Cortez Journal

CO2 suit may be settled for $52.8 million

November 15, 2001

By Janelle Holden
Journal Staff Writer

A U.S. District Court judge granted preliminary approval of a $52.8 million class-action settlement agreement between Shell and Mobil Oil companies and area carbon-dioxide interest owners on Wednesday.

An estimated 2,000 past and present interest owners of McElmo Dome carbon dioxide could claim the money, according to John Cogswell, the attorney for the CO2 Claims Coalition, the plaintiff.

"This is what we were hoping for and weíre moving down the road," said Cogswell.

The suit, ongoing since 1996, claimed that the partnership of companies that developed the carbon-dioxide extraction facilities west of Cortez wrongfully evaluated the price of carbon dioxide and violated anti-trust laws.

The attorney for Mobil said no wrong was admitted by the defendants in the agreement. The defendants include Shell Oil Company, Shell Western E&P, Inc., Mobil Producing Texas and New Mexico, Inc., and the Cortez Pipeline Co.

"The settlement agreement specifically says that nobody admits they did anything they shouldnít do," said Michael Williams, an attorney for Mobil.

A former Colorado Supreme Court justice served as an impartial mediator for the case, and helped the parties agree on a dollar amount.

If they are not happy with the settlement, claimants can opt out of it, and the settlement fund could be reduced as a result.

"All that happened today is that the judge decided that the potential settlement appears to be reasonable enough to let the potential claimants make their own decision about it," explained Williams.

"Someone may decide they donít want to be in for whatever reason. They may think itís not enough money, or they can pursue their own claim," explained Leo Crowley, an attorney representing the CO2 Claims Coalition.

The class was conditionally approved by Judge Zita Weinshienk, who will notify potential members of the class after it is approved. Potential claimants include prior carbon-dioxide-interest owners dating back as far as December 1983.

The final settlement hearing is scheduled for Feb. 11, and class notice should be mailed as soon as the judge approves it ó expected for the end of this month. A hearing is planned Dec. 14 for the judge to make a preliminary decision on allocating the $52.8 million. In all likelihood, there will be a second notice mailed thereafter to permit people to determine their share of the settlement.

"People will automatically be included in the class, unless they opt out. They have to take affirmative action to avoid getting part of the settlement," explained Cogswell.

Former owners are not guaranteed a part of the settlement ó whether they have any rights depends upon a different procedure that will kick in after Feb. 11, said Cogswell.

The 203,000-acre McElmo Dome field west of Cortez is one of the largest reservoirs of leased carbon dioxide in the United States. Most of the reservoir lies underneath Canyons of the Ancients National Monument

The price of carbon dioxide varies with the market, but generally rises with the price of oil. In the late í70s, Shell and Mobil found that injecting carbon dioxide into pockets of trapped underground oil brought it to the surface.

Shell and Mobil joined in the early 1980s to purchase 88 percent of the carbon-dioxide leases and develop the McElmo Dome. They spent $1.18 billion building the on-site facilities and a 502-mile pipeline extending to West Texas, according to the suit. Since then, the field has produced carbon dioxide for oil fields in both Colorado and Texas, but most of the resource is still piped to West Texas.

The coalition alleged that Shell and Mobilís carbon-dioxide companies sold the resource to Shell and Mobil Oil for less than their production costs so that the oil companies could make a greater profit from oil-recovery operations.

In 1998, the Permian Basin produced approximately 1 million barrels of oil per day, totaling nearly 20 percent of the total oil production in the United States, excluding Alaska. More than 15 percent of the basinís production was due to carbon-dioxide flooding.

The coalition also disputed the tariff method of calculating royalty payments, saying that McElmo Dome landowners should be paid based on the final selling price of the carbon dioxide, not the value of the carbon dioxide when it is extracted.

The settlement did change how future royalties will be calculated, ensuring that the value of carbon dioxide does not fall below a certain level.

Kinder Morgan CO2 acquired Shell CO2ís assets in April 2000.

Copyright © 2001 the Cortez Journal. All rights reserved.
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