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Reinventing the West:
The Role of Its
Natural Resources in
the 21
st
Century
By
J. C. Whorton, Jr.
and
John Whorton

International Research Center
for Energy and Economic
Development

Occasional Papers:
Number Fifty










REINVENTING THE WEST:
THE ROLE OF ITS NATURAL RESOURCES
IN THE 21
ST
CENTURY


by


J. C. Whorton, Jr. and John Whorton








ISBN 0-918714-76-1






Copyright © 2014 by the International Research Center for
Energy and Economic Development

No part of this publication may be reproduced or transmitted,
except for brief excerpts in reviews, without written permission
from the publisher.



Cost of publication: U.S. $10.00





INTERNATIONAL RESEARCH CENTER FOR ENERGY
AND ECONOMIC DEVELOPMENT (ICEED)
850 Willowbrook Road
Boulder, Colorado 80302 U.S.A.
Telephone: (303) 442-4014
Fax: (303) 442-5042
Email: iceed@colorado.edu
Website: http://www.iceed.org
Reinventing the West:
The Role of Its Natural Resources
in the 21st Century

J. C. Whorton, Jr. and John Whorton*


“What the Western experience has demonstrated perhaps more
clearly than any other is the astonishing speed with which things
can change.”
Larry McMurtry, author


New Economy Myths versus Old Economy Realities

How do we begin to define the American West? Geograph-
ically, it is the classic novel context of everything west of the
Mississippi River. Ideologically, it becomes much more chal-
lenging, especially depending on who is defining what issue or
facet of the area and from what perspective. You can map a re-
gion, but it becomes very difficult to describe the many cultures,
myths, and issues that define that region, especially in the West
where novels, movies, TV, and product advertisements have il-
lustrated it so vividly with their own spin. Now political cam-
paigns and other groups with staked agendas strive to tell, or
better yet twist, their own version of the many interests that af-
fect their party, platform, and financial supporters.
The western United States contains some of the largest open
areas in the country. In some areas it is not clear whether a single
unadulterated Western cultural region actually exists. Unlike the
eastern United States, where settlement is virtually continuous
across distance and in which cultural and ethnic neighborhoods
abut and overlap, the major and lesser centers of population in
the western United States are still oasis-like, separated from one
2
another by wide and barren expanses. These vast distances are
often so great that to describe them is best said by the frequently
quoted phrase: “In the west, it often takes an hour to drive to a
town and a minute to pass through it.” The only noticeable prop-
erties that many of these isolated settlements have in common
are the blending of several origins of a culture, or multiple cul-
tures, and a gradual drift to modernity that has been slowly
evolving since the late 1800s. Many of these communities were
initially settled along streams, railroads, and trails as trading-post
extensions into hunting, agricultural, or natural resource regions
and have only in recent times begun to develop their own con-
temporary economic personalities, such as the emerging
megaurban region along the front range of Colorado.
The mountain west evolved as a hinterland once subject to
several dominant feeder cities. Oddly enough, Washington, D.C.
was not one of these cities, even though the federal government
was and still is the largest landowner through its public land
holdings acquired from the Louisiana Purchase (1803), Oregon
Territory (1848), and the Mexican Cession (1848). The early
dominant cities of the West were Chicago, St. Louis, and Kansas
City. Most of what we think of as the “Old West” was really the
Chicago-influenced West that developed after the Civil War. Un-
der the Chicago plan for social and economic engineering on a
continental scale, the land would be populated with farmers and
ranchers who would send their grain and beef to Chicago eleva-
tors and processing plants, use its banks and insurance compa-
nies, and trade their commodities on its exchanges. Western
settlers would ship their commodities on Midwest-based rail-
roads and buy from its manufacturers. Under this plan, public
land was to be put into private hands as quickly as possible, and
the land was to be managed for maximum economic production.
Western cities such as Denver, Salt Lake City, Albuquerque, and
Cheyenne were established and nurtured as little more than eco-
nomic satellites for Midwest-based railroad centers.
This plan for settlement and expansion was accelerated quick-
ly when the Transcontinental Railroad became operational on
3
May 10, 1869. This event immediately established a mechanized
transcontinental transportation network that revolutionized the
settlement and economy of the American West by bringing these
western states and territories firmly and profitably into the “Un-
ion” and making goods and transportation much quicker, cheap-
er, and much more efficient from coast to coast. Also during this
time, in the 1850s, California had just been allowed into the un-
ion as the thirty-first state and was isolated from the rest of the
nation by nearly 2,000 miles of unsettled wilderness. There was
some fear that without more control by the national government,
California—with its newly discovered mineral wealth—might
secede into independence.
This transcontinental transportation network also created the
second largest landowner in the West. After the Civil War, rail
lines such as the Union Pacific Railroad and Northern Pacific
Railway (now Burlington Northern) accepted huge grants of land
to subsidize railroad construction and operations across the
American Plains and to gain access to the Pacific Coast. It
should be noted that these land grants were in fee simple abso-
lute in which the surface and mineral estate were, and for the
most part still are, a single estate.
The construction of railroads in the plains and prairies differed
from that in eastern North America in that it preceded the settle-
ment of the land. These lines, rather than the communities them-
selves, shaped the architecture, layout, and placement of towns.
In the United States, federal, state, and local governments as well
as individuals gave railroad companies gifts of land to build their
lines through the plains. Railroads received an estimated 185
million acres of land from these sources, an area more than one-
tenth of the whole United States and larger in area than the state
of Texas.
The largest contributor by far was the federal government,
which made the grants directly to the companies or through state
government intermediaries. Under grants to the Union Pacific
and Central Pacific (later the Southern Pacific) lines, the federal
government offered 20 square miles of land for each mile of
4
track laid in territories and 10 square miles of land for each mile
of track laid in states. The land grants were laid out in a checker-
board pattern in alternating sections, next to government re-
served lands. During and after construction, critics debated
whether the land grant was a reasonable subsidy or an opportuni-
ty to plunder the wealth of the prairies and plains. Apologists for
the railroad grants admitted that the legislation appropriating the
lands was often poorly drawn and contradicted land settlement
plans, but noted, however, that building and running a railroad
was an expensive and unstable business. Land grants, they wrote,
offered companies immediate revenues and the means to meet
future capital costs. Although critics of the railroad land grants in
the United States argued that the gifts made railroads the “pro-
prietors of the West,” the rail lines that bound the Atlantic and
Pacific together certainly would not have been constructed so
early without them.
1
Today, along with the federal government,
the railroads and their successors in interest are the largest min-
eral owners in the West.
These days western cities are no longer satellites for midwest
railroad hubs but are now viable economic partners to a host of
other cities such as Houston and Los Angeles, economically,
physically, and culturally.
The physical connection to Los Angeles is as close as the
Colorado River, which is managed primarily by federal agencies
to serve Southern California’s unquenchable thirst. California
also has one other unquenchable thirst: the energy required to
power its growing cities and its rapidly growing technological
industries. With densely populated urban centers such as the Sili-
con Valley, California must have an abundance of cheap, clean,
reliable energy in order to maintain its ranking of the eighth larg-
est global economy.
2
California practices NIMBYism (Not In
My Backyard) and BANANAism (Build Absolutely Nothing
Anywhere Near Anything) on a grand scale and encourages gen-
eration of power and greenhouse gas emissions elsewhere. It
needs a tremendous amount of reliable and sustainable power to
feed an economy of global proportion, but its environmental
5
laws make it almost impossible to build new power plants,
transmission lines, or natural gas pipelines within the state. This
demand for energy presents Houston, the self-proclaimed Energy
Capital of the World, the gateway that its countless energy com-
panies need to access the abundance of oil and gas found mostly
under public lands in the West.
When you watch national television, do you see any an-
nouncements about the West’s abundant natural resources fueling
the New Economy from its public lands? No, what you see are
ads for SUVs sitting on top of some rugged mountain or ads for
recreational activities. People are skiing, rafting, fishing, camp-
ing, hiking, and horseback riding—that’s what the California
West says that our public lands are for. Our public land manage-
ment policies are at a crossroads. Agencies need revenues to sus-
tain their growing budgets, but it is much more politically correct
to charge “user fees” for recreation on public lands than the po-
litically incorrect choice of extraction of natural resources, espe-
cially if it involves hydraulic fracturing.
3
User fees may be where
most of the value in the California West public lands is now, if not
monetarily, at least psychologically. Public lands were originally
created for livestock grazing and natural resource extraction such
as coal and timber. Today, Americans spend far more on recrea-
tional paraphernalia such as skiing equipment, camping gear, RVs,
ATVs, bikes, and fishing and hunting equipment than the Forest
Service now realizes from timber lease sales or grazing leases.
Another interesting commercial aspect of public lands is their
value to real estate. Look at any ad for upscale property and you
will often see phrases like “near public lands,” “access to public
lands,” or “adjoins public lands.” Why are these adages such pop-
ular promotional ploys? Because it allows buyers to assume, or
fantasize, that they will never have neighbors, let alone undesir-
able neighbors. It preserves the wide open spaces and images of
the vast western skies. The undesirable neighbor list at one time
was probably based upon race, religion, or creed but now is target-
ed for anyone involved in the extraction of natural resources, re-
lated infrastructures, and/or livestock feedlots or processing plants.
6
Thus becomes one of the first crises of the New Economy
Myths versus the Old Economy Realities. California’s energy
crisis more than a decade ago was a sobering wake-up call—
particularly to the other rapidly growing Western states and
economies. The lesson: more people, industry, and technology
require more energy, and more energy requires the formation and
execution of public and private policies that do not discourage
growth of the energy value chain—exploration, production, dis-
tribution, and the infrastructure that goes with them. The Chica-
go West plan of managing the land for maximum economic
production included natural resources and transportation as a
vital part of that economy. The Old Economy of the Chicago
West is now being asked to support the California New Economy
in many ways. As we are quickly discovering, the New Econo-
my, the age of information and technology, is very, very depend-
ent upon the energy and the policies of the Old Economy. The
formula for the New Economy may be very simple: Fuel =
Power = Technology.
The Old Economy was built around regional agricultural and
industrialized societies that produced and moved tangible goods.
The New Economy is a global workplace that has shifted toward
intangible services and information services and products now
often paid in “digital currencies” such as bitcoins.
4

Two fundamental Old Economy industries are agriculture and
mining, both of which were the key drivers for settling the western
United States. Both are deeply rooted in the age-old adage “land is
the basis for all wealth,” an axiom that the New Economy indus-
tries are challenging on a daily basis. Agriculture, like other com-
modities, is supply/demand driven, and thus subject to periods of
extreme volatility. With agriculture, whether farming or ranching,
the modern basis for wealth is now more often a trade-off between
a lifestyle that one loves and respects rather than the promise of
great economic reward. Do you stay on the land and carry on a
generational tradition of farming and ranching, sell out to a real
estate developer subdividing into ranchettes,
5
or even monetize
your water rights for non-agricultural commercial use?
7
Early on, the energy industry provided the American farm
with power to light its homes and fuel to mobilize its activities.
Rural America today has most, if not all, of the conveniences and
technology of its urban cousins. As far as quality of life, the dis-
tinction between rural and urban is now very blurred. For those
areas fortunate enough to lie over productive geological basins,
the energy industry has subsidized much of the western agricul-
tural industry. Oil and gas lease bonuses, surface damages, and
royalty income have long subsidized inflated land prices, expen-
sive farm machinery, rising labor costs, high interest rates, and
volatile agricultural commodity prices. This supplemental income
derived from mineral estate ownership associated with surface
estate ownership has allowed many a farmer and rancher to con-
tinue to pursue an otherwise uneconomical “American Dream.”
Agriculture and energy have both contributed much to the
myths of the American West Old Economy. Fourteen years into
the new millennium, the concept of the “American West” is still
very strong in the popular imagination and is constantly re-
inforced by romanticized cinematic, TV, and literary images of
wide open spaces, majestic views, freedom to roam, and the life-
style of the cowboy. The cowboy’s West is so vast in area and
myth that at times it seems impossible to define and conceptually
map. After viewing movies and TV ads it is tempting to fully
embrace the assumption that the cowboy and his ranches com-
pletely epitomize the full gamut of Western life. After all, not too
many great western epics take place on dairy farms. Although
the early cowboy and cattle industry may have accounted for a
great portion of the Western domain area wise, it actually en-
gaged a relatively small fraction of the West’s population and
lasted a very brief time in the history of the “civilized” West.
Today, the preponderance of unpopulated wide open spaces con-
sists of large corporate farms, ranches, and public lands.
The oil and gas industry’s contribution to myths is that of the
early day wildcatter who took chances and gambled against high
odds for fame and fortune. Oil and gas have long come to sym-
bolize wealth. In recent times, the image transposed to the slick,
8
greedy promoter J.R. Ewing, the Dallas TV series icon. While
the J.R. image has been a successful story line for Hollywood, it
has been misaligned and damaging for the current industry’s im-
age, especially when it comes to the issue of developing public
lands for oil and gas exploration. TV ads supporting or condemn-
ing hydraulic fracturing (fracking) now flood the airwaves dur-
ing prime-time local television.
What is now interesting is that both agriculture and energy
must look to the West and its public lands for future growth. It is
estimated that a large percentage of North America’s natural gas
reserves lie in the Rocky Mountain region with most of those
reserves being found on public lands (see figure 1). An estimated
30 percent of North America’s coal lies in the Powder River Ba-
sin of Wyoming. Grazing leases on public lands are still very
critical to the economics of western ranching; however, natural
resource extraction such as oil and gas, coal, and timber are in
serious competition for both agricultural access and their increas-
ingly valuable water rights.
Today, the energy industry is one of the most visible cracks in
an old economy trying to keep pace with the new. Coal has diffi-
culty moving on an antiquated railroad system and natural gas
production and its aging infrastructure has struggled to keep up
with an emerging economy’s demand for its environmentally
favored source of power. The rapid expansion of the New Econ-
omy, driven by escalating technological and telecommunications
power needs, becomes more dependent on energy and its aging
infrastructure by the day.
So, the last few years have set the stage for a new era in the
American West. Booming technological centers of commerce,
such as the Silicon Valley and Colorado’s Front Range, demand a
highly skilled, specialized workforce that demands high quality-
of-life accompaniments such as access to recreational facilities
on public lands. These New Economy technological centers of
commerce in turn have huge power requirements from Old
Economy energy companies that need access to the same public
lands to satisfy the associated growing power demands.
9
Figure 1
U.S. FEDERAL PUBLIC LANDS SURFACE AND SUBSURFACE


Source: U.S. Department of the Interior, Bureau of Land Management
(BLM), Washington, D.C., BLM, 2005.

The West may very well become the casebook study for the
rest of the world, as the ultimate balance of its policies, planning,
and action will determine this “Tug of War’s” final outcome.
While the present “Tug of War” over public land’s natural
resources is being waged, interesting observers and passive
players in the background are foreign national oil companies
(NOCs) that are silently competing for and buying interest in
North American oil and gas assets. China, much like the United
States but on a much larger scale, must secure energy resources to
feed its rapidly developing urban centers and their huge power
Surface & Subsurface Federal Ownership
States
Legend
10
demands. Realizing that certain commodities such as oil and gas
are in finite supply and becoming scarcer by the decade, these
energy resource-deficient countries must look abroad for reserve
replacement and accumulation security. Recent joint ventures
with U.S. energy companies for proven reserves and shale
formation completion technology have dominated the energy
investment agenda.
The recent expansion of the oil and gas industry in the United
States resulting from increased production and lower prices has
created significant economic growth and over 1.2 million jobs
directly or indirectly, which is expected to grow to 3.3 million by
2020.
6
The energy industry is a significant employer in the West,
with a vast supply chain that includes but is not limited to oil and
gas drilling, extraction, support activities, transportation, refin-
ing, and sales. This boosts the economic output and employment
needs by creating demand for a wide range of associated goods
and services. It also has contributed significantly to greater ener-
gy independence for the country. The oil and natural gas industry
currently supplies more than 60 percent of the nation’s total en-
ergy demands and more than 99 percent of the fuel used by
Americans in their cars and trucks.
7

Shale gas currently accounts for nearly half of U.S. natural
gas production, and U.S. prices have fallen to one-third of Euro-
pean levels and one-fifth of Asian levels. Tight oil, produced
with the same techniques (horizontal drilling and fracking) as
shale gas, is the main reason U.S. oil production has increased 60
percent since 2008. This increase of 3 million barrels per day is
larger than the national output of nine of the twelve OPEC coun-
tries. The International Energy Agency (IEA) predicts that the
United States will soon overtake Saudi Arabia and Russia as the
world’s largest oil producer.
8

Just as its vast lands are needed for agricultural sustainability
to feed its growing population, the West’s finite natural resources
are clearly the critical key to providing the required energy for its
future. Unfortunately, both need the same limited resource of
water, as do its growing urban centers. In resolving this festering
11
competition, the region must produce a viable plan that can re-
define and revitalize itself, launching from its past and present
outpost status to a predominant role on a par with the more popu-
lated East and West Coasts. This plan may very well serve as a
blueprint for Canada, Mexico, China, and other countries that
face many of the same issues now and in the coming years.
All of the concerns confronting the New Economy of the West
are paramount, but none are mutually exclusive. To face the chal-
lenges that lay on the immediate horizon, ensure the security of
the future, and correct the mistakes of the past, the energy indus-
try and their government and environmental peers must reinvent
and realign themselves with a set of common goals. To achieve
such an aggressive agenda, the following key issues must be ad-
dressed and resolved in mutually beneficial ways.
– Urban Encroachment into Rural Areas
– Access to and Responsible Use of Water
– Environmentally Sound Extraction and Transportation of Re-
sources
– The Financial and Political Effects of Split-Estate Law


Urban Encroachment into Rural Areas — The Great Divide

“What’s bad about sprawl is not its uniformity, but that it is so
uniformly bad.”
James Howard Kunstler

The Great Divide is a stark division between cities and what
remains of the countryside. Urban and rural America both re-
quire the same land and the same water, whether it is for mineral
development, a golf course, or a livestock feed lot. The competi-
tion is intense as both have the same needs for energy, food, and
expansion.
The American past was one where you could claim a piece of
land and make your own home but it was also dangerous and you
had to defend it knowing that help was often several miles or
12
even days away. This frontier mindset is still a deep part of those
rural values even if we no longer have a hostile, unsettled fron-
tier. Even today emergency response times for police, fire, and
ambulance are vastly different for rural than in urban areas.
It is estimated that by 2050, 89 percent of Americans will live
in an urban area, up from 83 percent now, and by 2040 there will
be a half-dozen metro areas with populations of more than 10
million, up from two now (New York City and Los Angeles) with
about 10 others with over 5 million inhabitants. This same study
estimates significant expansion of many midsize and inland cities.
This urban/rural divide continues to grow and play a major
role in the evolution of the West. Not just some cities and some
rural areas, either—virtually every major city (100,000-plus
population) in the United States of America has a different out-
look from the less populous areas that are closest to it. The dif-
ference is no longer about where people live, it’s about how
people live: in spread-out, open, low-density privacy or amid
rough-and-tumble, in-your-face population density and diverse
communities that enforce a lower common denominator of toler-
ance among inhabitants
.9

As population density increases, energy production and inde-
pendence also has increased to meet the growing urban demand.
Historically, much of the oil and gas drilling has been in rural
and remote areas away from cities and towns; this urban growth
has now led to a rising amount of drilling occurring in or near
cities, residences, and businesses. The resulting change in the
balance of interests, increasing requests for noise abatement, and
the elimination or lessening of perceived environmental impacts
has been at the heart of many heated controversies. Certain cities
recently affected by this new or expanded activity have tried to
regulate, greatly restrict, or even ban drilling within their bound-
aries. The energy industry is now going to great lengths to ac-
commodate its drilling and operations within or near urban areas
to lessen its impact on local residents and businesses.
While advancements in drilling techniques have led to in-
creased drilling in recent years, urban drilling is certainly not
13
new. Drilling operations within urban corridors has been occur-
ring since the early 1900s. In many cities, such as Los Angeles
and Dallas/Ft. Worth, there are locations where most neighbors
are largely unaware that drilling and production is occurring. The
drilling is conducted behind high walls that serve as sight and
sound barriers.
The recent concern about drilling arises from several factors,
including fears of noise, dust, traffic, and potentially emissions
of unhealthy chemicals. Some of these issues can be dealt with
using reasonable steps; others may prove not to be of any real
risk.
Concerns about fracking have been widely discussed in the
media and, as a result, many in the public do not want any drill-
ing near their properties. On the other hand, other landowners
would like to take advantage of the income generated from leas-
ing their mineral rights. Thus, in many cities and counties in
states where oil and gas development is occurring, there is a de-
bate as to what or if any further regulation or restriction is neces-
sary. Those who seek to bring in the additional income to
mineral interest owners and the jobs and economic growth asso-
ciated with drilling and production tend to want to work through
reasonable accommodations with the oil and gas companies. Re-
ports in The New York Times discuss Greely, Colorado, as work-
ing to set certain restrictions on drilling, while Boulder,
Colorado, imposed a year-long ban on drilling.
A similar ban on drilling has occurred in many states. In some
states, like Pennsylvania, these bans have been struck down by
courts because the state laws preempt local regulations or are
inconsistent with the regulations set by the state regulatory agen-
cies. As a result, in some states, local restrictions are significant-
ly limited, while in others, municipalities can currently exercise
significant regulatory authority over oil and gas activities.
As oil and gas companies evaluate drilling plans, some steps
can be taken to reduce impacts and potentially reduce complaints
from neighbors. For noise, distance is sometimes the best way to
reduce impact. Locating as far away from residences is clearly
14
the best approach if it can be achieved. At times, the distance can
only be reduced so much in order to drill in the particular for-
mation, lease, or unit boundaries.
Drilling in towns and cities will likely continue over the next
few years or even decades, as oil and gas formations are often
found in and around these areas. Not all cities or their residents
will welcome drilling. Oil and gas companies can attempt to ed-
ucate, inform, and engage in practices that reduce impacts from
perceived encroachment of drilling activities near residents and
business owners. Care in moving into these areas is critical to
understand the potential concerns and to work with local leaders
to develop an approach that may reduce the attempts to signifi-
cantly limit, if not ban, drilling activities while allowing reason-
able accommodations for drilling to take place with reduced
local impacts.
10


Access to and the Responsible Use of Water — We All Need It:
Who Owns It and Who Gets It?

“Whiskey is for drinking; water is for fighting over.”
Mark Twain, 1884

The issue of water rights in the West is quickly becoming a
crisis. The expansive encroachment of urban areas into the agri-
cultural areas has sparked a new battle. Who gets the water: the
ever expanding cities, with the newer, nicer golf courses and city
parks, or the agricultural lands upon which much of the nation’s
crops are produced? The introduction of the new hydraulic frac-
turing techniques used to extract natural resources from shale has
added an additional argument. Are the oil and gas companies
using too much water to develop our resources?
With much of the West recently facing historical droughts, fed-
eral and state governments have mandated intricate water policies.
The federal government is spending hundreds of millions of dol-
lars a year on drought relief programs, but with the subsidies come
15
extensive water-usage restrictions. These restrictions are forcing
farmers to leave thousands of acres of rich farm lands fallow, as
well as forcing cattle ranchers to sell large portions of their
herds. The impact of water restrictions is changing the face of
the newly designed golf courses and parks by introducing more
water resourceful xeriscaping rather than the lush grasses.
As demand increases, the battle for water rights in the West
will become even more intense in the coming years. California is
currently experiencing historical droughts with no relief in sight.
The current snow pack for the state is estimated at only 12 per-
cent of average. The spring runoff will not be able to provide
California farmers with the resources needed to plant and main-
tain their crops. In early 2014 President Obama pledged $183
million in federal aid for California’s drought relief programs.
11

The arguments over who should receive the funds are taking the
stage in California politics. The battle for water rights can clearly
be seen here, the most populous state in the union, which produces
nearly one-half of the nation’s fruits and vegetables.
The volume of water need for the hydraulic fracturing process
has once again drawn negative publicity to the oil and gas indus-
try. The media recently has slammed the industry with accusa-
tions of water contamination by fracking processes. Oil and gas
companies have been forced to create alliances, such as the
Western Energy Alliance and Coloradans for Responsible Energy
Development, to reveal the inaccuracies and inconsistencies of
the anti-fracking movement’s claims. The media-driven negative
publicity is now pointing their fingers at the amount of water used
by oil and gas companies during the hydraulic fracturing process.
The average horizontal well uses 3 to 5 million gallons of
water during the hydraulic fracturing process. Though this figure
seems high on a per well basis, the oil and gas industry accounts
for less than 1 percent of the nation’s water usage.
12
Finding the
water has become the largest challenge facing producers in the
West.
In Colorado, where oil and gas development accounts for 0.8
percent of the state’s water usage, and agriculture accounts for
16
85.5 percent, producers are forced to search for alternative meth-
ods of obtaining water.
13
The most common method of obtaining
surface water is not an option as many municipalities claim
rights to lakes and rivers, and state laws govern the usage water
in irrigation ditches and canals for agricultural use. Water pur-
chased from municipalities can prove to be very expensive and
the added cost of transportation makes it uneconomical. The state
laws regulate the amount of ground water that can be removed
from the aquifers, leaving very little for oil and gas development.
As a result, producers are using new techniques, such as treating
and reusing production water from the surrounding wells.
The West is setting the stage for political platforms surround-
ing oil and gas development. With environmental issues driving
the anti-oil and gas campaigns, water will be at the forefront of
future discussions. The new breed of western inhabitants will
stop at nothing to preserve their resources and protect their re-
creations.


Environmentally Sound Extraction and Transportation of Re-
sources — I’m Right, You’re Wrong!

“Conservation is a state of harmony between men and land.”
Aldo Leopold

Arguably the most difficult challenge to modern industrial
development has been operating in a way that benefits the end
user while respecting and maintaining the environment. In recent
times, the energy industry has been presented with obstacles in
this area that have centered around two major categories: trans-
portation and resource extraction.
The New Economy West is at a crossroads. The number of
goods and services needed to be delivered on its infrastructure is
increasing by the day, while expansion of the infrastructure itself
is at a proverbial stand still. Litigation and political red tape have
slowed the delivery of crucial pipelines, leaving crude oil and
17
natural gas to compete for space on rail and truck. While this
presents the obvious issues of pollution, infrastructure deteriora-
tion, and resource consumption, other issues arise that, in the
long run, may be more harmful.
All commodities must be transported between stages of sup-
ply chains, often several times over thousands of miles, before
reaching their end user. When supply lines become overcrowded
with goods, the price of transportation and, therefore, the price of
those goods increase. Much like petroleum, wheat, corn, timber,
and other crops are used in the production of almost everything
in which we find value in modern life. If all commodities contin-
ue to burden the same transportation infrastructure, as a society
we cannot expect to see a reduction in pollution from that infra-
structure and must expect extreme pricing volatility on the goods
and services that have become essential to us.
While the transportation of oil and gas will become more of a
key issue on the horizon, the concern that must first be addressed
is the extraction of that oil and gas. Because of mistakes like the
Exxon Valdez and Deepwater Horizon spills, energy companies
have invested billions in adhering to some of the strictest envi-
ronmental guidelines facing any industry. In the last few decades,
the development of tight oil and natural gas fields has played a
key role in contributing to the new energy economy in what has
proven to be the most environmentally responsible way to date.
For decades production from American oil fields has been
entering decline curves faster than new fields have been discov-
ered. To date, alternative sources of energy are neither capable of
meeting the demand currently being supported by hydrocarbons
nor economically feasible to develop competitively and without
government subsidies in the short term.
14
Without a suitable al-
ternative to crude oil that can be delivered quickly, efficiently,
and in an environmentally sound manner, complete dependence
on foreign energy has looked all but inevitable. Vast formations
of liquids and natural gas-rich shale had never been economical-
ly feasible to develop; however, in the 1940s, the advent of hy-
draulic fracturing gave the energy industry a means of extracting
18
this crucial commodity.
15
In the subsequent decades, the tech-
nology involved with fracking and the introduction of horizontal
drilling have made abundantly more of this gas accessible and
have presented the United States with an opportunity to not only
become energy independent, but an energy exporter.
Cheap and readily available natural gas has sparked an over-
haul in heavy industry. Power plants and other large-scale con-
sumers of coal have increasingly converted their operations to be
powered by natural gas. This has been one of the largest contrib-
uting factors to greenhouse gas emissions decreasing to what are
now pre-1994 levels.
16
Additionally, the abundance of American
natural gas has made it the least-expensive feedstock in the
world and, as a result, has revitalized markets such as the petro-
chemical industry along the Houston shipping channel.
While resource extraction and transportation may be the key-
stones in the New Economy of the West, they must continue to
be carried out in ways that preserve the culture, beauty, and ideo-
logical definitions of the region. To help ensure that this will be
the case, programs such as conservation easements are continu-
ously being established and utilized, while being respected and
adhered to by the energy industry.
In the United States, a conservation easement is a program to
invest in a qualified private land conservation organization (often
called a “land trust”) or government entity to constrain, as to a
specified land area, the exercise of rights otherwise held by a
landowner so as to achieve certain conservation purposes. It is an
interest in real property established by agreement between a
landowner and land trust or unit of government. The conserva-
tion easement “runs with the land,” meaning it is applicable to
both present and future owners of the land.
The conservation easement’s purposes will vary depending on
the character of the particular property, the goals of the land trust
or government unit, and the needs of the landowners. For exam-
ple, an easement’s purposes or objectives might include any one
or more of the following:
 maintain and improve water quality;
19
 perpetuate and foster the growth of healthy forest, grassland, or
other eco area;
 maintain and improve wildlife habitat and migration corridors;
 protect scenic vistas visible from roads and other public areas; or
 ensure that lands are managed so that they are always available
for sustainable agriculture and forestry.

The most distinguishing feature of the conservation easement
as a conservation tool is that it enables users to achieve specific
conservation objectives on the land while keeping the land in the
ownership and control of landowners for uses consistent with the
conservation objectives.


The Financial and Political Effects of Split-Estate Law —
Surface vs. Mineral Rights: How Did This Happen?

“No power on earth has a right to take our property from us
without our consent.”
John Jay, First Chief Justice of the U.S. Supreme Court

Few issues in oil and gas exploration and production are more
divisive than the issue of split-estate law. When it comes to prop-
erty rights, the United States is unique in that no other country in
the world allows its citizens to own the minerals beneath the land.
In all other countries, the minerals are owned by the monarch or
crown (aka, crown lands, crown estate, royal domain, or govern-
ment), the equivalent of an entailed estate (limited to specific heirs)
that passed with the monarchy and cannot be alienated from it.
In the United States when land was originally deeded to indi-
viduals in the 18th, 19th, and 20th centuries, the mineral estate
naturally came with the land and, as long as it has not been sev-
ered (meaning the land and minerals remain together), it stays
with the land.
In a split estate, the surface rights and subsurface rights, such
as the rights to develop minerals, for a piece of land are owned
20
by different parties who both have legal property rights. In these
situations, mineral rights are considered the dominant estate,
meaning they take precedence over other rights associated with
the property, including those associated with owning the surface.
Moreover, courts have held that the mineral right has no value
unless the oil or gas can be removed from the ground. That
means that mineral owners have the right to reasonable use of
the surface, regardless of whether or not the surface owner grants
permission. However, the mineral owner, or its lessee under a
mineral lease, must show due regard for the interests of the sur-
face estate owner, or its tenant, and occupy only those portions
of the surface that are reasonably necessary to develop the min-
eral estate. The various State and Bureau of Land Management
(BLM) regulations have further defined this relationship. Surface
and mineral owners are encouraged to open a line of communi-
cation as soon as possible to discuss plans and needs. Most often
the problem lies in the fact that neither party knows the other
until the mineral extraction process has already started through
the mineral owner’s lessee.
The BLM’s split-estate policy only applies to situations in
which the surface rights are in private ownership and the rights
to development of the mineral resources are publicly held and
managed by the Federal government through the BLM. These
public lands, including the Federal mineral estate, are managed
to enhance the quality of life for present and future generations
of Americans, under a mandate of multiple use as described in
the Federal Land Policy and Management Act.
Oil and gas leasing is much easier when the surface owner owns
all or a portion of the mineral estate in that many of the terms and
conditions for the surface usage can be incorporated into the oil
and gas lease. This becomes much more difficult and contentious
when the surface and mineral estates are severed and separate.
Surface ownership without mineral ownership is most often
an extremely divisive situation in oil and gas exploration. Few
things are more irritating and frustrating than the thought of your
surface estate being utilized against your will with drilling and
21
operations imposing upon the use of your land for the financial
benefit of others. In many cases, the financial rewards of oil and
gas production from the mineral estate are huge while the surface
estate can only tolerate the inconvenience and envy the benefits
the mineral estate is receiving.
When surface and mineral estates are split and publicly sensi-
tive issues such as fracking arise, especially within municipality
or city limits, surface owners most often live within the commu-
nity, pay property taxes, and, thus, have voting rights. On the
other hand, mineral owners often are absentee interest owners
living in other jurisdictions, not required to pay taxes on their
severed mineral interests in most counties. As a result, their ad-
dresses are not recorded in the county office and they conse-
quently have no voting representation where their mineral
interests are owned. This absenteeism and lack of tax liability, in
effect, makes them a “silent stakeholder” having a strong eco-
nomic interest but no voting rights on issues that affect their
property’s development and value. This intensely debated and
emotional property law issue will likely be tested in numerous
state courts before it is eventually resolved at the federal level.
Perhaps honoring voting rights to mineral as well as surface
owners would give all economically interested parties a voice.


Summary


“Even if you’re on the right track, you’ll get run over if you just
sit there.”
Will Rogers, American Humorist and Writer

“Go West, young man” was a quote by American author Horace
Greeley in the mid-1800s supporting westward U.S. expansion,
related to the then-popular concept of Manifest Destiny.
Manifest Destiny was a phrase used by leaders and politicians
in the 1840s to explain and justify continental expansion by the
22
United States. It served to revitalize a sense of “mission” or na-
tional destiny for Americans in that no nation ever existed with-
out some sense of national destiny or purpose. During this
period, the people of the United States felt it was their mission to
extend the “boundaries of freedom” to others by imparting their
idealism and belief in democratic institutions to those who were
capable of self-government.
Manifest Destiny served a vital function during that period of
westward expansion for achieving an aggressive public policy
agenda. Although the term is no longer used, it appears that the
concept is still very much in practice to achieve what is perceived
as the “common good.” For whom or what special interest group
this “common good” is achieved is still very much in question.
Today, energy use is not just about comfort and mobility. En-
ergy creates wealth by increasing productivity. When productivi-
ty is reduced, jobs are lost, wages are diluted, and standards of
living decline. These are consequences that any economy, re-
gional or national, cannot overlook.
It is often said that one definition of insanity is to keep doing
the same things over and over again—and expecting a different
outcome. Market-distorting regulation, unreasonable environ-
mental and political restraints, and a lack of meaningful long-
term natural resource policies have resulted in decades of neglect
of energy supply and infrastructure—neglect for which we are
paying dearly today and will pay ever greater in the future. To
assume that we can magically restore the West’s energy stability
within the confines of business-as-usual constraints is true insan-
ity. The same can be said for our water, land, and environmental
stewardship policies as well.
The West has evolved into a thriving and desirable region with
a swelling population to prove it. Continuing sustainable growth
in the New Economy will require fundamental shifts in both
policy and perception that will allow the Old Economy to both
catch up and continue to grow. This will be achieved through the
development of economically viable long-term energy supplies
and the necessary infrastructure with which to deliver them.
23
Alternatively, the suffocation of the New Economy may be at
hand by the deterioration of the Old Economy.
Energy and water resources, economics, and demographics
are changing rapidly. None of the issues addressed herein are
diminishing but rather are compounding daily. The West is no
longer the satellite for many distant feeder cities seeking to ex-
ploit its resources, but a stand-alone vibrant economy growing
from within while still seeking to balance the demands from
those outside its confines.
So when you look to the West and its abundant resources for
opportunity and growth, just remember that things change rapid-
ly in the West and, as the old saying goes, trouble rides a fast
horse.


NOTES

*J.C. Whorton, Jr. is a senior-level energy professional with over 35 years
of experience spanning all segments of the corporate value chain from both the
physical and financial perspective. This experience and his leadership positions
with six Fortune 500 companies have provided him with the opportunity of
working with many of the world’s leading energy companies at the executive
and board level.
The author has extensive upstream E&P operational experience and was a
member of the National Energy Consulting Practices at PA Consulting, Price-
waterhouseCoopers, Andersen, and Caminus (now SunGard) where he was
recognized as an international Subject Matter Expert on strategy and risk man-
agement. He is a registered Commodity Trading Advisor (CTA) with the Na-
tional Futures Association (NFA) and has held all major trading and principal
licenses with the Securities and Exchange Commission (SEC) and Commodi-
ties Futures Trading Commission (CFTC). Mr. Whorton managed institutional
energy trading desks at Prudential Securities and Morgan Stanley. He has pro-
vided strategic insight and market commentary for such leading business and
financial news and wire services as Dow Jones, Wall Street Journal, New York
Times, and McGraw-Hill.
Mr. Whorton is a well-known and frequently featured speaker on energy and
financial topics, having made presentations to over 150 conference forums in
North America and Europe. An award winning author, he co-authored Power
Play – Who’s in Control of the Energy Revolution? (PennWell, 1998) and has
contributed over 40 papers and articles for industry institutes and publications.
24
The author holds a M.A. in public administration from Oklahoma City Uni-
versity and a B.A. in political science from the University of Oklahoma.

John Whorton serves as the Managing Director of Stratcom Advisors LLC.
Since assuming a leadership role in 2011, he has transformed the firm’s busi-
ness model from a traditional land/lease brokerage firm into a recognized in-
dustry leader in energy due diligence practices.
The author is widely recognized for his extensive experience in managing
due diligence engagements for merger, acquisition, and divestiture projects
totaling several billion dollars. He also has deep experience in originating and
managing large oil and gas exploration and exploitation lease plays throughout
the Midcontinent and Rocky Mountain regions.
Mr. Whorton’s experience and expertise in complex title examination and
due diligence led him to develop TractMaster™ Energy Management System, a
methodology designed to more efficiently manage the workflow from the field
to the land department. TractMaster™ is a MS Excel-based ownership report-
ing technique, which is customized to a company’s specific land, title, and divi-
sion order needs. TractMaster™ greatly facilitates the due diligence processes
in merger, acquisition, and divestiture transactions.
The author holds a B.S. from Oklahoma State University and a Certificate
of Petroleum Land Management from the University of Houston.

Acknowledgements: A special acknowledgement to StratCom Advisors,
LLC Directors Amanda Wynn Bidgood and Chance Snook. As invaluable
members of the StratCom Management Team, they share and embrace the vi-
sion of a rapidly transforming West with infinite challenges and possibilities
erupting and emerging on a daily basis. We are extremely grateful for their time
and invaluable input in assisting us address the many challenges and issues that
this paper presented.


1
David J. Wishart, ed., Encyclopedia of the Great Plains (Lincoln, Nebraska:
University of Nebraska Press, 2004).


2
California’s economic recovery along with the economic crisis in Europe
should allow the state to regain its number 8 ranking in the global economy, ac-
cording to the Center for the Continuing Study of the California Economy (see
Dan Walters, “California Poised to Regain No. 8 Ranking in Global Economy,”
Sacramento Bee, July 11, 2013).


3
Hydraulic fracturing is the fracturing of rock by a pressurized liquid. Some
hydraulic fractures form naturally—certain veins or dikes are examples. Induced
hydraulic fracturing or hydrofracturing is a technique in which typically water is
mixed with sand and chemicals; the mixture is injected at high pressure into a
25

wellbore to create small fractures, along which fluids such as gas, petroleum,
uranium-bearing solution, and brine water may migrate to the well. Mindy Lub-
ber, “Escalating Water Strains in Fracking Regions,” Forbes, May 28, 2013.


4
Bitcoin is a peer-to-peer payment system and digital currency introduced as
open source software in 2009. It is a cryptocurrency, so-called because it uses cryp-
tography to control the creation and transfer of money. Conventionally, the capital-
ized word “Bitcoin” refers to the technology and network, whereas lowercase
“bitcoin” refers to the currency itself. Bitcoins are created by a process called min-
ing, in which computer network participants, i.e., users who provide their compu-
ting power, verify, and record payments into a public ledger in exchange for
transaction fees and newly minted bitcoins. Users send and receive bitcoins using
wallet software on a personal computer, mobile device, or a web application.
Bitcoins can be obtained by mining or in exchange for products, services, or other
currencies. Maria Bustillos, “The Bitcoin Boom,” The New Yorker, April 2, 2013.


5
A ranchette is a small ranch or large acreage lot, often on the outskirts of a
major metropolitan area and just past the planned residential neighborhoods but
frequently in a subdivision with building and usage restrictions, consisting of 40
acres or less and is usually a house and possibly a barn or other outbuildings. A
ranchette is typically zoned Agricultural A2 or some other similar zoning re-
striction permitting a limited number of livestock with appropriate water well or
rural water district restrictions.


6
Tim Mullaney, “U.S. Energy Lifting Economy More Than Expected,” USA
Today, September 4, 2014.


7
PricewaterhouseCoopers LLP, Economic Impacts of the Oil and Natural Gas
Industry on the US Economy in 2011 (Washington, D.C.: American Petroleum
Institute, July 2013).


8
Daniel Yergin, “CERAWEEK 2014: American Shale Gas and Tight Oil:
Reshaping the Global Energy Balance,” Wall Street Journal, January 22, 2014.


9
Josh Kron, “Red State, Blue City: How the Urban-Rural Divide is Split-
ting America,” Atlantic Monthly, November 30, 2012.


10
Scott D. Deatherage, “To Drill or Encroach – Oil and Gas Balancing
Act,” Oil & Gas Monitor, August 12, 2013.


11
Norimitsu Onishi and Coral Davenport, “Obama to Announce Aid for
Drought-Stricken California,” The New York Times, February 15, 2014.
26


12
Colorado Division of Water Resources, the Colorado Water Conservation
Board, and the Colorado Oil and Gas Conservation Commission, “Water
Sources and Demand for the Hydraulic Fracturing of Oil and Gas Wells in Col-
orado from 2010 through 2015,” Denver, Colorado, 2012.


13
New York State Water Resources Institute, “Water Withdrawals for Hydraulic
Fracturing—Water Withdrawal Volumes Required for Hydrofracking,” February 27,
2012, available at http://wri.eas.cornell.edu/gas_ wells_ water_use.html.


14
Morgan Downey, “Industry Overview,” Oil 101 (New York: Wooden Table
Press, 2009).


15
The first use of hydraulic fracturing occurred in 1947, website of Colora-
dans for Responsible Energy Development, available at www.cred.org
.

16
David Blackmon, “Shale Oil & Gas, Keystone XL and Climate Change
Policy,” Forbes, June 20, 2013.