BBC Research & Consulting3773 Cherry Creek North Drive, # 850Denver, Colorado 80209800-748-3222www.bbcresearch.com

June 1, 2006

Report Presentation

Garfield County

Land Values and Solutions Study

2

Introduction

Two Economic Studies Are Underway

The Economic Impact Model

The Land Values and Solutions Study

3

Land Values Study: Project Objectives

Demonstrate what factors drive residential land values in Garfield County.

Document how rural industrialization (gas, gravel, power lines, etc.) affects the value of residential property.

Offer mitigation strategies for situations where value losses occur.

4

Land Values Study: Three Phases

Phase I. Data Collection and Analysis

Phase II. Statistical Analysis and Conclusions

Phase III. Solutions and Mitigation Evaluation

5

Phase I: Process

Assembled a data base of 7,600 sales transactions Unincorporated, residential sales; 1987-04 Cleaned and added data: gravel roads, geographic

features, water & sewer, etc. Ultimately used 20+ variables per property

Assembled gas drilling and industrial data Location of power lines, gravel pits, highway, railroads Location & dates of gas wells

Integrated GIS with Community-Viz mapping software

Analyzed data in light of interviews and anecdotal observations.

6

Phase II: Statistical Analysis

Meet with committees; revised conceptual approach

Completed Statistical analysis

Tested 20+ property variables

• Land characteristics (e.g. size, presence of water)

• Location (e.g.; RFRV vs. CRV, distance to town)

• Structural characteristics (e.g.; size, age, number of bedrooms)

Determined factors that explain value

Provided a basis for understanding impact on property value and strategies for mitigation

7

What is Hedonic Regression Analysis

Hedonic regression analysis is a method of explaining demand or prices for a particular good (e.g. a housing unit) by attaching estimates of value to its component characteristics (e.g. size of structure, age, quality of construction)

Why Use? Produces results with statistical authority

8

Variables Tested for the Property Value Models — Included in Model

• Size (acreage)• Presence of water features

Value appreciation over time:

• Size of home• New home (less

than 10 years old)• Presence of garage

(CRV only)

•Increase in value per acre by year•Increase in value per square foot by year

• Presence of outbuildings

• Heated space in outbuildings

• Central wastewater system (RFV only)

• Distance from Glen. Sprgs. (CRV only)

• Distance from Pitkin County (RFV only)

• North of Colorado River (CRV only)

• View of Mt. Sopris (RFV only)

• Distance to nearest paved road

• Distance to nearest gravel pit (CRV only)

• Gas well completed within 90 days after sale (CRV only)

• Gas well completed less than 2 years prior to sale (CRV only)

• Gas well completed more than 2 years prior to sale (CRV only)

• Presence of “good” vegetation (CRV only)

Locational characteristics/ industrial proximity

Structural Characteristics:

Land Characteristics:

9

Variables Tested for the Property Value Models — Tested and Rejected

• South facing percentage• All flat terrain

• Number of bedrooms• Number of bathrooms• Construction type

(e.g., modular, condominium, etc.)• Additional house age groupings

(e.g., 10 to 20 years old)• Water system other than a private well

• Distance to nearest town• Adjoins Federal land• Distance to I-70• Distance to railroad• Proximity of high voltage lines• Proximity of land fill

Locational characteristics/ industrial proximity

Structural Characteristics:

Land Characteristics:

10

Challenges

Wide variation in property characteristics and locational influences

Value effects across three key dimensions — property characteristics, size and time of sale

Sample sizes diminish with multiple variables

Difficult to measure some key factors

All data sets have some inaccuracies

11

Results

We can explain influences on property values with a reasonable level of accuracy:

76% of value variation in Roaring Fork Valley (2,726 observations) (95% confidence level)

81% of value variation in Colorado River Valley (4,727 observations) (95% confidence level)

Provides a reliable basis for overlaying impacts of gas drilling and other industrial effects.

12

Industrial Impacts

We tested effects of highways, railroads, gravel pits, power landfills lines and gas drilling

Also tested positive site attributes: vegetation, views, proximity to USFS lands, rivers

Proximity to highways, power lines, landfills and railroads were not proven to have an impact on values

Proximity to gravel pits and gas drilling has an apparent (but not statistically significant) impact on property values

13

Gas Drilling Data Issues

Gas well permits 5,010

Operational wells 2,674

Parcels with operational wells 354

Valid single parcel sales of parcels with operational wells 140

Final sample “Well impacts”(less than 160 acres) 32

14

Revised Colorado River Valley Property Value Model

$271,623

Well completed at time of sale

(11%)

$280,070

Well completedlong before sale

Well olderthan two years

(8%)

$254,736

Well activityat time of Sale

Well completed

less than 90 days after sale

(16%)

Total Value = $303,079Baseline Property: (Average Property With Gas Well)

15

Exploration Phase

Drilling Phase

Completion Phase

Generalized Gas Drilling Impact on Property Value in Colorado River Valley

1 Typical property with a well — 40 acres, small home, 24 miles from Glenwood.

($100,000)

Typical ResidentialChange in Value

Drill Site Properties Change in Value

+$53,000

+$25,000

($32,000)

$303,0791

+$50,000

+$100,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

($49,000)($50,000)

Months26 27 28 29 30 31 32 33 34 35 3625

Value Loss/Gain

16

Generalized Gas Drilling Impact on Property Value in Colorado River Valley

1 Typical property with a well — 40 acres, small home, 24 miles from Glenwood.

($100,000)

Typical ResidentialChange in Value

Drill Site Properties Change in Value

+$53,000

+$25,000

($32,000)

$303,0791

+$50,000

+$100,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

($49,000)($50,000)

Exploration Phase

Drilling Phase

Completion Phase

Months

Value Loss/Gain

26 27 28 29 30 31 32 33 34 35 3625

Quality of Life Impacts

Perception of Risk

Institutional Uncertainty

17

Generalized Gas Drilling Impact on Property Value in Colorado River Valley

1 Typical property with a well — 40 acres, small home, 24 miles from Glenwood.

($100,000)

Typical ResidentialChange in Value

Drill Site Properties Change in Value

+$53,000

+$25,000$303,0791

+$50,000

+$100,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

($50,000)

Exploration Phase

Drilling Phase

Completion Phase

Months

Value Loss/Gain

26 27 28 29 30 31 32 33 34 35 3625

Impact of Gas Employment Demand

18

Impacts of Gas Drilling: Conclusions

Properties that experience drilling see a reduction in market value, but seemingly temporary

On average, net residential loss of value of about 16% during drilling and about 8% three years after drilling ceases

Anecdotal data suggest: There is no average well site Some drilling instances have more severe impacts Problem compounds with contiguous site

operations or multiple drilling Micro site issues are hard to capture Recent wells tend to be closer to residential uses

19

Impacts of Gas Drilling: Conclusions (cont.)

Gas activity also has countervailing positive impacts:

Gas employment drives housing demand

Property lease payments

Site improvements

Tax revenues

Mineral owners have legitimate property rights, which can’t be ignored

Drilling is not locally regulated so operational restrictions are limited

20

Mitigation Possibilities

Institutional

Quality of Life

Perception of Risk

• Education material/seminar• Ombudsman• Recommend cooperative

lenders/brokers• Fund property purchase or buy

down

• Define and enforce best practices• IGA with COGCC

• Education• Remedial funds• Insurance• Certification of completeness• Environmental monitoring reporting

21

Land Values and Solutions StudyInstitutional Changes

Ombudsman/Advocate

Document county land value changes over time

Represent Owners

Clearing House of Information for Appraisers, Realtors and Buyers

Environment Response Agent

Intergovernmental Agreement with COGCC

Lending or Property Purchase

22

Quality of Life Mitigation Measures

Phase I Exploration

Landowner notification

Negotiated surface damage provisions

Ground water testing

Phase II Drilling and Field Organization

Reasoned environmental protections

Reasoned well-siting practices

Noise and nuisance abatement

23

Quality of Life Mitigation Measures

Phase III Production and Stimulation

Responsible stimulation techniques

Proper waste disposal

Air and water quality monitoring

Phase IV Abandonment and Reclamation

Certification of proper abandonment

Reclamation with native topsoil and vegetation

Garfield County

Land Values and Solutions Study