Erie mineral rights deal falls apart as SM Energy cancels contract for Colorado town

An energy company is backing out of a multimillion-dollar mineral rights deal with the Town of Erie after residents worked to put the agreement to a ballot vote.

Negotiations over the Draco pad had been underway for nearly two years. Now, as state deadlines approach for drilling, SM Energy has canceled its contract with the Town of Erie for additional mineral rights. The Draco pad includes miles of drilling, and Erie still owns the mineral rights beneath several small sections of land that extend underneath neighborhoods.

After back-and-forth this summer, Erie Town Council voted to sell mineral rights to SM Energy. The June deal meant the town would sell those mineral rights for $4.5 million, along with future revenue, land, and more oversight power. However, the sale also meant additional drilling under Erie neighborhoods. After the vote, some residents who opposed the sale worked to get more than 1,500 signatures in support of a referendum; that could put the sale to a ballot vote in November.

Amid the referendum's efforts, on Wednesday morning, Erie Mayor Andrew Moore said he got a call from SM Energy that the company was backing out of the deal.

Moore had been a vocal supporter of the sale, sharing Wednesday, "We're not going to get the agreement that had safety in it, had tens of millions of dollars in it, but maybe the biggest thing was the land that would have produced revenue long term. On the other side of the equation, we'll see what the drilling plan is, and perhaps there is significantly less drilling that may happen in Erie because of this."

Moore said it's not clear whether SM Energy will drill around this section of Erie or possibly stop short. But the decision could change the plans that had been in the works for nearly two years.

Some town council members say pushback from Erie residents could be part of the reason SM Energy canceled the multimillion-dollar deal.

"I think that our community exercised their democratic rights by pursuing the referendum, and I was really proud to see that happen in our community, and hope that they feel heard. I know they didn't get to vote, but ultimately, they did. I think they have an impact on this process," Erie Town Councilmember Emily Baer said.

This debate may be one of the first tests of a 2024 Colorado law, Senate Bill SB24-185, concerning protections for unleased mineral interest owners in the pooling of mineral interests. The law gives Erie more authority over its remaining mineral rights, rather than forcing the pooling of the resources.

Now, Moore says the town is working to get a seat at the table with the state Energy & Carbon Management Commission because, without the money the town would have received from the deal, Moore says he wants to protect Erie's mineral rights if the drilling project moves forward.

Moore also says the town will not pay the consultant it hired to help broker the agreement because the deal did not go through.

The Erie Town Council is expected to discuss the situation Tuesday, including what comes next for Erie's mineral rights and the Draco drilling plans.