All right, with that, I'm gonna call to order the town council meeting on June 2nd, 2026.

This is a study session, and we have one item to discuss tonight, and that is the potential sale of the town's mineral rights.

Um and with that, I've got a few comments uh logistically that'll probably be um important to many people here.

First, um we're not gonna be making any decisions tonight.

Um if we come we come out of the study session and we um 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 uh made at that particular meeting.

The terms of the agreement were settled today, and so um it is back in our attorney's hand.

Um who will be looking through it um tomorrow.

Uh 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 um feedback from the community on the actual agreement.

We're also working on a QA document uh for all the questions that have been asked.

It'll be updated based upon the discussion here tonight.

Uh so the goal is to also get that published this week as well.

Um for tonight's meeting.

Um we are also gonna have the opportunity for the audience to ask questions that have not already been asked.

And so uh Debbie is here, she's got uh note cards or posted, she's gonna hand them out.

And what I'd like you to do is write down your questions, even write them down now, one 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 um 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 um everybody at the table here to introduce themselves tonight.

Maybe the council members can just also say what district um you represent.

Um and then uh we'll launch into the presentation uh with Mr.

Franks.

John Mortalaro, uh council member district one.

Matt Owens, I'll meet a mineral advisors.

John Sullivan, Sullivan Green, TV Jarvis.

Outside counsel for the town.

Council member district two.

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

Brian O'Connor, Council Member District Three.

All right, and if I didn't say it earlier, I'm answering more on the mayor of the town.

All right, with that, I'll turn it over to Mr.

Frank.

All right, uh, thank you so much, Mayor and Council members.

Uh so uh this will be a lot of this material is is the same as we discussed a couple of weeks ago uh in the open question and answer format.

Um but we want to review it here again.

Uh there's also a lot of new information.

Um thank you, John and Brina for making some of this available uh this afternoon.

So um quick quick recap.

Uh I first heard uh about Draco probably would have been early to mid-2023.

Um obviously uh there was a lot of work by the operator um well before um I or Weld County uh heard of that, but I was informed that there was an application uh to Weld County for a facility just outside of Erie.

Um that began conversations with uh then civitas, uh now SM Energy Um about what that facility would look like.

Um what engineering control would be present, uh etc.

Well 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.

Oh, sorry.

The Energy and Carbon Management Commission, formerly COGCC, the Colorado Oil and Gas Conservation Commission.

It's the portion of the Department of Natural Resources at the state of Colorado that oversees oil and gas regulation and production.

And that is the permit to construct and operate the surface facility, which is which included 26 wells, associated separators, other equipment at that location, which is just outside of Erie's municipal boundary.

After that, then the state's procedure is uh is to then get into the what happens underground, and that's through a form two, uh, 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 pool the mineral interests that was defined in the spacing unit.

Um, obviously, oil and natural gas are liquids and they flow.

So it's not like hard rock mining where you can mine this property and not that one.

There's a certain area of influence to these wells.

Uh, and so in the state of Colorado, other states do this differently, but in Colorado, um, within the spacing unit, the operator is obligated to demonstrate that at least 45% of the mineral interest is uh either within either owned by the operator or leased to them.

Uh sometimes that's through a sub-lease from another oil and gas company or or uh mineral rights holder.

Once you've achieved the bar of 45%, uh the other up to 55% can be what's called force pooled, uh, 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.

Um if they decide, hey, these lease terms aren't 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 um there is a standard agreement that the state of Colorado has defined that 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 uh force pooling of local government owned minerals within the jurisdictional boundary of that local government.

This is a right unique to local governments, who of course we own minerals that are not the town of Erie's per se, but in fact belong collectively to the residents of Erie.

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 I know that was a lot, but I think it's important background information.

Um in the spring of 2025, um, we were approached um with an offer uh to purchase a portion of our mineral rights, namely those mineral rights that are within the the Draco spacing unit that are proposed for production.

We we uh consult we hired two consultants, um, one um 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?

Uh and we also hired a gentleman uh who specializes in in assessment of mineral rights valuations.

Um that report, which was reviewed, I want to say over the summer in executive session by this council essentially said 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 town enjoys due to this statute.

Because the normal procedure is you're made an offer, you can make a counteroffer.

If both parties declined, you end up force pooled.

So there's a real incentive to come to terms.

The leverages with the oil and gas producer in normal circumstances.

In this circumstance, the leverage instead shifts to the to the local government.

Because if our terms are not reached, if if the negotiations are unsuccessful, 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 year, 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 to sell these mineral rights or not.

That's kind of where we stand.

So let's let's talk about Draco.

Draco exists or will exist, I should say.

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 currently being constructed neighborhood of Westerly.

Draco will will drill 26 wells down between 7500 and 8,000 feet, depending on the specifics of the geology, into units called the Niabrera and Codel formations.

This is again a mile and a half down.

And then westward over four miles, not quite five miles, nearly to highway 280 287.

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 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 these are the existing bores that have been advanced in this part of the DJ Basin.

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.

And I'm just kind of showing here that where we sit in Old Town.

This was this was drilled under in I believe 2017, maybe late 2016, from the Becky Sosa pad, which is just north of us, a couple miles, uh just off County Line Road.

Yeah, most of Erie's neighborhoods have been drilled and fracked under, either before they were built or in many cases after.

As you go to the other side of I-25, you can see it's it's pretty much everything, and you can imagine these pieces here and there that don't have yellow lines, probably will eventually.

I've now regret that decision.

Uh there are a series of blue X's within that purple box.

Those represent uh 22 existing, mostly very old oil and gas wells, who 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 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 and abandoned within five years as terms of the oil and gas development plant, the permit granted by the state of Colorado back in March.

There are also a series of red X's here.

Those red Xs are 17 wells, which are part of this negotiation.

Should the town decide that this is that this uh that this is in the the interest of the town.

These 17 wells will also be plugged in abandoned.

And I know what you're saying.

Hey, I've counted your X's, Mr.

Frank, and these these numbers don't add up.

A lot of these X's represent um pads which have five, six, seven wells.

So you're gonna see a lot fewer X's because at this scale, these wells are 10, 15 feet apart.

So it's there are 17 X's, but they overlap each other to the degree you can't see that.

Um these 17 wells are are again old legacy facilities.

These are these are old wells that don't have on site leak detection, don't have remote shutoff capabilities.

Uh most of them produce not directly into pipelines but into large tanks on site, trucks have to come and empty those tanks.

Um this is aging um aging equipment more prone to leaks.

Uh and those leaks are found uh when the operator uh 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 maybe 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, pressure spikes, changes in temperature.

Um first 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.

Um and it's very much in our interest.

We've been working really hard uh for years to get these old what we call legacy wells plugged and abandoned and and off the books and out of the town.

These 17, uh, in addition to the to the 22 already uh within the permit, essentially represent all of the legacy wells owned by SM Energy.

So we still have a handful uh 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 but this is this is you know in my mind a uh 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 uh for the operator to plug and abandon these facilities.

It costs money to plug them.

Um when they plug them, that frees the the mineral uh 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 70s.

So, yes, they will eventually be plugged and abandoned, as will every well in the state of Colorado.

Um, but the timeline of when that would occur uh without this agreement is very uncertain.

Um certainly a longer timeline than with this agreement, um, and then and it could be in some cases many decades before these wells are retired.

So yes.

Um in what neighborhood or what area are the see the cluster up in the yeah?

So this is uh Kenosha Farms, Erie Village, that area.

So this will pretty much remove all production facilities from those neighborhoods.

Um there's also a well, it's a bit hard to see.

Um basically at the where the laterals come up to the northwest and then make a jog due west.

That facility is at the corner of Erie Highlands, um, where the where we're gonna be uh where we're developing some some commercial activities out there.

That's great.

And there's the one down there in Park Dill.

And then there's the the one to the south.

Yeah, it's it's kind of near the airport, it's on the eastern side of County Line Road.

Um, but that facility in 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 uh opening up there.

of Erie Highlands where the where we're gonna be uh where we're developing some some commercial activities out there that's where the one down there in Park Dill and then there's the the one to the south yeah it's it's kind of near the airport it's on the eastern side of County Line Road um but that facility in in Erie Highlands that is very much a productive facility um that is right next to the residents of of Erie Highlands and will be right next to the business's uh opening up there the Erie Highlands um 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 and I'm glad to see that well potentially uh going to be plugged in abandoned when was that one drilled late oh I'm sorry don't worry this way I just don't know that off the top of my head I think what I'm gonna try to do is let David get through this presentation and then we can come back to the QA portion I believe 2011 so not the oldest well in the world it's again still got another five 10 15 years of of productive life it's certainly not low producing okay so the town's mineral rights um the town has plus or minus 183 acres of mineral rights about 80 acres of already leased 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 estate 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 the blue area those are already under lease terms in many cases those leases were signed prior to those town those lands being dedicated to the town and in some cases those leases were entered into by the town in the early 20th century.

So those areas that in blue those would those are subject to to production uh regardless of what the town decides today and if the town does not sell uh its mineral estate then we will receive production royalties per the terms of those leases um the orange areas are those that are subject to this uh relatively new um act by the the state of colorado uh whereby those areas could not be forcibly pooled they could be leased they could be sold they could be voluntarily pooled but they can't be forced pooled so those are the areas that are that are really uh the focus of this so the contents um of of the potential agreement obviously we've discussed the additional 17 wells that will need to be plugged in abandoned the timeline on that I would have to refer to uh to council so the um Draco plugged in abandoned wells will be within one year of commencement of operations for the Draco ATD the non-Draco wells will be within five 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 um there's 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 um if the council approves this deal the this particular well is located on one 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 parcel which would then trigger the date or the later date would be January 1 2030.

Both.

The answer is both.

Monthly during drilling and production and then quarterly during just production.

Right, which is the frequency at which we we inspect most facilities in the town.

If you if you will, that would that would be through Weld County in the state of Colorado.

But that's but that's fine.

I have no issue with that because the state of Colorado will obviously enforce its regulations.

What's important is that we can find those issues.

And if anyone's been reading our inspection reports, in basically every circumstance, every single circumstance 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 any sort of punitive penalty.

As far as compensation, there are three parcels currently owned by a subsidiary of SM Energy that would be needed to the town.

About 158 acres, they're near County Line Road.

I've got a figure coming up to show you those parcels.

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.

And so when or if these parcels may ever become available to us or anyone else who would like to develop them, is really hard to say.

But uh royalties and taxes are paid at the location that the oil exits the ground, which is in Weld County.

So Weld County will benefit from uh from taxation from uh the sale of this oil and gas.

Uh Erie has negotiated a cut of this as well to the tune of two percent.

I know it's pretty complex, the actual terms.

I don't really want to get into that.

Yeah, it's 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 facilities actually profitable before we start taking our cut.

But if you map this out, uh it results in something like 17 million dollars uh over the course of the of the facility, which will be 20 plus years.

Um these wells, uh, 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, you probably get half in the first five years, another quarter in the next five years, and then less and less and less until you're getting checks that are two dollars and sixty-seven cents once a year.

Uh, and then an upfront cash payment of 4.5 million dollars.

Uh this is the location of the three parcels.

Um, I'm happier with my color choice here.

The bright green really stands out.

Um parts of these lands um are adjacent to existing open space and within the floodplain.

So they'll they'll probably that'll probably be their fate is to be added to Erie's open space uh portfolio.

Uh but a lot of them enjoy uh you know being right along uh that stretch of county line road that is already we've already seen some commercial development.

This will help uh move that south, and obviously the location of the airport is critical too, um, given uh the geographic location of these of these properties.

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 landman, that's not my uh forte.

Um here's kind of a close-up view uh of these.

Um there are some existing oil and gas facilities uh on these parcels, those will all be plugged in abandoned either per the original uh oil and gas development plan with the state uh or uh through this through this agreement, should it be adopted.

Okay, so um that's that's basically the nuts and bolts of what happens if we do sell.

And obviously, those parcels can be developed at the town's discretion, future tax revenues, uh, etc.

etc.

Um, as well as businesses that uh the residents can patrise.

If we don't sell, um again, we would receive royalty payments per the the terms of the leases uh in existence on those on those leased lands.

Um and again, the unleashed portions could not be forced pool, those those hundred acres can't be pooled uh 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 first time the state's dealt with the repercussions of passing this law.

I can speculate a bit.

Um it could be that the overall direction of those laterals changes 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.

Um, and you produce everything around that, but you never never get underneath the the town's unleashed mineral rights.

That's that's one way it could be done.

Um 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.

Um I don't know what the town's position on such a proposal might be.

Um, but those are some of the ways I could see them being avoided.

At the end of the day, if the if the town wanted to make uh an accusation that no, no, we think our minerals were I think our oil was in fact produced.

The the burden of proving that would fall to the town.

We would be we would be um accusing trespass.

And and of course, us as the the claiming wrong would have the burden of proof.

It's 7500 feet down.

That's gonna be a tough, a tough hill to a tough bar to meet.

I'll say that.

So the next steps uh sounds like we'll be back in two weeks.

Um give the public a chance to read this thing in its entirety.

Um, and we will bring uh a proposed ordinance for consideration by this council.

Um obviously that'll be a public meeting, so there will be public comment um taken, and I assume vigorous discussion by this council.

Uh if no agreement is reached, then there's not really anything else to talk about here until we see uh 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.

No.

Nice try.

Now the the questions begin.

Of course.

And I'll answer as many as I'm capable, and I'm sure everyone else at the table uh will have things to say too.

All right, um, we're in a study session format because I find it uh much more conducive to having a conversation.

And so um, I'll lightly facilitate this.

Um 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 uh to uh group the questions for the audience.

Uh once again, you should have a note card.

Um, 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.

Um, we definitely want to hear those questions so that we can uh hopefully shed some light on on those as well.

All right, with that, um I think I'll just open it up to council.

Um if anybody would like to start the questions airport answers.

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 we 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, and it could deplete those minerals.

The answer to that question sort of hinges on the definition of deplete.

Well, uh would boost depletion.

Could some incidental production occur from an adjacent property, either outside the spacing unit or these parcels owned by the town?

It's entirely possible.

Um weird things.

Um there are existing fissures.

Um it's a non-isometric porosity and permeability issue.

The rock is non-homogenous and the oil will flow where it wants.

Okay.

Yeah.

On that question, I'm gonna bring Matt Owens into the conversation.

So just so everybody knows Matt Owens used to be the chief operating officer for Civitas three years ago.

He has his own business which um deals with mineral rights and um basically acting on behalf of the mineral right owners.

Uh Matt was brought in for his unique knowledge of knowing the inside workings of a civitas.

If you're negotiating, you always want to have information um from those you're negotiating against.

So, Matt, um, I would love uh 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 Niabara formation and the Codell, they're they're micro-Darcy permeability 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 years is they kind of have you go anywhere from 200 to 460 feet from lease line boundaries.

So um, you know, if you if you're a company and you own on both sides, then you can go closer.

But um typically, if a company's permitting a unit to drill and they don't own anything offset it, um, the the state usually allows you to 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.

Okay.

All right.

So kind of on that question, um, I 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.

Yeah, um, David tried to address this, and um, it's 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 two 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 thousand feet where eerie minerals are, but they'll do either side of it.

That thousand-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, um, probably within 200 feet or ish on either side, also.

Um, and and that would be the production of the where the well is coming from.

And the other option is if they can, they can just steer around the pieces.

So it's uh it's probably isn't the best map to look at, but if you look at the one that shows the orange on there, um they can turn these wells in 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 tetra shape, they can make them turn 180 degrees and do U-turns.

Um, those are kind of all over the the basin now.

So they have the ability to get pretty crafty with where the wells go if um if that's the way that they want to move forward.

So they could basically go through them and in the sleeve that they put in the bore, they don't perforate.

So you have solid steeling, yeah.

So or they could take that and drill around it and still go west, just not go through go through, depending on how they felt ECMC may allow to take.

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 um they would have either option here, and I think they would have discussion with the ECMC 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 my guess.

Yeah, okay.

So let's go to the attorney and then we'll go to council member bear.

The other factor that bears on this is the stat the language of the statute itself, because it it basically says if the municipality does not want its minerals force pool, refuses to lease, then the commission shall deny the pooling application unless it is amended to not include the 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.

That 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.

Um, so it's my understanding the town has the right to uh grant a subsurface easement, or that SM energy would have to apply for a subsurface easement underneath town owned or property and or town owned minerals, is that right?

That that is correct, yes.

If the town were not going to lease the minerals, then there would need to be some sort of an easement granted by the town.

And so if the top what does it look like if the town doesn't grant an easement?

Then you shouldn't be drilling through the town's driver.

Basically, yeah, because it would be a subsurface trespass.

Subsurface trespass.

So what does that mean?

Does that also grant grade the town perhaps the ability to have surface monitor surface impacts as well?

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

I wrote it down better than I just asked it.

Okay.

Um so is it possible?

I'm gonna find it though, where I really don't.

Oh, here we go.

Do we have the authority to regulate surface concerns and risks of a pass-through board under our own um oil and gas regulations?

Our title 12.

If there were surface impacts, yes.

Yes, but it's yeah, it's a mile and a half.

It's yeah, I I think at that depth, it's unlikely there'd be surface impacts, but um, as as David was saying, rock fractures things do come to the surface.

Yeah, um so but that subsurface easement would have to be um granted in order for them to go through our so that's it's not entirely up to SM energy or the state, the town area has some say for the 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.

Okay, so if I really understand this conversation, first the law says you can't go through it.

Second, um, if we don't agree to this.

Second, um, if for some reason we said, okay, we don't want the minerals, you can go through it, then we need to have this subsurface lease.

There's no reason that I can see that that would happen.

They would go around us, or am I missing something in this conversation?

Uh if they want to go through your property, they need permission to do it.

Totally.

They get that through a lease through an easement, a license, something like that.

Right.

It 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, um would require us to do a subsurface lease, so that's not gonna 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 run it back to us.

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 all this area right here.

Yeah, it gets drilled through that isn't leased.

There's no easements granted out there, right?

So how can it certainly allow 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 but it 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.

Like, what is the final answer for this one?

Can they go around?

And if they go around, how far, like you said, some miles.

Or then you showed that it is they're already doing it without permissions.

I've 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 with these questions.

But I think the path of least resistance from their standpoint would be just to go around around it.

Yeah, that avoids all these all these nasty questions for sure.

It also costs more.

Okay, I'm gonna come back to John because I think you had other questions.

Um not on that okay.

So I I can ask it later.

Let me make sure that we'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 uh a conflict of interest uh hiring Matt uh as uh our consultant on this.

Is there any conflict of interest uh from the the town standpoint?

The town defines conflict of interest uh from the perspective of uh the town council members, town board and commission members, and town employees.

It does not put a conflict provision on any other entity than those entities.

And so Matt, is there any conflict between you and SMSM energies?

Uh to you being an art consultant, not that I'm aware of.

Okay, so and they've been negotiating with with you with with no concerns.

Do you own stock and SM energy?

No.

You don't own stock in SM energy?

Nope, neither directly nor indirectly.

There's no more Civitas stock, but I don't know.

All right, other questions.

Um 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 I think what what everybody needs to know about the agreement with uh Alamina Minerals is that alameda minerals makes zero dollars unless we strike a deal.

So it's 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 incentive, it's incentivized uh to be acting in good faith with us.

No, it doesn't actually, because when they get paid, they're getting paid based on the information that they're using from the company, right?

Well, yeah, this on negotiations they're getting paid because of so you want me to finish, or you want to interrupt?

Yeah, no, keep going.

So it's not the same thing, right?

No, it's not getting paid if uh the sale doesn't move.

No, I just all the interest is for him to get this through.

Yeah, when when I'm 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 and the smartest team is often people that know the other side really really well.

And so um that's I mean, 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 Civitas's SM energy perspective?

Yes, no.

So all this information is public information that is using in the deal.

It is information that uh Alabama Minerals has the ESU was submitted the EMCMC long ago.

2024 approved March of 2025, and all that's public information.

Oh, yes, yeah.

Oh, yes, yes.

Okay, other questions.

Yeah, um, so kind of easy one.

The real estate valuation, we have appraisals on that.

Completed last year and this year.

Like December to a month ago.

They're they're very recent.

Okay.

Thank you, Julian.

So you say we have 103 royalty acres that are proposed to be a part of this deal.

Yeah, the the full, I guess I don't have a copy of the deal in front of me.

I think it's a plus or minus 183 total acres of mineral estate.

103 of which are currently unleashed.

Um and roughly 80 of which are subject to existing.

Yeah.

And what I'm not sure something well have to be an estimate.

Do you know what percent of the total Reco area that might represent?

Oh man, I wrote that down.

Uh the unleashed area is like five percent.

It's uh 3700 acres, and we're looking at a hundred acres of that.

Um the one the drilling and spacing unit that was approved last March for March of 25 was 3951 acres.

There's a current uh amendment application to reduce that acreage to around 3680, 3690.

Yeah, the unleashed portion would be 2.7 percent.

Yeah, okay.

Now to avoid that area, you're gonna have a larger area that's gonna have to be excluded.

Um let me just do some real quick drafting.

You're looking at maybe 300 acres, so 10 percent, a little less than 10 percent, eight percent of the of the full spacing unit would probably have to be avoided to avoid our 2.7 percent so 90 percent of the spacing area could could move forward into production, and we'd prevent production on about eight eight to ten percent would how much of that would require going around our properties in a haphazard zigzag kind of a way.

I I'm not gonna speculate how they're gonna propose avoiding our property.

I I don't know.

I don't know to what degree that would increase potentially the length of laterals.

Um of Erie's primary concerns are that these laterals are very long, the longest attempted in the state of Colorado.

Um is it in our interest to make them longer?

All right, so to put this in sort of context, um our oil royal our royalties were rejected to be 17 million-ish over time at 2%.

That's 850 million dollars of gross revenue.

If we're 2.7 percent, okay.

This is about a 31.5 billion dollar transaction or project for SM Energy.

Sure.

I mean it's that's probably uh more yeah, gross gross proceeds, right?

I don't know.

Uh I mean their gross revenues on this pad will probably be somewhere in the neighborhood of one and a half billion.

What number did you say?

Um council member hope?

31.5 million billion.

Sorry.

So you're saying 31.5, you're saying one 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 17 million to the town of Erie at 2%.

That implies that's 850 million.

Okay, sure.

And that's only 2.7% of the whole project.

So the whole project backwards math, 31 and a half billion.

You did that twice.

Yeah, yeah, you just do it once.

Um 17 million divided by 0.02.

But yeah, we're getting the point of two percent.

We're getting two percent of the total proceeds of all the production.

Oh, not just our share.

Yeah, that's right.

Everything everything that comes out of the tap, we're getting two percent of that.

Which we think will be 17 million, projected, could be a little more, a little less.

Is that all right?

Depends heavily dependent on the current price accrue, which has been volatile.

And then the 17 million, that was calculated before the Iran contract uh conflict, right?

Yeah, that was back in like January.

So that's that's assuming things go back to a regular stable market that we enjoyed in 2025.

$60 ish a barrel, I guess.

Is that what's state?

What was stable before they ran?

Well what we used was we were like 65, and it gradually stepped up to about 74 over like five-year period.

But not the 105 or 10 that we've been seeing recently.

Um so where do we stand with the title work?

We 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.

Um, there is a provision for what we're calling the disputed minerals.

There's a 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 uh 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.

Right.

Um so but at some point here in the next couple weeks, we'll get a full map with parcel numbers and everything that's being sold.

That's that's this map.

I can give you all the parcels if you like.

Okay.

We believe it is complete, but the title work might show something different.

We don't believe that is that is the case, but it's theoretically possible.

Are any of those highlighted areas parked or 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?

Sorry.

Hang on, just a second.

I need to get on to my laptop.

Absolutely.

In 2022, well, I said that, and now I'm gonna speak extemporaneously, which is not a good idea in 2024.

The council, the then council pass ordinance number 017-2 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 findings of fact, the town noted that the current agricultural and 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 act?

There is no AGOS zone parcels.

So there's no other OS whatsoever.

Not in this area, none of these parcels are zoned as ag open space.

Most of them are under PD overlays.

So they're all mostly zoned, either um medium residential or uh PD.

Okay.

Um what competitive bids in comparative analysis that we have.

I'd probably refer to Matt on that one.

We received a formal lease offer from Civitas, which we declined because it was a pretty standard lease offer and didn't wasn't reflective of the town's uh leverage position because of the legislation.

Um we received I think two other formal lease offers from other oil and gas companies for parts of the estate, um, not the entirety.

probably refer to that on that one i we received a formal lease offer from civitas which we declined uh because it was a pretty standard lease offer and and didn't wasn't reflective of of the town's uh leverage position because of the legislation uh we received i think two other formal lease offers from other oil and gas companies for parts of the estate um not the entirety uh but again those were pretty standard 18 percent uh lease offers um when was that over the past year so five six months ago okay um and again we declined those because they were uh an order of magnitude or two um below what we're currently talking about okay but you didn't read 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 and i solicited a bunch of bids for leases and for him to monetize those um i followed up early this year with those folks to see if their bids were still in the same range before we had i don't remember which were the meetings but the one where we went over the longer presentation um and i talked about what those where those ranges were showing up in there and like david said it was um substantially lower than what um 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 bid process to me so just following up on this a second and uh if memory served before we had contracted with alameda we'd received another offer from Civil Toss at that time I believe if memory serves the land value it was only I think the two parcels on a Rappahoe and one of them was like contingent like 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 off yeah the the initial offer was for the just the southernmost of the three parcels which appraised 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 uh 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 in we're not we weren't not willing to sell you that property but if we might negotiate if you were open to selling your mineral rights yes and and then we talked about then they came back with the other piece of property that was just north of there um and and both were lower than what we would ever consider going into a deal with so we kind of cabused that at that point um it was after that that that Matt was hired.

Okay well that's my recollection so is that a possibility of uh civitas sending these low ball offers and put this later on what is it a possibility of civitas coming with Dondi's low bond offers and then come up with this current situation of the minimum defeat yeah I think I think over the course of the last year um the the town said hey we're gonna need um the absolute best offer you can you can put out there um and this is this is where we landed um as far as compensation uh we said we don't just want this one parcel or these two we want all of all of your land in this area we said we want a cut uh a cut of the production royalties we want an upfront cash payment uh we want access to the site and we want you to plug every one of your old wells in town and just to be clear we had that information that this might be possible because of Alameda minerals you didn't have that perspective right before we hired 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 um going back to them and that is still is not a competitive bidding process and your scope of work says you'll come uh complete the competitive competitive bidding process because that's why in that executive session we had I specifically asked I would ask that we not talk about things that happen in executive session um I mean that's that's the only way to you know determine if we have a getting fair value for the for the product um the sale um I think that's it for

Because that's why in that executive session we had a specifically asked.

I would ask that we not talk about things that happen in the executive session.

Um I mean that's that's the only way to you know determine if we have getting fair value for the for the product um the sale.

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.

Um the co 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 competitive with comparative analysis of upfront proceeds versus projected cash flows.

So the competitive bid process was required in the contract that we that was approved for Alameda Pittoral.

Um, so then council, I guess we could ask you to uh what 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 um we have two sort of competing things here because we cannot talk about what was talked about in executive session.

Uh however, I feel this line of questioning is completely disingenuous because you all know what you heard in those sessions.

You again, all right.

Hold on, hold on, hold on.

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

Yes, 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.

Oh, so whether we did or didn't, obviously, we're not gonna 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 um, I'm gonna bring it back to that and to see if there are any other um questions with that.

I'll start with um one that came in, and that was um where's the water gonna come?

Because the process is um water intensive is uh my understanding.

And maybe you can talk about what water intensive means and where the water will come from.

Is that part of the agreement?

That is not part of the agreement.

Um the water will not come from the town of Erie.

I I can say that where they choose to buy water from, um, it is gonna be a lot of water.

And do you know off the top of your head what they're I don't remember what's in the OGDP, but it was it is a lot of water the probably somewhere in the neighborhood of 500 million gallons.

And is that water lost in the process or is it replaying?

What happens to that water?

Nearly all of it will be lost, we'll will need to be subject to deep injection uh for permanent sequestration.

A little bit will be reused again as frac fluid for other wells.

Yeah, but no, none of it's ever coming back to quotable.

All right, so this goes back to um 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 um you know, what is the drilling um 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 uh a legal way to use that as a way to stop the Draco.

Um we have control over our jurisdictional boundaries, yeah.

We would limit it, we would reduce it all percent, but small percent, yeah.

Um let me bring in some of the other council members, Councilman O'Connor.

Any questions?

Um, regarding the uh proposal, is there any mention of coyote trails in there?

There is no so that's been all removed.

There is no mention of coyote trails.

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

Well, I knew there was gonna be Jillian questions.

Um let me do a little reading and I'll come back to that.

Okay, sounds good.

Okay, while you're doing that, um I have a uh I'm gonna go back to a question um where um 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 um cases?

Actually, go back one slide, I think it is to the um where we're already fracked under so Vista Ridge, for example, or um Colliers Hill have been fracked under.

Um have we had any instances where there's been surface um changes due to the fracking that has happened in those cases, not to my knowledge here.

This basin, the DJ basin.

Let's go back to the time of the dinosaurs.

There was an ocean here, the Cretaceous Interior Seaway that deposited about 5,000 feet of shale.

That shale is very impermeable.

Um and somewhat prone if there are fractures to sort of self-heal, if you will.

Um that's not to say that hydraulic fracturing hasn't caused uh effects of the surface and other areas.

There's a lot of um reported and in my opinion, scientifically valid uh accusations of what's called induced seismic activity, and especially in places like Oklahoma, where the injection of these of these high pressure fluids has activated existing faults, basically lubricated them and allowed slip where where previously the strains hadn't been overcome, thus resulting in in small to medium sized earthquakes.

We've not seen that uh here in the DJ Basin, to my knowledge.

I've I have if there's a scientific paper out there, somebody send it to me.

Um, because that's of course uh great interest.

There are also other uh other places where oil and gas production, whether through hydraulic fracturing or or otherwise, uh has resulted in communication between these oil bearing strata at depth and uh potable aquifers near the surface.

Um this often occurs either through uh existing fractures uh or through um the annular space of the well bore.

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, uh the state of Colorado has about the strictest regulations in the country as far as how that casing is is in place, what cementing is required, um, how much cement, quality of cement depths, and then what sort of geophysical uh logs have to be run to verify that the bonding of that cement between that steel casing and the rock.

Um other states are less judicious in that in that protective um in those protective procedures, and and there are certainly um cases where it is at least uh is been accused and perhaps validly that uh audible aquifers have been contaminated.

I've not seen that in the state of Colorado.

I've seen uh valid studies on that phenomenon.

Um but yes, that's always a possibility.

Um, just to say that it hasn't occurred um 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 the not in my late review.

Again, if people have papers, please send them right.

Okay.

Your question, Julian, left me some information.

It's not in acres, it's in square foot um long-term.

Could you re ask the question?

So the question how much of the 158 acres is developable?

So Julian says a long-term build-out potential was estimated at absolutely 700,000 to 1.1 million square feet of non-residential development.

Generally for aviation-based aviation-related businesses, including hangers, aerospace suppliers, aircraft services, those types of things is the hope would be a greater airport.

But that's that's on that lower to well.

I'll I'll probably have to follow up with Julian because it doesn't.

It seems like that's that's on the lower two, um, but that's what he says the full on the full 153 acres is what would be.

And and Julian regrets not being here this evening.

I believe I believe you will be back in two weeks.

He's actually on vacation.

That's good for him.

Yes, we do we do let him have vacation.

How does that happen?

And then immediately regret it.

This will be the last vacation for Julian.

I think I can shed some white on a producer asking it this way.

Um so obviously our chores here, so our minerals we could either choose to sell or lease them to Civitas, or another option was would be to go out to a public market and to essentially sell it or lease it to a third party who would then probably lease it back to Cipothos.

Um but for having that kind of deal the land was owned by what was it, 7N or so yeah, which is SM Civitas.

Uh so for the land portion of that, we could not we could not lease with a third party and well, I g I I guess with uh with with the land in consideration that was a constraint.

Yeah, the further obviously the the parcels would be off the table, the 17 uh expediated plug-in 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 uh some production royalty on just that acreage um 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 uh SM Energy can uniquely provide.

Um and they obviously have the most incentive uh to avoid this land.

Yeah, yeah.

What's the the need to lease then?

Um the the town doesn't need to lease its minerals.

Uh we certainly could say, hey, we want to make a a principled stand.

Um we're we're not under the illusion that uh Draco is going to go away.

There there will be a large number of wells, probably 26 wells drilled.

Um you know, and and fine, we'll we'll take what uh production royalties we get from our existing leases, but no, there's no there's no reason we can yeah, is that a possibility this is um more tomorrow?

No, this will never see value this high ever again.

We are moments, uh 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 um that would like to uh receive monetary benefit from their subsurface estate, today's the day.

And is there a chance that if it is delayed, they could have to deliver something within time for them today?

Yes, they are constrained.

Um they must be in production no later than May of 2028.

Um and the ECMC, the commissioners, um, 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 13?

Your guess is as good as mine.

That will be a matter between uh the state of Colorado, this operator, and the adjacent landowner, uh southern land.

I'm sure the town will have a role to play should it come to that, but I think I think everyone involved would probably like to avoid that.

But it's highly unlikely that Draco, which is one point five billion dollar operation, is gonna go away, or or any any attempt that we try 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 one and a half billion dollars at stake, I 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 town's minerals.

Yes, that would be my guess.

Okay, I'm gonna 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 it's Debbie's feeling if Debbie maybe you can collect those, and if maybe Meredith I can ask you to just look at them, read them, and um we'll go from there.

So in the meantime, I've a question that um the SM Energy 10K from last month.

Um they submitted that um to the SEC that with respect to our operations in the DJ Basin in Colorado, some cases we do not own more than 45% working interest or minimal interest in a prospective area of development, which is now required because of Cinema 181.

Um to pursue statutory pooling orange voluntary pooling agreement with 100% of the applic applicable interest owners.

Um 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, money on the table, but I mean, well 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 that carrots in front of the town rather than yeah.

I guess the way I look at this is the first offer was 2.85 million, which is that land, and now we're up to roughly 35 million plus the value of the land going forward, which goes to over 200 million.

And so um, yeah, maybe this isn't the best deal we can get, but maybe it is by far the best deal we can get.

Where are you getting the 200 million dollar?

There's a question that's that staff had answered earlier.

The question was is there an estimate future economic value of the 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 209 million.

And I think what that's 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 uh benefits to it yet.

But once you unlock that, and then the economic value um 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 um piece of this from my lens because there's economic, but there's also town benefits, um, especially right around the Leon A World Service Center, where we're looking for space to expand that for parks and rec and we don't control the land, uh Civitas does or SM Energy does.

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 SM Energy may not materialize because you know we basically um you know have 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 gonna hold that land, or at least that's what I would do if I was in their shoes.

That's the is 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 that.

Yeah, they invest in these properties.

Um to negotiate when when leverage is needed, just that's the purpose of these land holdings.

Um, that and to potentially site oil and gas facilities on.

That was probably their original intent.

But after SB 181, this isn't those these parcels aren't a viable um location.

There was at one point, um, I believe it was called the vessels pad.

Okay, um, to be located here.

Thankfully that didn't come to fruition on the on one of those parcels in this back northern one.

Um 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 a developer.

Um I can't say that that won't happen.

Um has in recent history because the acme pad was supposed to be on Bananza and Highway 7, and they sold it back to a developer to be developed.

Uh it could also be that they hold these lands um 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 to talk about.

And you know, we talk a lot about the compensation part of it, but you know, to me, the 17 plugged and abandoned wells is a huge benefit.

I 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 gonna be extremely excited when that uh well is is plugged and abandoned.

And I gotta believe the people who live around these 17 wells are gonna be excited to know that there's a timeline um that these things are gonna address.

I I mean to me that's on the compensation.

There's some strong health and safety improvements that we're getting out of this.

Uh O'Connor, uh Council Member O'Connor, to go back to your question.

Uh for the appraisals, you're looking at about 5.4 to 5 and a half acres are within the floodplain, it can't be developed.

Okay.

Uh that represents about three and a half percent of the parcels.

Okay.

Is any of it restricted because of the airspace?

Development.

I do not dabble in FAA regulations at all.

I'm sure there are some weird height restrictions.

Yeah, some weird light restrictions.

Definitely the light, the flight path don't build anything.

It looks kind of like a runway.

How about that?

Yeah, yeah.

Yeah.

All right, I'm gonna look to our um 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 gonna.

Um does the absence of the RFP when hiring Alameda constitute a breach of town charter, and does the lack of soliciting competitive bids construe a breach of contract?

That's probably a contract uh question for you or for attorney.

There is no requirement in either the town charter or the town code for RFP or solicitation.

There is a requirement that was adopted in a purchasing policy approved by council uh to conduct RFPs or solicitations for services like this.

That did not happen.

Just as an aside, I will say that um 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, a sole source process in the purchasing policy that is not following.

Okay, neither one is following.

Yeah, okay.

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 two 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 it takes approximately five to six weeks to conduct a phase two.

Uh six weeks, six weeks would then give us a little bit, two weeks' buffer time uh for us to have any 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 would the 17 wells um to be plugged?

Is there a possibility that they would be plugged outside of this deal?

Eventually, all the wells in the world will be plugged.

Um when is the question?

Um I I have no idea.

And in the case of a couple of them, no, they wouldn't be plugged for decades.

Um maybe the case for all of these.

Um the wells that are up near uh Kenosha Farms and Erie Village, those are on the boulder county side uh 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 wells aren't gonna go away until another very large Draco like facility is approved somewhere in the area of that I can of that I can assure you.

Maybe one or two of them, but not all of them.

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

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

Uh is the Thomas Reservoir zone as Parker open space.

Not zoned, no.

What's the zone has?

I believe it's part of the PB.

Um basically I think the question is if the sound if the town sells their mineral rights, would that bump Civitas's or SM over the 45% needed to force pull everybody else?

No, they've got more than 45% with or without us.

Um and I'll also say a subtlety of this agreement, as I understand it, uh is we're actually only selling the rights to the Niabrera and Codel formations in other parts of the DJ Basin, there are other geologic units that are productive.

Um not so much here, but technology may change that.

Um there's also a lot of strata below those units before you hit the basement.

Um and maybe a future oil discovery would be made there.

In those cases, if we see a project proposed in this area for say a unit above or below these two very specific formations, we still maintain the mineral rights in those other units.

Um, and so we would we could uh prevent pooling or or renegotiate uh those rights separately at some future date, should uh geologic knowledge engineering or a combination thereof um revisit this location.

And just to add to that, there's 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.

How well approximately how thick are those two formations?

Yeah, yeah, it's not in the whole package, very thin.

Yeah, that's what I uh if they were sitting here, pretty thick.

Yeah, a couple hundred feet.

Okay.

And that and the size of that drill is about nine inches that's gonna go through that three hundred feet yeah.

The usually production casing is 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 an eight-inch hole.

Yeah, six and a half inch hole.

Okay.

When they begin advancing the bore at the surface in order to facilitate the surface casing, like I said, all the 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.

That uh those are scary, those are big enough to fall in.

Um, but then it tapers down uh stepwise by the time they get down there, that'll be yeah eight inches or so.

Uh is an earthquake a surface impact, right?

I think that's isn't that a possibility?

Sure, yeah.

I would definitely consider that if there if there uh is demonstrated induced seismic seismicity, uh earthquakes occurring as a result of uh this or any other fracking.

Um depending on the magnitude.

Um you could have anywhere from minor shaking, uh and you need a new glass for your family picture up to structural damage that would definitely be surface effects.

I think I heard you say earlier that Oklahoma has this problem.

Did you say Colorado doesn't have this problem?

It is not well documented in Colorado.

There's there's always going to be some questions.

Um scientific, you know, there's so few earthquakes in Colorado anyway.

This is a very seismically inactive area, especially for a mountain range.

What happens?

Um there's already seismic activity in Oklahoma.

I don't understand the obvious.

Yes, so yeah, and you can sort of look at uh the frequency and magnitude of earthquakes prior to that field being developed and after.

I think it's pretty obvious that fracking has caused some substantially increased seismicity in that area.

In Oklahoma, but we haven't seen it here in Colorado.

I'm just trying to make sure that I understand.

Yeah, yeah.

And there's been a lot, of course, of course, uh, a lot of scientists very interested in that subject.

Sure.

Um I'm always open to reading more literature.

There was seismic activity attributed to the Rocky Mountain Modelslaw when they were pumping stuff down into the ground decades ago.

Yeah, typically you'll get induced seismicity seismicity when you do injection um adjacent to the basement rock, the crystalline granites.

Um that's quite a ways away from where these these wells are fracking and much much more an issue when you look at uh deep disposal well development.

Because uh, as Matt said, the this porosity in these units is terrible.

Um when you're doing deep injection, you need nice sandstone that you can push lots of fluid into.

The only sandstones that are deep enough, nasty enough, and and porous enough are the lion's sandstone uh and and the fountain.

And in some in some places, you can find uh the entrata formation, and that can be a target.

The fountain is often off limits because the fountain formation is the flat iron, it sits right on the ground, and 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 plastics injection wells nearby in Erie.

There is a deep injection well just outside of Erie near Highway 52 and I-25 at the hammer facility.

Um again, they're 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.

Um but my all my family still lives there, and my sister lives in a house that's 106 years old or something, and um that's it's a major concern for she lives like right in Oklahoma City.

So one thing I'd like to point out on that topic.

Most of the earthquakes or seismic sea that happens in Oklahoma and Texas and New Mexico, southeast New Mexico, it's it's not from the drilling and completing of the wells, it's the inject injection of the produced 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 your you know uh billions of gallons of water every single day into those disposal wells, and here um here we inject next to nothing compared to that.

I don't 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, it 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 gonna get 10 million pounds.

And so it's all those injection wells.

There's there's probably there's probably like four three or four million just injection wells down there, and in this basin, there's probably 30.

Yeah, it's it's completely completely different.

And and permitting a deep injection well in this part of Colorado, it's really difficult.

EPA region eight is notoriously difficult to get a permit from.

All right, I'm gonna bring this back to the questions for this agreement.

Right.

We're talking science, it's exciting.

Uh, does it require a supermajority of the council to approve the sale of real property?

No, uh, it requires an ordinance.

Um 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 gonna stop the project.

Um, I think you're gonna lose the ability to to inspect the site.

These 17 wells are gonna hang around for a long time.

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

Yeah, that goes both ways.

Um homeowners that that own their mineral rights in those neighborhoods.

Um yeah, they may be drilled under, may not, um, certainly wouldn't be fracked under.

Um, 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 but they can go around, but if they go around it, it's gonna affect people that would have been affected by it going straight.

You're gonna affect different people by going around, and you're actually gonna make make the tunnel longer to drill longer.

Um I think it takes we have uh 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 does it would be for them to plug the wells if we weren't required?

I mean, to plug a well is two to five days.

Um there's a question of rig availability.

They have to have to hire a company uh subcontractor to come out and do this work.

Um, there's also then um potential remediation from any well any leaks that occurred at the site and went unnoticed, unreported.

That process uh can be quite lengthy years.

Um we've got one we've got one active remediation project that's just crossed the two-year mark.

Very frustrating.

Um, and then you have reclamation uh to follow that.

Uh you gotta grade the the land and establish seed.

That's another two-year process.

For my understanding, they have they have to initiate the plugging within.

I don't know, I haven't read the the final fact.

But the well itself could be gone in a couple of days.

As they get to them, and we'll we'll work with them on the order in which they occur, so we don't just have an army of rigs.

Um, you know, land on on Kenosha farms, because that would be pretty that would be a terrible nuisance to have uh an army of rigs up there.

These are commencement dates, right?

So they have to begin this work within those time frames.

Is the agreement contain monitoring and potential mitigation near a number of previously capped wells, such as the one at Amber Court in the Meadow Street Farm neighborhood?

So there are six wells.

I don't know if that exact one is one of them.

Um, but that was negotiated with the operator during the OGDP hearing, uh, pre-hearing conferences.

So they will be monitoring uh of those six walls, which the town identified of highest concern, regardless, that is part of their permit with the state.

Um the other plug in abandoned wells in the town.

Um ready is launching a pirate pro pilot program this summer to start looking at wells, um collecting soil vapor samples and assessing um if there's a potential for leaking.

Um depending on how that pilot program the summer goes, uh we will be launching a full-scale program, and we're gonna we're gonna do our best to look at every single well, which we can gain access to.

Obviously, wells on private land will need consent from the landowner to look at the well, and if somebody doesn't want us to collect samples on their behalf, we won't for the um minerals that are already leased out, the blue area.

Uh 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 that's a very complex question.

Um there are a there are dozens of individual leases signed over decades of in a variety of terms.

Some had heavy cash up front payments that went to whoever signed that in 1974.

Um have higher uh 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 holds those leases today.

I'm gonna guess most of them have found their way to SM energy since no, they won't won't be renegotiated.

The terms of those leases are they are active until after production has ended.

Oh what uh laws are in place for the proximity of wells near a school, and how far is Draco from an Erie High School?

Uh 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, there is a rule, um, 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 two schools.

That doesn't say that the that the state couldn't approve a facility, they just haven't yet.

I'm gonna make sure I understand the question.

Uh high school isn't that close to the Draco pad or it's to the school itself is a little over a mile to the edge of the school property is right at a mile.

Yeah, but they have to be two thousand 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.

Doesn't exist a proposed school site.

We did, of course, that was one of the very first phone calls I made was to St.

Rain Valley School District when I heard about Draco the very first time back in 2023 to make them aware that this land that they were talking about potentially citing a school that was going to be um about 1800 feet from an oil and gas pad.

Um there is no there is no state law or I as far as I know um within the school district uh a hard and fast rule about where schools can be cited vis-a-vis uh oil and gas locations.

Um the town setbacks don't apply to school districts because they're an extra governmental authority.

Um so it would really be up to St.

Rain uh how close they want to build schools to oil and gas pads.

And if you've ever been up to Frederick High School, sometimes it's really close.

Different era the hub was already there when we plotted the school there, or it was just when Draco came in.

Yeah, and the distance from Draco to the hub is I don't know, seven seven hundred feet.

Yeah, okay.

I mean there's another pad that's there already too.

Yeah, there's also the windsock pad, which is it's actually an oxy pad which is always baffled me, but um what regulations that are in place to protect health of the community and its safety, and are any of these guaranteed in the contract.

There are no additional guarantees outside of what it already exists in both state law and our town code.

And and well, county code.

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 at Westernly, right?

Correct, but none of that is germane to this deal.

That's all gonna happen anyway.

Right, yeah.

What do we do with that information?

The air quality data that we collect.

Um obviously we can always we can always give uh the state of Colorado a call, whether that's uh ECMC staff um or the air pollution control division.

Uh we do regularly share things that we find.

Um I meet with APCD, the air pollution control division.

We meet with them quarterly.

Um, Broomfield, and and now recently Frederick has joined those conversations since they have an oil and gas liaison.

Um, to talk about what monitoring is happening, what of what have we seen, what concerns we have.

Um obviously, if we have something not routine, we don't wait till our quarterly meeting.

We get we get Ashley on the phone straight away.

Uh same with ECMC staff.

Um enforcement of air quality standards is not something that 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, um we also send out notifications to residents uh about the data we collect as soon as it's collected.

Yeah, there's an online debt.

Everybody should be should be cruising around the Boulder Air site, it's cool.

Um you can look at all the air quality data we've collected.

All right.

Um I think their 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 here.

Any other questions about the contract and um this topic?

Go ahead.

Yeah, I'll just ask one more question just because it's been asked of me by number of residents, and that is do any council members own mineral through the Draco drilling area areas.

No, my own property, but no mineral rights.

I am I'm getting like a $15 check every once in a while.

But not for the least, yeah.

Yeah.

That's the yellow lines.

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

Yeah.

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

Um, so can John, can you talk to us about um why why we would sell versus lease minerals?

Um I've been told that generally leasing is the smarter thing to do is from a money sample.

There's no um, I guess it depends on how you want to collect your money.

Um there's nothing, there's no law that prevents a mineral owner from selling his or her minerals.

Um leasing has been the norm in the DJ Basin for as long as I've been dealing with legal issues, but um you know, and there are many landowners who 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 um there may be various reasons why a landowner would do that, but uh I know that it's it's really an individual choice.

Um I'm not sure my understanding is the leasing option in this instance, and as David noted, the leasing option just simply did not return the value that the sale option did.

Okay, um, would we have more like if we owned versus selling if we if we leased versus selling, would we have more um authority as a local government over impacts if there were surface impacts you would have the the right if you own 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.

It's it's uh the surface owner must make uh 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's been that issue's been I guess minimized by the advent of horizontal drilling and fracking because um you can access minerals uh miles from the well pad site.

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

You would retain the authority under the written lease, which is um you know it's it's generally the right to receive the royalties and I presume the town would negotiate 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 uh that's generally the biggest issue for a landowner.

But there's also a looking ahead 40-50 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.

And someone wants to come and re-stimulate this part of the formation, then we would if we had leased and that lease had expired, which is a very rare circumstance, then we would could renegotiate.

Whereas with the sale, yeah, these will leave the town's hands forever.

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.

Um but Boulder County found that out through litigation that some lands they wanted to be freed from a lease, uh, even the but 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 think that well was drilled like 30s.

I don't recall, but I just bring us back to Draco Pad.

Um so the next step um will be two weeks from tonight um while 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 QA document that would uh 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 uh it's uh you know another meeting where there could be other things added, but right now that is the focus of that.

Um Brina, can you draft a memo about the purchase policy violation and kind of let us know what that enfield what that means and what happened there?

I I just don't understand it.

So I would like to understand more.

Yeah, and Sarah's already working on that in the case.

I think also when 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 with the process is fixed.

And then the other thing is that um I do have concerns that the contract, the scope of work for the contract wasn't met with a non- with a competitive bid.

Um 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 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 Erie or not.

All right.

Um, we did this in under two 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 um Alvin Midroll as well as the background.

Um appreciate all that.

With that, I'll adjourn the end.

No two days ever look the same.

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