Terminate the Memorandum of Understanding with DMEC.
Revise the License Agreement to only permit access across City property.

The City of Flagstaff was approached by DMEC with a proposal to allow DMEC to cross the CIty Red Gap Ranch property in order to access state lands for helium seismic testing and to perhaps perform the same seismic testing on the City Red Gap Ranch property.  DMEC has obtained leases of state lands adjacent to City Red Gap Ranch property allowing helium exporation and production. 

The intent of approving the License and MOU was to provide Council with an option for another use of Red Gap Ranch, in addition to its primary use as a long term water asset.   The City has been considering its options for possible additional uses of Red Gap Ranch.  Curently the only additional use of Red Gap Ranch is sheep grazing.

In light of the press release issued by DMEC with a focus and intention leading to partnership in development of helium and hydrocarbon resources, it is recommended to re-visit both agreements.

The City was approached by DMEC with two requests.  The first was to be able to access adjacent State lands through our Red Gap Ranch property for the purpose of seismic testing to determine if helium existed in the area.  The second was to perform the same seismic testing on Red Gap Ranch property.

The nature of this testing and the parameters of what DMEC would be allowed to do on City property was discussed with the City Attorney's office, the Water Services Division, the Real Estate Manager, as well as a discussion at the City's Property and Development Committee that is made up of staff from all City divisions. The consensus of this group was:

• Water Services had already conducted some seismic testing on Red Gap Ranch and this additional information from DMEC would prove useful related to understanding the location of water supplies;
• Water resources and archaeological sites would not be affected;
• City Council is interested in exploring options in evaluating alternate uses for the Red Gap Ranch property;
• The MOU could be terminated with 10 days notice;
• The License Agreement could be terminated wth 30 days notice.

With these limits in place, the group recommended proceeding as an information gathering process.  As City Manager, I am responsible for approving license agreements for use of real property and have authority to enter into MOUs, which are general expressions and are not legally binding.  I agreed with the recommendation and signed both the MOU and the License Agreement and notified Council and the public of this action on January 14, 2019 through a Public City Council Report.

Council has Charter Authority to approve leases of real property (which are longer term commitments than licenses).

On February 5, 2019, the City became aware of a press release by DMEC.  This press release was not offered to the City to review ahead of its release.  The press release overstates the commitment of the City to develop any discovered resource.  The commitment of the City was intended to be for information gathering only.  Any decisions or forward path by the City would be fully vetted with the Council and public to achieve a complete understanding of the process to do any extraction, the environmental impacts, water qualtiy impacts, and other factors that would be related to any decision in moving forward should any helium resource be discovered.

It is clear in the MOU that both helium and hydrocarbon resource exploration is noted.  It is our understanding after having spoken further with DMEC that helium is typically found in conjunction with other hydrocarbons, mostly nitrogen (which is a substance we breathe). Also, apparently helium is not found in conjunction with petroleum, because helium rises, and petroleum sinks (its dense). It is recommended that the City send :

• The  10 day termination notice to DMEC on the current MOU,
• The 30 day termination notice to DMEC that allows for access and seismic testing, and lissue a new license for access only.

Dependent on how the exploration process moves forward by DMEC, the City could choose to re-engage at a later time.