Colorado Springs and Houston- based Ultra Petroleum Corp. are in a battle over the fate of the bankrupt Banning Lewis Ranch, whose 21,500 acres cover the city’s east side.
Attorneys for the city and the company are set to appear today in bankruptcy court in Wilmington, Del.
The city is seeking to have the case shifted to Colorado and to keep local land-use controls on the area it annexed for residential and commercial development.
Ultra, which bought 18,000 acres of the ranch in a bankruptcy sale, wants the city’s annexation rescinded so it can more easily drill for oil.
“This case could set a precedent,” Patricia Kelly, the Colorado Springs city attorney, said before leaving for Wilmington. “There has never been a bankruptcy case where an annexation agreement has been set aside.”
Colorado Springs annexed the ranch in 1988, and plans were made to develop it as part of the city.
The $880 million, 62-mile Southern Delivery System water pipeline from the Arkansas River — which broke ground Aug. 12 — was developed in part to serve Banning Lewis.
Over the years, the property went through several developers, with construction finally started in 2007 and the first homes occupied in 2008.
In October, the property’s current developer, Banning Lewis Ranch LLC, filed for bankruptcy.
Ultra paid $26.3 million for 18,000 acres of the property in a June bankruptcy sale.
The oil company filed to have the annexation order, the master plan, land-use rules and utilities agreements voided as part of the sale, arguing that they are designed for residential and commercial development of the land.
“Ultra has no present intention of conducting real estate development activities,” the company said in a filing.
Under the annexation agreement, the city also controls the groundwater.
“There are already huge water shortages and municipalities fighting over water rights there,” an analyst told Ultra’s executives during an Aug. 10 earnings call. “How are you positioned for water in fracking these wells?”
Doug Selvius, Ultra’s director of exploration, said, “We don’t expect to be without challenge, but there’s groundwater that exists, and we believe we’re going to get access to the rights.”
Kelly Whitley, an Ultra spokeswoman, said, “The sale and the annex agreement are contingent. We’ll just have to see what the judge says.”
Colorado Springs, in its filing, contends that the local and state laws in place should apply to the land.
Ultra has operated in Wyoming and, more recently, in the Marcellus shale in Pennsylvania.
While the headquarters is in Houston, about half the company’s 110 employees — including engineers and geologists — are based in Denver, Whitley said.
Ultra already has amassed 100,000 acres in Colorado to explore the potentially oil-rich Niobrara formation, Whitley said. The company plans to drill test wells this winter but not on the Banning Lewis Ranch.
Mark Jaffe: 303-954-1912 or mjaffe@denverpost.com
