June 20, 2008 / 12:14 AM / 9 years ago

High energy prices upset balance in West

BIRNEY, Montana (Reuters) - The log cabins and dirt roads on Jeanie Alderson’s isolated ranch suggest little has changed since her great-great aunt and uncle first came to the rolling hills of southeastern Montana 120 years ago.

<p>Westmoreland Resources' Absaloka Mine in southeastern Montana is shown on May 30, 2008. The company's 34-year-old mine reached a record 7.35 million tons output last year in the state with the nation's largest coal reserves. REUTERS/Adam Tanner</p>

Yet with energy prices at record highs, she fears that interest in long-dormant rights to develop oil and gas resources underneath her land could badly upset the natural beauty and balance of the rugged American West.

“No one in 1916 or 1909 had any concept of strip mining or coalbed methane pumping out, and the devastation,” Alderson said. “When you start pumping out groundwater, we think, ‘Uh oh, there goes my livelihood.”’

Divided ownership of land above and below ground -- known as split estates -- has deep roots in the American West, where the federal government offered cheap land to settlers and railroad companies but often kept subsurface rights.

Today, the government manages 700 million acres (280 million hectares) of mineral rights. On 58 million of those acres, mostly in the West, others own the rights to the surface.

Environmentalists complain that the Bush administration has dramatically expanded mineral leases in energy-rich states such as Wyoming and Montana, and they say oil and gas companies are scrambling for a piece of the action before President George W. Bush leaves office in January.

“In the closing days of the Bush administration we are seeing this enormous rush to lease everything gas-related,” said Teresa Erickson, staff director of the Northern Plains Resource Council, an environmental group.

State governments also lease mineral rights, but some regional officials say it is federal leasing that threatens their wildlife and the environment.

“The level of leasing in recent years has been breathtaking,” Montana Gov. Brian Schweitzer, a Democrat, told Reuters. “The arrogance of this administration vis-a-vis federal lands -- it dwarfs the previous administrations.”

According to the U.S. Minerals Management Service, which collects revenues on federal leases for oil, gas, coal and other solid minerals, the federal government sold leases on 47,497,077 acres in the 2007 fiscal year, compared with 37,448,305 acres in fiscal 2001, a 27 percent increase.

U.S. Department of Interior officials testified in March that leasing and producing minerals has earned the government $176 billion from oil, natural gas and other minerals since 1982, including $11.4 billion in fiscal 2007.

The department’s goal is to ensure that companies are in compliance with the terms of their lease and that the government is receiving fair market value, the officials, Stephen Allred and Randall Luthi, told a U.S. congressional subcommittee.

WHY AREN‘T WE MINING IT?

Alderson and her family owns the 8,400-acre Bones Brothers Ranch above ground and about a quarter of the mineral rights below. Unknown to her until she started researching the issue, many of the mineral rights were leased in 1999 to 2000, some going for as little as $2 an acre in 10-year leases, although prices for leases are up sharply since then in many places.

<p>Westmoreland Resources' Absaloka Mine in southeastern Montana is shown on May 30, 2008. The company's 34-year-old mine reached a record 7.35 million tons output last year in the state with the nation's largest coal reserves. REUTERS/Adam Tanner</p>

One travels many miles on dirt roads to arrive at the ranch where calves are raised, and beyond log cabins nature extends as far as the eye can see. A few miles away the Indian military leader Crazy Horse fought his last battle in 1877.

“The public thinks -- even Montanans -- that there is this big chunk of land, why aren’t we mining it?” Alderson said. “My parents were told in the 1970s, it’s your patriotic duty -- so that someone in Poughkeepsie can have an electric toothbrush.”

Nearby, at the Diamond Cross Ranch, an energy company in February set up a methane gas well after Forest Mars Jr., the billionaire heir to the candy company bearing his family surname, lost a court fight to prevent it.

“The worst part of the split estate issue is that it pits neighbor against neighbor,” said Phil Wood, manager of the Diamond Cross Ranch.

That’s because those owning the mineral rights may want energy exploration, while those who do not own the rights have nothing to gain. With higher energy prices “there is going to be more activity, of course, and with more activity comes more complications,” Wood said.

Under a 1977 U.S. law, mineral owners cannot mine federal coal without permission from surface owners.

“It’s an impediment to development, you betcha,” said Chuck Kerr, president of the Great Northern Properties, the largest private holder of U.S. coal reserves, with 20 billion tons. “It means everybody has got to be in support. If you have surface holdouts that can stop project development, well, you can’t go anywhere.”

By contrast, companies can produce coal-bed methane gas and oil without the landowner’s consent, and passions often run high when the driller shows up.

Les Zahrowski of Golden Arrow Exploration said that over the years he has encountered a series of landowners who have attempted to block his firm from getting access to their minerals. One man came out with a high-powered rifle, he said.

“They are very nasty; they put up a fight,” he said.

In coal-bed methane gas development, water is removed from the coal bed, either to be dispersed on the surface or pumped back into the earth. But ranchers in arid regions such as southeast Montana fear changes to their water supplies.

“We’d like them to be responsible with the water that’s produced from that well,” said ranch manager Wood. “What I’d like is stricter guidelines for the drilling company.”

Montana’s governor said rich families have long used the opaque system of registering mineral rights to help avoid large inheritance tax bills. Schweitzer, a ranch owner himself who does not know who owns all of the mineral rights below his lands, favors a more open system.

“I don’t think the Bones Ranch and others in Montana are saying we are going to lock up those minerals forever,” said Schweitzer. “But they would ask a little consideration of their business as well.”

Reporting by Adam Tanner; Editing by Eddie Evans

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