(Note from LL: I sense a disaster in the making for Coos County property owners who get their water from wells and springs. You just watch, the three stooges in the Coos County Courthouse are going to wreck the water supply available to private property owners in this county. Just a little prediction that I thought I would make before the drilling goes bananas.)

March 2, 2003

By Wendy Owen

The Oregonian

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Coos Bay, Oregon - Since 1938, prospectors have drilled into Coos County's dense, undulating coal beds in unsuccessful searches for marketable amounts of methane, the primary component of the natural gas used in homes and industry.

Now, Texas-based CDX Gas thinks its patented multidirectional drilling technology will locate profitable levels of the clean-burning gas that could bring a much needed boost to the Coos County economy.

No one is certain about what they'll find. But if two test wells to be drilled later this year reveal an ample supply, CDX hopes to begin sinking up to 25 wells a year. At that level, royalties and taxes could bring millions of dollars annually to this rural county that has struggled to survive in recent years on dwindling fishing and timber industries.

Coos County commissioners are cautiously optimistic about the proposal, but they know its potential.

"We'd be Beverly Hillbillies," Commissioner John Griffith said.

Royalties and taxes from methane drilling single-handedly pulled the Wyoming state budget from a multimillion-dollar deficit into the black in 2001. But officials in some Western states are quick to caution that the economic boost of coal bed methane drilling has sometimes come with a downside, from unsightly 30-foot-tall drilling rigs and noisy compressors to drained aquifers and crop damage.

At least one-third of the mineral rights CDX seeks are on or near the South Slough National Estuarine Research Reserve south of Coos Bay. The company has already leased acreage adjacent to Bandon Dunes Resort, the nationally ranked golf course that recently unveiled plans to double in size, adding golf courses, homes and lodging.

Although state officials say Oregon has all the right protections in place, no one is eager to take on the task of regulating and overseeing what CDX hopes will be nearly 300 drill sites over 10 years.

Oregon Department of Environmental Quality officials say past lapses in tracking the disposal of wastewater from a test drill site in Coos County won't be repeated. One state geologist will oversee the drilling and land reclamation after the site is closed. But most of the environmental oversight will fall to the five-person Coos County branch of the DEQ, a staff that already is "heavily overwhelmed," said Pam Blake, a water quality specialist with DEQ.

Geologists agree that the methane in Coos County is 2,000 to 4,000 feet below the surface and likely isn't connected to surface water or shallow domestic wells. But they also acknowledge the limits of what they know about subterranean Coos County.

"It would be pretty tough to have a dramatic effect on the shallow (aquifer) system, but certainly not impossible," said Doug Woodcock, a hydrologist with the Oregon Water Resources Department.

"It's really hard to say what's going on below the surface." Market forces pushing Coal mining ran the local economy in the late 1800s, but the quality of the coal was poor, and Coos County eventually foreclosed on acres of mineral rights, which are among those leased to CDX Gas.

The natural gas found in coal beds is almost pure methane compared with natural gas found elsewhere. Demand for natural gas is expected to steadily rise. Households and industries consumed 22.7 trillion cubic feet of natural gas in 2001 and are expected to use 34.9 trillion cubic feet by 2025 with most of it coming from wells in the United States, according to the U.S. Department of Energy.

Wells already dot landscapes from West Virginia to Alabama and Colorado. Oregon's main coal beds run from the south-central area of the state up the Willamette Valley, but methane is more likely to be found in coal deposits along the coast, said Robert Houston, petroleum/geothermal geologist for the Oregon Department of Geology.

Coos County owns mineral rights on nearly 50,000 acres, mostly near abandoned coal mines. CDX has leased 29,000 of those acres for $1 an acre to explore for methane.

CDX plans to drill a test well about 10 miles south of Coos Bay off U.S. 101. The other will be about four miles southeast of Coquille near Fat Elk Road. The company is in the process of leasing an additional 32,000 acres, including more than 12,000 acres from the Oregon Division of State Lands.

Most of the state mineral rights CDX seeks are on or near the South Slough National Estuarine Research Reserve, the 4,700-acre federal-state partnership just south of Coos Bay used primarily to study the estuary ecosystem.

CDX would not be allowed to drill from platforms in the water, but it could drill under the slough from dry land, said Jerry Hedrick, property manager at the Division of State Lands. The state is still negotiating with CDX over the leases.

At $1 an acre, the annual leases won't bring a substantial amount to the mineral rights owners, such as Coos County. It's the royalties and taxes they're after.

Coos County would receive a monthly check for 12.5 percent of the price of methane at the wellhead, which averages about $3 per 1,000 cubic feet. A best case scenario could bring the county millions of dollars annually. That's what Doug Wight, CDX vice president of corporate development, told a Coos Bay Chamber of Commerce crowd in February. He has since played down the figures, saying it depends on the amount of methane CDX finds.

"We don't really have enough information to even speculate at this time," Wight said recently from his office in Dallas, Texas. Profits and problems Columbia County knows the profits of methane. Companies have drilled outside St. Helens since 1979, but the gas is found in sandstone instead of coal. At one time, 500 wells pumped out the gas, but only a few are active today.

The county has had few complaints, and royalties and leases brought Columbia County $171,000 last year. Property taxes amounted to $826,000, said county officials.

"It has certainly helped our property tax revenue," said Tom Linhares, Columbia County assessor.

Leases and royalties on state land, such as that around the South Slough estuary, would go to the common school fund.

Government isn't the only group that could prosper. More than half of the mineral rights CDX leased from Coos County are beneath land owned by individuals or companies.

The Coos County Commission is getting accolades from environmentalists because its lease requires CDX to get approval from the surface owner before drilling for the mineral rights it has leased below the ground. If the owner says no, CDX can't drill.

In Wyoming, most of the mineral rights are owned by the federal government, which urges gas companies to work with the surface owners, but the companies can use eminent domain procedures to drill on private land.

Wyoming has prospered from taxes and royalties on the wells, which number more than 10,000. The state had a $127 million deficit in 1999, said Buck McVeigh, administrator for the Wyoming Economic Analysis Division. But a surge in natural gas prices in 2001 brought a rush of drillers to the area and infused the state budget with a $695 million surplus. Since that time, the surplus has dwindled to $126 million.

Other states, such as New Mexico, West Virginia and Colorado, have benefited as well. Some officials, however, say the detriments outweigh the benefits.

La Plata County (Colorado) Commissioner Josh Joswick said the county gets about $6 million a year in taxes from the methane wells there, but it hasn't drawn new industry to the towns.

"This has not created economic development per se," Joswick said. "The impact on the county has been divisiveness."

New residential developments conflicted with proposed drilling sites, causing property rights debates.

"You try to come back and remediate mistakes, and it's darn near impossible," he said.

Bandon Dunes Resort management was unaware of the Coos County land deal, and the resort's architect, Howard McKee, said he wouldn't want drilling rigs marring the scenery for tourists.

"I would hope the county would restrict them to outside the (U.S.) 101 viewshed," he said.

Residents in most states with the wells complain about noisy compressors and scenery scarred by roads, pipelines and drilling rigs. But, mostly, they seem to worry about the water.

Household wells have gone dry in Wyoming, methane has tainted well water in Colorado, and salty water released from the gas wells has killed crops.

Methane is held in place by ancient water that has been sitting underground for millions of years, dissolving minerals, including salt. Drillers must release thousands, even millions of gallons of the water in order to capture the gas.

Sometimes it's potable and can be released into creeks or used for irrigation. But sometimes it's too high in salts and has to be treated or re-injected into the ground.

In 1993, Carbon Energy International pumped 175,000 gallons from a test well along U.S. 101 south of Coos Bay and used sprinklers to apply it to the forest floor.

Not far away at the company's test well on Menasha timber land, the water was too salty for land application.

The Department of Environmental Quality has no record showing where -- or how much -- of the water was disposed of.

Steve Pappajohn, a partner in the now closed Carbon Energy and a consultant to CDX, said workers delivered the water in trucks to the Coos Bay treatment plant and paid a fee for its disposal. Neither the City of Coos Bay nor the water plant has a record of its arrival.

While the Department of Environmental Quality doesn't have to approve of where the nonpotable water is disposed, it should have had a record, said Blake, the water quality specialist with the agency.

"In today's world, we would have closed that loop," Blake said.

The Oregon Department of Geology issues drilling permits to gas companies and ensures the equipment meets safety requirements. It also requires the upper 400 feet of the well to be encased in concrete to keep water from contaminating domestic wells. The company must carry a bond and return the site to its original condition when it's done.

But for the most part, the state relies on the company to monitor itself.

No one knows what could happen to the aquifers underlying Coos County if methane is produced in marketable amounts. Each well could draw off thousands of gallons of water.

"Depending on where you are, the connections (between aquifers) have been poorly understood," said Ian Madin, senior mapping geologist for the Oregon Department of Geology.

Despite the unknowns, Mike Graybill, manager of the South Slough Estuarine Research Reserve, said he is open to the idea of drilling in the area.

"We're not dealing with an us (versus) them circumstance," Graybill said. "We have to address this with an open mind."

CDX has a good reputation in other states. If the company is to succeed in Coos County, where drilling and operating expenses are higher because of its remote location, it needs to find the mother lode.

"Whereas hitting a single or a double is good in other areas, we've got to hit a home run," said Pappajohn, the CDX consultant and geologist.

"We see the potential of getting a reasonable shot at hitting a home run."

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