Loveland's Independent News Source
Loveland, April 14, 2014

On April 1, 2014 Loveland City Attorney John Duval used the last hours of his employment with
the city to try and convince the Loveland City Council to “refer” a modified version of Protect Our
Loveland’s (POL) two-year fracking moratorium onto the ballot (
see video).    POL circulated a
petition early last year to qualify the moratorium for last November’s municipal election ballot but
were ultimately unsuccessful due to interference by Loveland resident Larry Sarner who
challenged the legitimacy of their petition in court.

The same strategy was proposed by Duval as a remedy to Sarner’s first court challenge which
was ultimately unsuccessful.  However, the motive for this and other threads the city has tried
pulling to unravel POL’s anti-fracking petition from becoming law are not random but carefully
studied legal strategies being offered to the city by McWhinney.

Duval has argued since early last year that the petition’s “retroactive” clause meant to prevent
the City of Loveland from approving last-minute fracking applications before the measure takes
effect if passed is “
legally insufficient” due to constitutional questions.  In closed city council
meetings, Duval has also tried to lead the council towards various legal strategies to inoculate
Loveland’s business “
partner” McWhinney by protecting Centerra from any impact of the
fracking moratorium.  

On April 7, 2014, the day before the first city council meeting on fracking without Duval's
leadership, Jay Hardy of McWhinney coordinated a confidential meeting between himself, Chad
McWhinney and Greg George to strategize staff's approach to the council and public.  The
private meeting began at 9:00 in the morning at the city hall conference room next to George’s
office.  George titled the meeting notice, “
Oil and Gas Overly Zoning Districts Working

Despite meeting with Chad McWhinney in private the day prior, George failed to disclose
McWhinney’s involvement in public when asked specifically to identify any potential applicant that
might try and get approval before the fracking moratorium is potentially passed by voters during
the April 8, 2014 City Council meeting.  Loveland City Manager Bill Cahill attempted to mislead
the watching public when he stated, “
We have no pending application pending at this date” in
response to questions regarding future fracking within the City of Loveland that may be approved
before the ban.  

Councilman John Fogle, frustrated by the evasive answers and knowing the truth was something
different, asked more directly whether the city thought an application was eminent to which
George replied “
Anadarko” in compliance with a carefully laid plan by McWhinney to avoid using
their name in public though McWhinney has literally purchased all the Centerra mineral rights
away from Anadarko and other companies.

For the past decade, the McWhinney’s have been acquiring the mineral rights of nearly every
parcel of land throughout the 3,000 acres of Centerra (
see map upper right corner of this page).

In 2012, McWhinney transferred mineral rights over to a company called “
MHC Oil and Gas
perhaps in an effort to remove McWhinney’s name from the mineral rights property titles.  While
the local newspaper, city staff and council only refer to an application by “Anadarko” to frack
Centerra indeed they are referring to McWhinney’s well laid plans to frack most of Centerra using
Anadarko as the contractor.

During the council’s most recent meeting on April 8, Mayor Gutierrez squirmed in his chair
claiming the council is “
between a rock and a hard place” when it comes to the fracking
moratorium.  Indeed, Gutierrez, is split between his loyalty for the environmental left and the city’s
most influential developers, the McWhinney brothers, while making decisions over the proposed
fracking moratorium.  Pretending the matter is terribly complicated; the Loveland City Council has
dragged its feet and even become McWhinney’s tool in the long and drawn out process of
delaying the petition from coming before voters while the fracking operations for Centerra are
being prepared.

Duval has argued his actions taken to delay the vote of the ballot measure were anticipatory to
potential legal challenges of the moratorium thus not partisan actions against the petition itself
but simply an attempt to protect the city’s interest.  8th District Court Judge Daniel Kaup, following
his February 11 decision stating the petition is valid and should go before voters; clearly
disagrees.   Frustrated by the slow progress of the city in implementing his February 11, ruling,
Judge Kaup ruled again in late March the city had between 60 to 150 days to take the measure
before voters.

This was, in part, in response to a brief filed before the court by Duval on March 14, claiming the
state statute mandating such petitions go before the voters 60-150 days after being qualified
does not apply to Loveland as a home rule city.   While answering questions of the City Council
who were surprised by the petition, Duval’s comments were described in a Loveland Reporter-
Herald article as, “
said he’d wanted to make the judge aware of the possibility that the
council could pass an ordinance and apply it retroactively to the fracking moratorium
ballot initiative.

Occam’s Razor (there is a simpler explanation).

Shortly before advising the council to refer its own version to the ballot, Duval did something
unusual in response to a councilor pointing out it was Duval’s last day on the job during their
April 1, meeting.  Duval thanked the councilors for supporting McWhinney and even praised the
2004 council members for their “
courage” in supporting the many complicated tax schemes
McWhinney brought to the city despite the controversial nature of the massive city subsidies.  
Duval then reiterated his previous suggestions the council place a “
referred” version of the anti-
fracking petition on the ballot but with different language to avoid the retroactive clause of the
petition signed by over 3,000 residents.

While delaying the fracking moratorium vote and support for McWhinney’s Centerra may appear
to some on the outside as unrelated issues, in fact, they are the same to people on the inside.  
Jay Hardy has been scheming with city officials for months on various plans to render the
initiative either invalid or impudent to avoid the moratorium impacting his company’s plans to
commence fracking in Centerra according to city hall sources.  Plan A, of three legal strategies,
is to simply award a special permit to McWhinney before the matter goes before voters July 29,
2014.  Of course, the proposed retroactive nature of the petition is exactly what Duval has been
working to remove as part of the "plan A."

Mayor Cecil Gutierrez, feeling pressure from longtime supporters who are also active with POL,
has made numerous public comments about the need for a quick vote that have infuriated
McWhinney's Jay Hardy.  According to sources within the oil and gas lobby, Hardy has been
disappointed in Gutierrez's timid support and inability to articulate clearly McWhinney's carefully
prepared script for the councilors that the petition is invalid and therefore a liability to the city.

In closed session, Duval and staff detailed for the Loveland City Council McWhinney's plans to
begin drilling horizontal wells east of Centerra Parkway capable of reaching all 3,000 acres of
Centerra according to one member of the council.  Unknown to most residents and businesses in
Centerra,  McWhinney has already purchased the mineral rights under the open areas, homes
and businesses across Centerra.  

Among the strategies not yet employed is for McWhinney to drill, prepare and install the
necessary equipment during the 24 months of the moratorium but simply not commence
extraction until the two-year moratorium expires.  Jay Hardy believes this approach will give
McWhinney time to allow Anadarko to install the necessary gas pipeline to the east (given the
volume expected) while keeping McWhinney's plans on track.

If, for any reason, the moratorium passes and McWhinney is prepared to begin fracking during
the moratorium's two-year period, Hardy has articulated another plan according to some on
council and staff to begin hydraulic fracturing across Centerra.  Hardy, according to our sources,
has suggested the City of Loveland simply fund its own study (since a study is called for in the
proposed moratorium) and declare fracking is safe before the 24 months have expired.  While
not quite the nuclear option, it is one strategy Hardy has floated with staff as an approach they
can use to collapse the enforceability of the moratorium if passed by voters.

Local Press Getting It Wrong

An April 20, 2012 story in the Loveland Reporter-Herald by Tom Hacker was titled, “Centerra in
oil company's sights.”  The cover picture for the story shows Jim Tolstrup, the director of
Centerra’s High Plains Environmental Center (HPEC), standing on a nature path in front of
Equalizer Lake.

According to Hacker’s story, “
Anadarko Petroleum Corp. has notified the executive director
of the 275-acre nature preserve of its intent to seal a five-year lease on the subsurface
mineral rights controlled by the nonprofit environmental center

Indeed, the director notified his board of McWhinney’s intent again stating the board had control
of the mineral rights.

However, according to the City of Loveland’s official mineral rights ownership map, McWhinney
exclusively owns the mineral rights around both lakes believed to be part of the nature
preserve” paths and all the open areas around High Plains Village believed to be part of the

There is a very small area where the actual center itself is located and some adjacent homes
indicating “TBD” (To Be Determined) on the city’s official ownership map.  According to a source
in Loveland’s Planning Department, the McWhinney’s can frack under any of the apartment
buildings off 34, the open areas of Centerra or any area indicated in red without having to obtain
the permission of the surface right owners.

Next Steps

By establishing July 29, 2014 as the official date of the special election, McWhinney now has just
under four months to get approval for their application.  Greg George, who previously said an
application takes 4 months, testified to council on April 8, he believes an application could easily
be processed in 3.8 months (before the voters decide the issue on July 29, 2014).

A common question by many has been to ask why McWhinney would go through all this trouble
to frack Centerra from within the City of Loveland boundaries while a move slightly east of the
current proposed site is outside city limits.  One theory involves the Urban Renewal Authority
operated by McWhinney in collaboration with the city.  McWhinney may have Anadarko build the
oil and gas extraction facilities for the hydraulic fracturing within the property tax limited urban
renewal area so any additional property value resulting from resource extraction goes towards
McWhinney’s Metro District and not the schools,

Larimer County or other agencies that rely on increasing property tax valuations to fund local
services would be unable to collect that improved property tax revenue as any additional
property tax revenue within the URA boundary goes towards McWhinney's Metro District instead.  

And since the City of Loveland has already
abdicated its governmental authority to determine  
which parcels qualify for the URA Hardy hasn't agreed with any proposed revenue schemes
raised by some on council for the new fracking operation in Centerra.  See side story on tax
consequences of fracking Centerra in the column to the right of this story.

If you find anything in this story to be in error or want to express an opinion or raise a question
please feel free to post your comment on our blog.
McWhinney Maneuvers To Avoid
Fracking Moratorium
Colorado Taxes On Oil & Gas Wells

The State of Colorado imposes what is
called a "Severance Tax" on production
from oil and gas wells anywhere within the
State of Colorado.

Half of the revenue raised from the money
collected from the severance tax is used
to fund the state's Department of Natural
Resources while the other half is returned
to the county where the well is located to
off-set the cost of maintaining roads and
other burdens imposed by the industry.

One study conducted by the Colorado
State Legislature determined in 2012
Colorado produced 49 million barrels of
oil they valued at $4.1 billion.  According
to that same study only $118 million was
collected in taxes.

Ad Valorem
(Latin for According to Value)

In many western states, including
Colorado, mineral interests are
considered "real property" just like real
estate instead of personal property.  
Taxes upon real property is determined
by finding its "real value" according to
what someone is willing to pay at that
particular time and place making
assessment in each county complicated
and variable.

Why McWhinney Preferes Fracking
From Centerra

Oil producers in Colorado are allowed to
offset the state's Severance Taxes by
getting a credit for any Ad Valorem taxes
they have paid locally (essentially
property taxes estimated by the value of
the well's production).

This tax credit is controversial in Colorado
since a legislative study two years ago
found the average producer is able to
reduce their taxes paid to just 1.3% of
production value (lower than other states).

McWhinney's incentive to use the Ad
Valorem tax offset of what is owed in
Severance Tax is even greater as they will
likely receive back 98% of the property tax
(Ad Valorem) they pay through the City of
Loveland's Urban Renewal Scheme for
Centerra which the developer controls
and not the city.

While offering the City of Loveland even a
token amount of revenue in exchange for
the likely valuable production McWhinney
can make from the planned fracking of
Centerra it is likely they will hide behind
state statute to only pay severance taxes
which are not already offset by the ad
valorem tax they get back to their metro