The city of Thornton has closed a $33 million deal with Denver-based Phoenix Capital Group to sell the rights to oil and gas it owns in Adams and Weld counties.
Phoenix Capital Group bought the rights to 4,000 net royalty acres, the royalty revenue that can be produced per acre from the oil and gas production. The mineral rights are spread across 15 different tracts of land.
The deal, which closed Nov. 4, is the biggest in the company’s history, said Justin Arn, chief land and title officer at Phoenix Capital Group. He believes it’s also one of the largest such acquisitions in Colorado’s Denver-Julesburg Basin.
The Denver-Julesburg Basin, which ranges from the Denver area north into Wyoming, is Colorado’s biggest oil producer. Colorado is seventh among the states in total energy production.
Thornton determined the market was favorable to sell the portion of its minerals that weren’t producing or were just starting to produce, Scott Twombly, the city’s real property manager, said in an email.
“The City did retain mineral rights on tracts that are either in production, or in areas that are not in line for production any time soon,” Twombly said.
In May, the Thornton City Council looked at whether it was more beneficial to lease the city’s minerals or sell them. The arguments given by city staff for selling some of them included a regulatory environment that discourages drilling; cutbacks in drilling due to a lack of financing; and the current high oil prices.
The estimated value of possible royalties would be comparable to the potential sales price, the city staff wrote. “But revenue is less certain and spread out over time.”
Thornton put the oil and gas rights up for auction in September and took bids from different parties for portions of the tracts or the entire package. Arn thinks Phoenix Capital group was the only party that offered bids on all the rights offered.
“I don’t think they expected anybody to bid on all of the tracts. It’s a large amount of money and work as well,” Arn said.
Thornton’s mineral rights were spread across a series of tracts, making it challenging to sort through the land titles. More than 15 members of Arn’s team worked on the acquisition and wrapped it up in 30 days.
Phoenix Capital Group is active in other oil and gas basins in Wyoming, Utah and Texas. Arn said it is common for cities and other local governments to hold mineral rights.
“But you don’t see a lot of cities or government agencies divesting mineral rights. It’s not something that happens very often,” Arn said.
Phoenix Capital Group doesn’t intend to drill on the land because there are existing leases, Arn said.
Phill Dunning, a director with the energy research firm Enverus, said the Thornton deal is interesting because it is a government entity selling the assets.
“Usually when you get deals of appreciable size, it’s an aggregator: another company buying minerals, aggregating them and selling them to a larger company,” Dunning said.
A government entity can be looked at as a fiduciary, interested in the long-term management of assets regardless of the ups and downs of markets, Dunning said.
“Or, it can be looked at as a good thing for them to sell some of the assets because it actually reduces a conflict of interest,” Dunning added. “If you own minerals as a government and there’s a conflict between the citizens and basically the mineral estate, who do you side with?”
Dunning said the issue of potential of conflict is a bigger issue in Colorado than in most states because of Colorado’s stricter rules on how far new wells must be from homes and other buildings
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