Wyoming's powder keg

by Hal Clifford

SHERIDAN, Wyo. - Buck Brannaman is an angry man. The world-traveling horse trainer sits on a chestnut quarter horse in an indoor arena. Behind him, students quietly practice their riding skills. Brannaman, who modestly admits he was the inspiration for Nicholas Evans' novel and later the movie The Horse Whisperer, does not mince words. His gray eyes are smoldering. "I am the poster child for torn-up ranches," he says bitterly.

The cause of his anger is apparent over the hill behind the arena. A 600-acre draw has been ripped up by earth-moving machines. Small reservoirs have been bulldozed into the creek bottom and a half-dozen drill pads carved out of the surrounding hillsides, each big enough to allow a tractor-trailer rig to turn around. Several gas wellheads jut out of the ground, but none of the wells is producing. At one, fencing falls into an unfilled drilling spoil pit. Nearby, lengths of pipe rust on a staging pad cut out of the pasture. Roads run haphazardly across the sere, grassy slopes.

The reason for all this is coalbed methane, a form of natural gas that can be cheaply and easily extracted from coal-rich landscapes such as northeastern Wyoming's Powder River Basin. Although Brannaman and his wife, Mary, own the surface rights to this ranch, they do not own the rights to the minerals underneath, and they, like many of their neighbors, are at the mercy of energy markets hungry for natural gas.

This boom, fueled by Wyoming's lax state regulations and enthusiasm for energy revenues, could be bigger than anything the region has ever seen. It is throwing a net of industrial development over country that until now has been wide-open and empty. It is an experiment not just on the environment, but on the society and economy here.

"I didn't have this place given to me," says Brannaman, who has sued the drilling company that he claims has abandoned its work on his property. "I worked for every damn dime, riding some of the most difficult horses in the world and eating bad food on the road. I've given up my body and my health for this place."

So far, says Brannaman, his legal fees and lost income amount to $180,000, and he's running out of patience. Pointing to tree-sitter Julia Butterfly Hill's success at protecting an old-growth forest grove in California, Brannaman says, "If it takes bringing 200 environmentalists into town and having them live in tents on my creek, I'll do it. I've never been one for siding with the wackos, but things change when you're protecting your home."

Landscape-changing development

Bigger than Vermont and New Hampshire combined, the 20,000-square-mile Powder River Basin spreads east from the Bighorn Mountains to Thunder Basin National Grassland and laps north across the border into Montana. The entire basin is underlaid by multiple coal seams in the rough shape of a bowl. In the center, around the broken hills of the Powder River Breaks, the seams are 1,200 feet deep, and they join to form a massive underground coal deposit known as Big George.

The landscape slowly smooths out as you drive east from the Powder River, at first resembling hundreds of huge bread loaves huddled together, then easing down into the long, rolling grasslands around Gillette. Here, along the eastern edge of the basin, large strip mines pock the land. The coal mines, opened during the 1970s, brought the first large-scale energy bonanza to the region.

Commercial coalbed methane technology dates to the late 1980s, when drillers sank relatively shallow 350- to 1,200-foot-deep wells in the Black Warrior Basin in Alabama and the San Juan Basin in southern Colorado. But in northeastern Wyoming, gigantic coal reserves and skyrocketing demand combined over the past two years to ignite the first big coalbed methane boom.

Geologists have sharply upgraded their estimates of recoverable coalbed methane in the Powder River Basin in recent years, to as many as 39 trillion cubic feet, or more than a year's gas supply for the entire nation. The deregulating electricity industry, in its search for fast and flexible power sources, is battling to get at this massive amount of methane. While coal-fired plants can take a decade to plan and construct, natural-gas fired plants - often no more than aircraft turbines mounted on concrete pads - can be put up in months.

This demand has helped to push up gas prices. An average coalbed methane well produces 100,000 cubic feet of gas each day, worth between $1,200 and $10,000 during the past year, depending on market price.

Industry analysts say the cost of finding and developing coalbed methane ranges from 20 cents to 40 cents per thousand cubic feet, about one-third the cost of traditional deep-well natural gas. Coalbed methane companies, one analyst declares, are "just beautiful economically."

Not everyone is so thrilled. "We're playing God with the environment," says Walter Merschat, president of Scientific Geochemical Services in Casper and a critic of the haphazard approach to coalbed methane development in Wyoming. "This is shooting yourself in the foot with both barrels."

As of mid-August 2001, private companies had drilled 10,538 coalbed methane wells in the Powder River Basin, but the Bureau of Land Management's projection is that industry may sink 80,000 wells here by 2010. Eventually, up to 139,000 wells, one every 80 acres, could essentially cover the entire basin.

Coalbed methane critics recite a litany of problems with the technology. Drilling a coalbed methane well typically disturbs four acres on each 80-acre parcel. Noisy well pumps and compressor stations spew nitrous oxide and other pollutants into the air, and Wyoming officials acknowledge that many of these emissions are unregulated and may violate air quality standards. Heavy vehicle traffic damages roads and throws up dust.

The biggest headache for many landowners is water disposal. Just as popping the top on a can of cola frees the dissolved carbon dioxide, pumping water from a coal seam to the surface frees the methane from the ground (HCN, 9/25/00: Colliding forces: Has Colorado's oil and gas industry met its match?).

As of last March, well operators in the basin were pumping 1.85 billion gallons of water to the surface every day, causing an ironic problem: how to dispose of water in an arid landscape. In many places, the wastewater contains dissolved sodium, calcium and magnesium, and cannot be used for irrigation or dumped in waterways.

In Colorado, coalbed methane water is reinjected into deep strata, but in Wyoming, state law does not require reinjection, and some coalbed methane operations have flooded hay meadows and killed trees. Other operators build reservoirs on private ranchland.

Once coal deposits are dewatered, says Merschat, gas migrates toward the surface in any direction it can, not just up well bores. It is odorless, colorless, tasteless. It can accumulate in buildings. The potential result? "Boom!" says Merschat, throwing up his hands.

A more mundane, but widespread, problem is salt. The state of Montana is worried about elevated salt levels from coalbed methane water in the Powder, Little Powder and Belle Fourche rivers, which flow north from Wyoming.

Then there's the way coalbed methane fields look. Each well pad may contain up to five wells, one for each distinct coal seam. Structures the size of garden sheds shelter the wellheads. A road leads to each pad, along with a gas-collection pipeline, a water-disposal pipeline and a power line. Every few hundred acres, larger buildings house truck-sized compressors to pressurize the gas for transport. At wells without electrical power, a refrigerator-sized portable power generator is required.

To understand what this sort of infrastructure does to the landscape, "visualize it as 80-acre ranchettes," says Mickey Steward. She is coordinator for the CoalBed Methane Coordination Coalition, which is composed of five county commissioners, two conservation districts, the state of Wyoming, and a representative of the industry. The group describes its goal as "effective information transfer for rational development of coalbed methane."

The simplest solution

The prospect of energy ranchettes blanketing the Powder River Basin horrifies many who live here. "This will turn into an industrial site," says Dale Ackels. A 60-year-old retired Army officer, Ackels raises hay on 100 acres along Lower Prairie Dog Creek, north of Sheridan. A New Jersey company owns the mineral rights beneath his land.

Although he has not experienced coalbed methane drilling on his property, he is surrounded by wells, and expects it will only be a matter of time. "I'd be more comfortable with this," he says, "if the state of Wyoming had said, 'We have this wonderful opportunity and we're going to slow down and look at our options.' The approach Governor (Jim) Geringer took was basically to try to slicky it by us. We're hunting for the easiest, simplest solutions the gas companies will approve."

The state of Wyoming, which has no income tax, earns 40 percent of its revenues from energy production. Because the Powder River Basin has been an energy source for decades - and a major source of state funds - there has been almost no public debate in Wyoming about whether coalbed methane development is a good idea or how it should proceed.

If state officials had any doubts, the numbers have convinced them: In 2000, the state was $183 million in the red. In 2001, Wyoming ran an estimated $695 million surplus, thanks to greatly increased energy production and prices. Coalbed methane now accounts for 12 percent of natural gas production in Wyoming - worth about $26 million in state revenue this year - and that number is likely to grow.

Gov. Geringer, R, has insisted that state agencies not stand in the way of development, saying the state would speak with a "unified voice" to move development along. In November 1999, assistant Wyoming state-land director Harold Kemp sent out a letter encouraging drilling companies to "Go Blue!" - to drill on the state sections, marked in blue on most land-use maps, rather than wade through the cumbersome permitting process for federally owned gas.

Dennis Hemmer of the Department of Environmental Quality insists that "Wyoming has done coalbed methane development right." He cites Wyoming's Aug. 1 agreement with Montana to monitor salt levels in the Powder and Little Powder Rivers. If levels rise, he says, Wyoming will take action to get them back down. The agreement doesn't specify what that action would be.

But the state's boosterism hasn't just increased the number of wells in the basin. It's also created an enormous regulatory rift, one that the gas industry is exploiting to full advantage.

The state of Wyoming typically owns two square miles-worth of surface and mineral rights in each 36 square-mile township, while the Bureau of Land Management owns over half of the basin's mineral rights and 10 percent of the surface area. Private owners control the balance.

Though the federal government controls the lion's share of the resource, it has been slow to join the coalbed methane game. BLM officials have suspended drilling while they conduct an environmental impact statement on the 50,000 coalbed methane wells expected to be drilled on federal gas holdings in the Powder River Basin in coming years. That study isn't due until July 2002.

So the coalbed methane frenzy in the Powder River Basin has a patchwork quality: Coalbed methane developers have drilled on state and private (known as "fee") mineral holdings, but not on federally owned coal deposits. This has created a problem known as drainage, where gas on federal mineral holdings drains toward and eventually up the wells on adjacent state or fee mineral holdings.

"In some places, we'd lost over 60 percent or more of our minerals over about two years," says Richard Zander, assistant field manager at the BLM office in Buffalo, which collects a 12.5 percent severance tax on coalbed methane production. "We were losing about $45,000 a day in (federal) royalties."

BLM officials completed a stopgap environmental assessment in March 2000 that permitted 2,500 wells to recover BLM-owned gas in the eastern part of the Powder River Basin, where the drainage is worst. The idea was to get those wells in the ground before surrounding state and fee wells took all the federal gas.

"You have to drill to protect yourself," Zander explains.

That argument makes environmentalists apoplectic. "I think that what went on up there was openly dishonest and deceitful," says Travis Stills, research director and staff attorney for the Oil & Gas Accountability Project in Durango, Colo. The BLM, he says, could have charged adjacent drillers for any federal gas they withdrew. "This was an end run around the need for an environmental impact statement."

The net effect of this mixed ownership and uneven regulation is that the boom feeds the boom: Once drilling starts, adjacent mineral owners are under pressure to drill on their own property or risk losing their gas to their neighbors. Even those who want to go slowly may not be able to afford to do so.

"We can do the federal review, but if we don't have the same constraints on state and private land, I don't think we're doing the Powder River Basin any favors," says Willy Frank, who supervises the dozen BLM staffers who monitor coalbed methane drilling and reclamation.

Frank is careful to make notes when he visits a well site, filling out complaint forms about a poorly built water bar or an improperly located water discharge point. But his concerns seem oddly small in a radically changing region. Landscape-level issues do not seem to be on the BLM's radar screen.

"Never before have I dealt with an environmental issue where the big picture was so obfuscated," says Mark Gordon, manager of the 22,000-acre Ucross Ranch north of Buffalo, a veteran of Wyoming environmental battles and a member of HCN's board of directors.

A horse trade with industry

"If my (drinking water) wells that have been here since 1915 go dry," hay farmer Ackels says evenly, "I'm going to sue the bastards, if only so I can face myself in the morning."

Many frustrated ranchers have turned to the 1,000-member Powder River Basin Resource Council, created by a local rancher in 1973 to address the impacts of strip-mine development. The group is the lead environmental player in the basin on coalbed methane development; it supplies ranchers with information and has testified on Capitol Hill about the industry's impacts.

Although ranchers tend to view environmental groups skeptically, says council organizer Jill Morrison, her group works closely with the Lander-based Wyoming Outdoor Council on coalbed methane issues. The Wyoming Outdoor Council has filed suits charging that coalbed methane development is illegal because the BLM never planned for it, and that the state of Wyoming is violating the Clean Water Act when it permits the dumping of coalbed methane water. In mid-October, the Outdoor Council released its own plan for how best to balance coalbed methane development with other values, including landowner rights and environmental quality.

But even organized opposition hasn't made a visible dent in the energy industry. Drilling companies that have leased mineral rights are supposed to make deals with landowners to cover the costs of surface disturbance, but those surface-use arrangements are largely unsatisfactory, many ranchers say. Typically, drillers pay a one-time or annual fee of a few hundred dollars per well pad, plus fees, based on their length, for roads and pipelines. If landowners don't want to deal, drilling companies can get a court order to force access, although such legal actions are rare here.

Surface-use agreements can be a good deal for surface owners, says Terrell Dobkins, vice president of production for Pennaco Energy. The company, a subsidiary of Marathon Oil, has drilled 1,400 wells in the basin. In congressional testimony given last August before the House Subcommittee on Energy and Mineral Resources, Dobkins detailed a "representative" agreement with an unnamed rancher in which he claimed Pennaco will pay $110,000 this year for surface damage associated with 80 wells, and $80,000 per year after that. "This amounts to $390 per acre actually disturbed," Dobkins said.

Many ranchers dispute just how "representative" such a deal is. With approximately 80 coalbed methane companies working in the basin, the deals ranchers get range all over the map. "There's a huge, wide, incredible variation between the surface-use agreements that are made," says Mickey Steward of the CoalBed Methane Coordination Coalition. "It's a horse trade."

Good surface-use agreements have helped bail out some basin ranchers, many of whom are suffering financially from drought and low cattle prices. The real potential winners are those who own their mineral rights; they may earn tens of thousands of dollars per month in royalties.

"I'm all for it," says Jack Cooksley, a retired rancher who has seen 22 wells drilled on his land, which runs along Piney Creek, west of the town of Ucross. "I think anything you can develop in the country is good if it doesn't damage the country. The people who are against it are the people who don't own any of it, and the goddamn do-gooders."

Cooksley, who owns the mineral rights to his land, says he hasn't had any problems with the way drillers treated his property and isn't worried about the roar of a nearby compressor building. "Every time you hear one of those things," he grins, "they're going to talk money."

But Patricia Clark, who owns some of the minerals on her 50,000-acre T-Chair Ranch in the southern part of the basin, has spent $50,000 fighting a court battle with coalbed methane developer Wyoming Resources over an alleged breach of contract.

Clark expects to cut her cattle production by one-third as a result of the disturbance and loss of pasture. "If they produce big wells, it would probably more than compensate for the loss of the livestock," she says. "I have to wait and see what really happens."

Even Pennaco's Dobkins concedes that surface agreements can't fully mitigate the effects of coalbed methane. "Coalbed methane development is definitely an infringement on privacy," he says. "It is difficult for an operator to put a price tag on that privacy, so it can create a tough situation for both parties."

Inevitable development

Coalbed methane opponents say that if demand for natural gas stays high, major development is going to roll forward in the Powder River Basin.

The only event likely to short-circuit Wyoming's latest energy boom is a drop in gas prices, and by early autumn, that seemed to be happening. Prices for natural gas fell from a high of $10 last winter to a little more than $1 per thousand cubic feet. The number of coalbed methane drill rigs in the basin dropped from 130 in July to 105 on Oct. 2, starting rumors that Wyoming officials were facing a 2002 budget deficit.

Though an extended economic recession could slow gas production in the Powder River Basin, industry analysts say a rebound is likely: In August, the U.S. Environmental Protection Agency announced it wants coal-burning generating plants to cut emissions by up to 80 percent, a rule likely to push power producers - which now rely on coal to generate half the nation's electricity - toward cleaner-burning methane.

"We're not going to have the rolling blackouts," says Miles Keogh, who manages the 27,000-acre Fence Creek Ranch near the Montana border. "We'll pay the price, do whatever it takes, and it's going to happen. As far as standing up and saying, 'Hey, we're going to fight this thing,' forget it."

"The whole thing will become a giant Superfund site," Dale Ackels predicts bitterly. "I spent my life in godforsaken Army posts all over the world, and one of the things that kept me going was the idea that I was coming back to the Rockies. This is where I wanted to be."

When the coalbed methane wells play out in 10 or 20 years, Ackels expects them to be abandoned. Most companies have few assets and are required by the state of Wyoming to post a mere $75,000 bond for all their operations on fee lands, and a maximum of $100,000 for drilling on state lands. It's enough money to plug a few wells, no more. With abandonment will come a host of environmental problems, including poorly sealed wells and gas pollution in soils.

"There's a reason they're limited liability companies," Ackels says. "They're going to be off to Ulaan Baatar saying, 'Thanks, Wyoming, give us a kiss, don't forward our mail.' "

They will also leave behind a permanently altered landscape. Though Anglo-Americans have been running cattle and sheep and drilling and digging here for more than a century, there is a wild beauty in the basin. Away from the coalbed methane wells, there is no noise, few power lines or vehicles, no pollution, and almost no one else.

"This is country where normally I could spend months out there and never see anybody," says Dave Clarendon, a Powder River outfitter and rancher. "It's never going to be the same."

Mickey Steward, the county consultant, believes that ranchers can place a dollar value on their quiet, lonely landscape. "I think for people to communicate they have to have a common language," Steward says. "How much is the wildlife worth, how much is the view worth? Those are all quantifiable."

Yet Clarendon scoffs at such an approach. "How much is a 400-year-old ponderosa worth?" he asks rhetorically. "It will never come back in our lifetimes."

An answer of sorts

Despite the widespread fatalism in the ranching community about this new energy boom, Miles Keogh, the manager of Fence Creek Ranch, is optimistic about coalbed methane. Ranchers can't count on state or federal regulations to protect them, says Keogh, but those who understand how they want their ranch to look and function can hold drilling companies responsible for that outcome.

He refuses to accept the conventional wisdom that surface owners don't have power here. "Those guys have power that is unbelievable," he insists. "And they're the only ones that have the power, because everybody else wants the money."

That philosophy underpins an extraordinary surface agreement Keogh wrote with a drilling company called First Sourcenergy, a wholly owned subsidiary of the Canadian company Gastar Exploration Ltd. It specifies who gets access to the wells, when and how (on four-wheelers, since there will be no roads to the wellheads), and how the company may use the excess water (for cattle-watering, riparian restoration and native forage production). It also details how the company will site, construct and camouflage its wells, and it requires the company to manage them remotely, using telemetry.

The agreement creates a company-funded cash account, rather than the usual bond, that Keogh can draw upon to fix any problem the company doesn't deal with. And it promises a steady revenue stream for the ranch, a percentage of gross income from gas sales in lieu of surface-damage payments.

Keogh says contracts should hold drillers responsible for a better outcome, not set out this rule and that rule.

"Ranchers should not grab the money to the point of getting greedy," he says, "but they should do so to the point where they're doing really well, and the land above the methane has better integrity than it does today in terms of water, wildlife, raising cows, the whole works. (This should be) a better ranch after methane and during methane than it was before methane.

"It's not going to be the old ranch that you rode out on and there was nothing on it," he concedes. "Those days are gone. But you can do a lot to mitigate that."

Buck Brannaman, sitting easily in his saddle at his Sheridan ranch, agrees that ranchers should get a bigger piece of the pie. "Everybody knows they (drilling companies) are going to make a million dollars a year per well," he says. Ranchers should get at least 5 percent of the gross, he says, so they can do reclamation work themselves if the drilling companies don't.

Keogh is preparing to share his approach with other landowners. By hanging together and hanging tough, he says, ranchers can set a standard for how coalbed methane production will happen in the Powder River Basin.

But other ranchers wonder if the ranching community's traditional independence will make it hard for them to cooperate - as they will need to cooperate - in the face of this latest energy boom.

Like coalbed methane development itself, Miles Keogh's outcome-based strategy is a grand experiment. Even if ranchers can force the coalbed methane industry to take care of surface owners, the landscape of the Powder River Basin - and the lives of the people who work on it - will be changed forever.

 

Hal Clifford writes from Telluride, Colorado, and is a frequent contributor to High Country News and Writers on the Range.

 

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