1. BBC Research & Consulting 3773 Cherry Creek North Drive, # 850 Denver, Colorado 80209 800-748-3222 www.bbcresearch.com June 1, 2006 Report Presentation Garfield County Land Values and Solutions Study

2. 1 Introduction Two Economic Studies Are Underway  The Economic Impact Model  The Land Values and Solutions Study

3. 2 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. 3 Land Values Study: Three Phases Phase I.Data Collection and Analysis Phase II.Statistical Analysis and Conclusions Phase III.Solutions and Mitigation Evaluation

5. 4 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. 5 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. 6 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. 7 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. 8 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. 9 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. 10 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. 11 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. 12 Gas Drilling Data Issues Gas well permits5,010 Operational wells2,674 Parcels with operational wells354 Valid single parcel sales of parcels with operational wells140 Final sample “Well impacts” (less than 160 acres)32

14. 13 Revised Colorado River Valley Property Value Model $271,623 Well completed at time of sale (11%) $280,070 Well completed long before sale Well older than two years (8%) $254,736 Well activity at time of Sale Well completed less than 90 days after sale (16%) Total Value = $303,079 Baseline Property: (Average Property With Gas Well)

15. 14 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 Residential Change in Value Drill Site Properties Change in Value +$53,000 +$25,000 ($32,000) $303,079 1 +$50,000 +$100,000 123456789101112131415161718192021222324 ($49,000) ($50,000) Months 262728293031323334353625 Value Loss/Gain

16. 15 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 Residential Change in Value Drill Site Properties Change in Value +$53,000 +$25,000 ($32,000) $303,079 1 +$50,000 +$100,000 123456789101112131415161718192021222324 ($49,000) ($50,000) Exploration Phase Drilling Phase Completion Phase Months Value Loss/Gain 262728293031323334353625 Quality of Life Impacts Perception of Risk Institutional Uncertainty

17. 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 Residential Change in Value Drill Site Properties Change in Value +$53,000 +$25,000 $303,079 1 +$50,000 +$100,000 123456789101112131415161718192021222324 ($50,000) Exploration Phase Drilling Phase Completion Phase Months Value Loss/Gain 262728293031323334353625 Impact of Gas Employment Demand

18. 17 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. 18 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. 19 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. 20 Land Values and Solutions Study Institutional 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. 21 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. 22 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

24. Garfield County Land Values and Solutions Study