 2000 feet away.

Is that what you said?

Yeah.

Yeah. So we're over double that. Yeah. Yeah.

But there's a school site within the Draco setback.

Yes, a proposed school site. there is no state law or, as far as I know, within the school district, a hard and fast rule about where schools can be cited vis-a-vis oil and gas locations. The town setbacks don't apply to school districts because they're an extra-governmental authority. So it would really be up to St. Vrain how close they want to build schools.

The home was already there when we plotted the school there. It was just when Draco came in. Yeah.

And the distance from the hub is, I don't know, 7,700 feet. Yeah.

Okay. And there's another pad that's there already too.

Yeah. There's also the wind sock pad, which is, it's actually an oxy pad, which has always baffled me, but. All right. Next question.

What regulations are in place to protect health of the community and its safety? Are any of these guaranteed in the conference?

There are no additional... Guarantees outside of what it already exists in both state law and our, our.

And well, county could yeah, but there's air quality monitors that are required. The state requires. Air quality monitors around Draco plus we're also going to have our own air quality monitor between Draco and the closest residents have Westerly right?

Correct.

What do we do with that information?

The air quality data that we collect? Obviously, we can always give the State of Colorado a call, whether that's ECMC staff or the Air Pollution Control Division. We do regularly share Things that we find, um, I meet with. With the air pollution control division, we meet with them quarterly. Um, us room field and and now recently Frederick has joined those conversations since they have an oil and gas liaison. Um. You have to talk about what monitoring is happening. What have what have we seen? What concerns we have? Um, obviously, if we. We tell our quarterly meeting we get, we get actually on the phone straight away. Same with staff. Enforcement of air quality standards is not something the town is equipped or probably even allowed to do. That is the purview of the state. So that's what we would do with that information. Of course. We also send out notifications to residents about the data we collect. As soon as it's collected.

You also have online, right? Yeah, there's an online.

You can actually go to a website. Everybody should be cruising around the Boulder Air site. It's cool. You can look at all the air quality data we've collected.

All right. Is that the end?

I think there are other questions either relate to executive session conversation or they're not pertinent to the exact contract.

Okay, sounds good. So I'll come back to hear any other questions about the contract and... No. I own property, but no mineral rights. I'm getting like a $15 check every once in a while.

That's the yellow lines.

Yeah, that must be one of those yellow lines that's already drilled.

Let me see.

Yeah. Yeah, that question has come up, whether I even own oil and gas stock, and I do not.

So, John, can you talk to us about why we would sell versus lease minerals? I've been told that generally leasing is the smarter thing to do from a money standpoint.

There's no, I guess it depends on how you want to collect your money. There's nothing. There's no law that prevents a mineral owner from selling his or her minerals. Leasing has been the norm. purchase land and the minerals have not been severed. And then they own the surface and they go ahead and lease the minerals underneath. And there may be various reasons why a landowner would do that. But I know that it's really an individual choice. And I'm not sure MY UNDERSTANDING IS THE LEASING OPTION IN THIS INSTANCE, AS DAVID NOTED, THE LEASING OPTION JUST SIMPLY DID NOT RETURN THE VALUE THAT THE SALE OPTION DID.

WOULD WE HAVE MORE, LIKE, IF WE OWNED VERSUS SELLING, IF WE LEASED VERSUS SELLING, WOULD WE HAVE MORE authority as a local government over impacts? If there were surface impacts?

You would have the right, if you loan the surface, you'd have the right to say whether the surface can be used. But in Colorado, the law is that the mineral the mineral interest takes priority over the surface interest. The surface owner must make reasonable accommodation to the mineral owner, assuming that the only way to access those minerals is to go straight down from the surface. And that issue has been, I guess, minimized by the advent of horizontal site.

So I guess what I'm asking though is if we were to lease the minerals rather than sell the minerals do we retain any authority by leasing versus selling?

You would retain the authority under the written lease which is you know it's generally the right to receive the royalties and A lease in such a way that it wouldn't allow the surface. To be used to access the minerals, because that's generally the. That's generally the biggest issue for a landowner.

There's also a. Looking ahead 4050 years, say the Draco wells are plugged. Abandoned new technology is introduced that says, hey, now we can drill even farther and frack even harder. then we would if we had leased and that lease had expired which is a very rare circumstance then we could renegotiate whereas with a sale yeah these will leave the town's hands forever except we're getting everything about the 300 foot zone right in these two formations yes yes as long as the lease is produced the most all the leases i've read as long as that lease is producing something one barrel

that lease is in effect. And that doesn't always make a landowner very happy because they're not getting much in the way of revenue. But Boulder County found that out through litigation that some lands they wanted to be freed from a lease, even the judge found that they were continuing to produce a very minimal amount, but the lease was in effect. So the lease can hold for a long, long time. I don't recall, but I'm just I'm going to bring us back. Sure. Yeah.

Great. Go, Pat. Um, so the next step, um, will be. 2 weeks from tonight, um, well, council will, um, decide whether we approve the agreement as discussed tonight or not. That agreement will be posted on our website later this week. There'll be a way to ask questions or put comments in so that that input can also be put into the public record. We will also have a Q and a document that is being worked on right now that will also be published sometime later this week. Um, and then we'll be back at this, I believe right now on the 16th, this is the only item on the agenda, but I don't want to promise that will be the only item because it's a, it's another meeting where there could be other things added. But right now, that is the focus of that.

Um, can you draft a memo about the purchase policy violation and kind of. Let us know what that entailed what that means and. What happened there? I just don't understand it. So I'd like to understand more. Yeah.

And Sarah's already working on that.

Okay, great.

I think also in our auditors come in this year, we should add this to the audit list.

They have noted it as a finding or a possible finding. So that's part of why we are another reason why we want to make sure we make remediations so that the process is fixed.

And then the other thing is that, um, I do have concerns that the, the contract, the scope of work for the contract wasn't met with a non with a competitive bid. So, I would like to understand more about that. Was that a violation of our expected scope of work of the contract that we signed? Um, those are questions that I'm getting in the public as well. So.

And just all the all the procedural things we definitely need to address those. What we'll be addressing on the 16th is the contract we have in place. And whether the terms in there are, um, are in the best interest of area or not. All right. Um. Well, we did this in under 2 hours. I appreciate all the conversation and the depth that we went, um, David, we appreciate all your background and expertise to help guide us and for our attorneys and for, uh, all the minerals with the background. Appreciate all of that with that. I'll adjourn.

No two days ever look the same.

We'll go from having a panicked call about seeing some flying insects outside of a...