These Suburbanites May Have No Fracking Choice

When Bill Young peers out the window of his $700,000 home in Broomfield, Colo., he drinks in a panoramic view of the Rocky Mountains. Starting next year, he may also glimpse one of the 99 drilling rigs that Extraction Oil & Gas Inc. wants to use to get at the oil beneath his home.

There’s little that Young and his neighbors can do about the horizontal drilling. Residents of the Wildgrass neighborhood own their patches of paradise, but they don’t control what’s under them. An obscure Colorado law allows whole neighborhoods to be forced into leasing the minerals beneath their properties as long as one person in the area consents. The practice, called forced pooling, has been instrumental in developing oil and gas resources in Denver’s rapidly growing suburbs. It’s law in other states, too, but Colorado’s is the most favorable to drilling.

Now fracking is coming to an upscale suburb, and the prospect of the Wildgrass homeowners being made by state law to do something they don’t want to do has turned many of them into lawyered-up resisters. “It floors me that a private entity could take my property,” says Young, an information security director.

Many states require 51 percent of owners in a drilling area to consent before the others have to join. Pennsylvania doesn’t allow forced pooling at all in the Marcellus, one of the most prolific shale gas regions in the country. Texas, the center of the nation’s oil production, has strict limits on the practice. Despite its founding cowboy ethos of rugged individualism, Colorado has one of the lowest thresholds. “There’s a tension in oil and gas law between allowing private property owners to develop their mineral estates on their own and the state’s desire to ensure that ultimate recovery of oil and gas is maximized,” says Bret Wells, a law professor at the University of Houston.

The rise of horizontal drilling and hydraulic fracturing over the past decade has ushered in a modest oil boom on Colorado’s Front Range by enabling companies to wring crude more cheaply from the stubborn shale that runs beneath Denver’s northern suburbs. From 2010 to 2015, Colorado’s crude output almost quadrupled. This year the state is pumping more than 300,000 barrels a day, most of it from the Wattenberg oil field beneath Wildgrass and beyond.

Colorado’s population is booming, too. As Denver’s suburbs bloom northward into oil and gas territory—Wildgrass is about 20 miles north of Denver, not far from Boulder—housing developments are erupting where once there were only drilling rigs and farmland. And because horizontal drilling can reach as far as 2 miles in all directions from a well, companies need underground access to more land to maximize production from each site. The Colorado Oil & Gas Conservation Commission issues hundreds of pooling orders every year. “It’s an entirely new issue,” says David Neslin, former director of the commission, now an attorney at Davis Graham & Stubbs in Denver. “That’s creating some understandable friction with local governments and local communities.”

Denver-based Extraction Oil & Gas is at the epicenter of that friction. Although it has rural holdings, a substantial amount of its reserves are located in populated areas. So the company, like others in the region, has put a lot of energy—and cash—into making its operations more palatable to suburbanites who fear the prospect of a drilling rig sprouting up within sight of their kiddie pools. Extraction almost exclusively uses electric drills, which are quieter than diesel-powered, and a new generation of hydraulic fracturing equipment that cuts noise. “It’s incumbent upon us to learn to live with these communities,” says Extraction spokesman Brian Cain. “Where we can go the extra mile to minimize impacts, we wish to do so.”

The company’s latest project involves drilling 99 horizontal wells in Broomfield. That means leasing mineral rights from Wildgrass residents. Letters went out to some of them last year offering a 15 percent royalty and a $500 signing bonus. Some signed, others demurred, and still others organized a campaign aimed at blocking the project. Extraction hasn’t applied for a forced pooling order, but Young and his neighbors have come to believe it’s inevitable.

The suburb’s agitation prompted the city to create a special task force to evaluate Extraction’s proposal. The company responded by taking members of the task force on a tour of oil and gas country. It wanted to show how its operations are less disruptive than traditional drill sites.

Ultimately, the company agreed to more stringent environmental standards than the state requires. It will move some wells 1,300 feet from neighborhoods, almost three times farther than the law mandates. It will reduce the number of wells per site, monitor air emissions as well as water and soil quality, and build pipelines to transport oil immediately off-site instead of storing it in the city. “I can see Broomfield turning out to be a new model for how large-scale development gets done,” says Matt Lepore, director of the state commission, which will rule on Extraction’s applications for siting the wells this month.

Such concessions have smoothed the path for development in many communities. But for some Wildgrass residents, any leasing is unacceptable. They say they fear accidents, such as the April pipeline explosion that killed two people and destroyed a home in Firestone, 20 miles away. Some simply find the terms of the initial lease offer laughable.

“The money is so negligible,” says Elizabeth Lario, a health coach who’s lived in Wildgrass since 2005. And then there are property values: Homes in Wildgrass range from $500,000 to more than $1 million. “The royalties won’t offset the drop in property value,” says Stephen Uhlhorn, an engineer who’s lived in Wildgrass for four years. Oil development “is now hitting affluent neighborhoods where people have assets and livelihoods that exceed the value of any royalty they’re offered.”

The bedrock of Colorado’s oil and gas policy is a 1951 law that says responsible fossil fuel development is in the public interest. The state, the law says, must protect the public from “waste”—industry parlance for oil that’s left in the ground. While Colorado has some of the strictest environmental regulations of any oil-producing state, it gives companies latitude in choosing where to drill. The Colorado Supreme Court has repeatedly held that the state’s interest in developing mineral resources preempts any local law that would curb drilling.

Efforts to change the statute have fizzled. State Representative Mike Foote, a Democrat whose district is adjacent to Broomfield’s, introduced a bill earlier this year to raise the pooling threshold to 51 percent. It passed the House by a slim margin but died in a Senate committee in a party-line vote, with Republicans opposed. “The oil and gas industry pretty much controls the capital, particularly in the Senate,” Foote says. “Operators can do whatever they want.” Lepore, the head of the state oil commission, concedes the pooling threshold is low compared with other states. “I have no philosophical objection to a 51 percent requirement,” he says. “There are intelligent changes that could be made to the forced pooling law.”

Young, the Wildgrass resident, received a lease offer last year. Since then he’s been working with a lawyer to consider his options, and so far he doesn’t like them. “You couldn’t put a Walmart where they’re putting these wells—no one would approve that zoning,” he says. “But for some reason, the industry is completely exempt from everything.”

    BOTTOM LINE – In Colorado, whole neighborhoods may have to lease the minerals under their land if just one homeowner agrees.

    Read more: http://www.bloomberg.com/news/articles/2017-10-03/these-suburbanites-may-have-no-fracking-choice

    A hedge fund at Emerging Sovereign Group that has bet against the Chinese economy sunk about 62 percent this year through April.

    The Nexus fund dropped 8.2 percent last month, according to an email to investors seen by Bloomberg News. The April results mark at least the third consecutive month of negative returns for the fund.

    China bears have suffered as economic growth accelerated in the first quarter and officials have been guiding the yuan higher against the dollar in a move that’s caught market watchers by surprise. The Nexus fund gained 35 percent in 2015, profiting from moves by China’s central bank to devalue the yuan by the most since 1994. But the fund has underpeformed since 2016 when it dropped 15.5 percent, Bloomberg has reported.

    ESG is run by co-founders Kevin Kenny, Mete Tuncel and Jason Kirschner, who bought out Carlyle Group LP’s 55 percent stake and took full control of the firm in October. Most of the assets at ESG, which managed $3.5 billion as of December, are in two of its other funds.

    A spokesman for New York-based ESG, which started in 2002 with seed capital from Julian Robertson’s Tiger Management, declined to comment. 

    Puerto Rico Winner

    Candlewood Investment Group’s Puerto Rico SP fund gained 5.7 percent in the first two weeks of May, bringing year-to-date returns to 9.4 percent, according to an investor update seen by Bloomberg. The $105 million fund targets securities including general-obligation bonds, or GOs, and other opportunistic areas within the Puerto Rico municipal bond market. Puerto Rico declared a form of bankruptcy in May.

    "There have been several recent events which we believe confirm our investment positioning and thesis," the $1.2 billion firm said in a separate letter for April. "The most notable was the Commonwealth’s restructuring proposal which clearly prioritized GO and GO guaranteed debt above other bondholders."

    Michael Ardisson, partner and director of business development at Candlewood, declined to comment.

    Millennium Underwhelms

    Millennium Management’s main fund has been posting middling results this year along with its multistrategy peers. The Millennium International fund returned 0.3 percent in April to bring returns for the first four months of the year to an estimated 2.5 percent, according to an investor update seen by Bloomberg.

    Hedge Fund Research Inc.’s multistrategy index rose about 2 percent in that time, as did hedge funds on average.

    The largest driver of the Millennium fund’s performance last month was the relative value fundamental equity strategy, which gained 0.2 percent on the strength of the technology, financials and health-care sectors, the update shows. A spokeswoman for the $35 billion firm run by Izzy Englander declined to comment.

    Read more: http://www.bloomberg.com/news/articles/2017-05-23/esg-china-fund-drops-62-as-candlewood-puerto-rico-pool-jumps-9

    China Stocks Slump, Yuan Falls After Moody’s Cuts Credit Rating

    China’s stocks headed for their lowest level since September, the yuan retreated and default risk increased after Moody’s Investors Service cut its rating on the nation’s debt for the first in almost three decades.

    The Shanghai Composite Index declined 0.8 percent at 10:17 a.m. local time, poised for its biggest loss in two weeks. The yuan dropped 0.1 percent against the dollar, and the cost of insuring five-year sovereign debt from nonpayment rose 3 basis points.

    The Moody’s downgrade to A1 from Aa3 comes as local investors desert the equity and bond markets amid a government campaign to cut risk in the financial sector. The Shanghai gauge is the world’s worst-performing major benchmark index this quarter, sliding 6 percent. The yield on China’s 10-year government debt is at 3.68 percent, close to a two-year high.

    Chinese stocks are facing a "bigger challenge" than the Moody’s downgrade, said Hao Hong, Hong Kong-based chief strategist at Bocom International Holdings Co. "As the market wobbles, many of the stocks used for pledged loans are nearing the level that could trigger margin calls. This is probably a bigger risk near term. So together with this rating downgrade, it is negative for the market – but not just the downgrade itself."

    Moody’s cited the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances. Total outstanding credit climbed to about 260 percent of GDP by the end of 2016, up from 160 percent in 2008, according to Bloomberg Intelligence.

    "The timing of the downgrade came as a surprise," said Sandra Chow, senior analyst at CreditSights in Singapore. "So the surprise element may cause a knee-jerk negative reaction, but the chase for yield may draw spreads back in eventually.” 

    Moody’s lowered China’s credit-rating outlook to negative from stable in March 2016, citing rising debt, falling currency reserves and an uncertainty over authorities ability to carry out reforms. About a month later S&P Global Ratings also warned that rising local debt was pressuring the nation’s rating.

    Consumer staple, health-care and utilities shares were among the biggest losers on mainland markets. The ChiNext gauge of small-cap companies erased a loss of 1.6 percent to trade 0.1 percent higher, while Hong Kong’s Hang Seng Index dropped 0.3 percent.

    Read more: https://www.bloomberg.com/news/articles/2017-05-24/china-stocks-slump-yuan-falls-after-moody-s-cuts-credit-rating