Agriculture community also affected by oil and gas slowdown | TheFencePost.com

Agriculture community also affected by oil and gas slowdown

When the South Platte River flows high, Chuck Sylvester doesn't get nervous. He grew up on the river. His family's farm has been in LaSalle for 150 years. High water, low water — he's seen it all more times than he can count.

But he's only seen the water rise higher than the doorknob of his garage once. He and his wife have had to escape via a tractor and watch from a nearby hilltop as the foundation of their house disappeared underwater. The house is raised 4 feet off the ground. If it were 2 more feet off the ground, he thinks they may have been OK. As it was, they weren't.

"It's just part of the trials and tribulations you go through," he said. "God's just testing to see if we're strong enough to stay alive."

The 2013 floods in Weld County caused significant damage to Sylvester's property. If it weren't for the oil and gas wells on his land — and the monthly checks he receives from the leases — Sylvester said his family never would have been able to make the necessary repairs to keep their house livable.

“We’ve heard from the agriculture community that these royalties and payments help farmers and ranchers through their lean years.

— Doug Flanders, director of policy and internal affairs of Colorado Oil and Gas Association

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Farmers and ranchers often use oil and gas royalties as fallback money when things go wrong, like during natural disasters or when commodity prices fall. But when the royalties are low and commodity prices are low, like now, when they're both at their lowest in 10 years, that can cause significant struggles.

Farmers aren't new to volatile markets. Commodity prices are always sliding up and down, and Colorado Farm Bureau President Don Shawcroft said farmers were expecting the oil and gas bubble to burst, though how quickly and severely it did came as a surprise.

Even now, almost three years after the floods, Sylvester is still working to undo the damage done by one week of weather. The difference is the checks coming from the oil and gas companies are smaller these days.

Farmers and ranchers have worked with oil and gas companies since development began in the state more than 30 years ago. While these relationships have both give and take, the two sides have come to agreements to make the partnerships profitable and livable. In the early days — the 1980s and '90s — the two industries were often at each other's throats.

In a 2015 Energy Pipeline article, Greeley farmer Dennis Hoshiko said the relationship now couldn't be more different than it used to be.

"It's like night and day," he said. "It's by no means perfect, but the relationship between the two is remarkably better."

Oil companies work around farmers' day-to-day operations, give right of way to animals, try to minimize traffic and clean up sites when they're finished. Farmers lease the land to the oil companies so they have the land to drill on, which is getting harder to access because of urban sprawl. After years of working together, it's symbiotic.

"We've heard from the agriculture community that these royalties and payments help farmers and ranchers through their lean years," said Doug Flanders, director of policy and internal affairs of Colorado Oil and Gas Association. "They use these funds to put their kids through college or pay off an inheritance tax so they can keep their farm in the family. These checks make a real impact in people's lives."

But at the end of 2014, oil and gas prices dipped, so production started to slow. By the end of 2015, the price per barrel fell to less than $40, and drilling had come almost to a halt. In Weld County, the leading oil producing county in Colorado, the rig count fell from more than 60 in 2014 to less than 20 in 2016.

"It's been difficult. We've seen some layoffs, and we've seen office closings. The rig count compared to last year is down by two-thirds," Flanders said.

The industry continued to slip at the start of 2016, but is finally beginning to see some gains. At the beginning of July, the price per barrel hovered just below $50 — a much healthier market.

As the downturn hit the oil industry, it impacted farmers, too. More than 600,000 people in Colorado own mineral rights of some sort, according to the Colorado chapter of the National Association of Royalty Owners, many of whom are in the agricultural community. Shawcroft estimates at least 10,000 farmers and ranchers have wells on their property.

"There are a number of (Colorado Farm Bureau) members certainly who are very concerned about it," Shawcroft said. "We hear from them and those royalty checks being less. It's not a majority of our (more than 24,000-person) membership by any means, but definitely a significant number of farmers and ranchers are in that situation."

Shawcroft said there's an old joke among farmers throughout the Midwest, where the typical crop rotation includes corn, soybeans and wheat. Farmers around there always joke that the best rotation around the farm is an oil well — it's consistent, there are basically no input costs and the impact on the owner is fairly low. But when that well runs dry, it hurts, Shawcroft said. Many farmers include their mineral interests in loan plans they propose to the bank. When the oil and gas money doesn't hit its expected numbers, the entire budget has to change in order for the farm to stay profitable, Shawcroft said.

For Sylvester in LaSalle, the prospects aren't that grim. He's semi-retired. He only raises a couple horses on his pastures and leases his cropland out to some younger farmers. For the Sylvesters, the checks for his several wells through companies like Noble, have never been a primary source of income.

In the good times, the oil and gas income has helped the Sylvesters support scholarships for 4-H kids in Weld County. It's helped them uphold water and land stewardship, something which is a passion for both Sylvester and his wife, Roni. Until the oil money picks back up, those things may have to fall by the wayside.

If they relied on the checks for income, or something bad were to happen now, which Sylvester knows better than to count out, his safety net is all but gone.

That said, he knows oil and gas has its peaks and valleys, and he believes there will be another peak. The number of wells on his property changes cyclically, dependent on the lives of the wells. It always has been that way since the first well was drilled in 1980.

"The energy industry is kind of like farming. It has its ups and downs," Sylvester said. "There'll be better days, (we) just have to wait it out."

Other Colorado farmers, like Jim Park, who farms east of Kersey, said the oil and gas money has always been supplementary. Though the Parks, who farm alfalfa and corn, have never seen too much development on their property, Park said the royalties they do receive are shrinking.

"Because the price of oil is half or less, it's slowed up the royalties some," he said. Though his operation hasn't seen much change, he's seen it happening around him. "I know some of the guys around, they're shutting in some of the wells. They're even shutting some of them down."

Shawcroft said in the past, when commodity prices fell, farmers typically relied on other sources of income, like their oil and gas royalties. Since these payments are shrinking at the same time as corn, beef and other commodity prices are slipping downward, farmers are looking to supplement in other ways.

Shawcroft said this dichotomy is forcing farmers to get creative in how they market their product and how they produce. Some are cutting spending on necessary items like fertilizer in hopes that their yields are still large enough and crop quality is still viable enough to carry them through the season.

While Shawcroft said many farmers hope the oil market will turn around soon, the ag community as a whole is more concerned with the crop and livestock market. That's their industry — the one they actually can impact. Everything else just tops off the tank.

"There's a lot of those folks that have interests in oil and gas and they recognize it is a very pleasant thing to have a significant amount of income coming from," Shawcroft said, adding with a laugh that unlike agriculture, "production of oil is not very susceptible to weather."❖

‘We live on …’

The Colorado Farm Bureau keeps energy issues, including the development of mineral interests, among its top legislative and policy priorities every year. Don Shawcroft, president of the Colorado Farm Bureau, said oil, gas and natural energy development are all key to agricultural production.

“Natural resources are what agriculture and what the rural lifestyle really are all about,” Shawcroft said. “We live on, we rely on and we enjoy the natural resources from water, soil, mineral interests and the beauty around us.”