Showdown In Wyoming Over Gas (property rights)

(CBS) Imagine this. All of a sudden you discover you're sitting on a fortune, with millions of dollars worth of natural gas under your house or property, just waiting to be drilled out of the ground.

But before you can ever dream about spending all that money, a gas company tells you it's their gas, not yours. And they're coming to get it, whether you like it or not, and they plan to keep the profits.

If that sounds like a far-fetched nightmare, it isn't. As Correspondent Dan Rather reports, it's perfectly legal out West.

Wyoming has called itself the cowboy state for years. The Old West may be changing, but you can still find plenty of cowboys in Gillette. Nowadays though, broncos aren't the only rough ride in that town.

The cowboys say their biggest fight these days is with energy producers. And they don’t like the way things are going.

"I feel helpless. I just don’t have a good feeling, you know," says cowboy George Smith. "I don’t trust these people. Their past dictates that."

Energy has been big business in Gillette for years. From open mines, more than a million tons of coal are dug up and shipped out of town every day. But the new craze that has Smith so upset is methane gas. It’s trapped in underground coal seams all over the area.

In just eight years, 17,000 methane wells have been sunk in the Powder River Basin. And 33,000 more wells are planned.

There are 18 of them on Smith’s ranch, even though he didn’t want them there.

"For people who own houses in the city, and anybody who owns a house, how would you feel if somebody comes in and knocks down your garage or tore half of your house off to get a drill rig in there, in your back yard, and drill for gas and oil," says Smith. "That’s basically what’s going on right here. I don’t think much of America would stand for that."

But Smith doesn’t have a choice. In Wyoming, the law is not on his side. Like many ranchers, he owns the surface land – the land you can see. But the gas and minerals underground are owned by another individual, or the government, which leases them to gas producers.

But when the gas companies tried to come on Smith’s property, he tried to stop them. They fought back just as hard. Smith says they tried to get a restraining order to keep him off his own property: "To keep me from going on and preventing them from going on and drilling."

Smith finally lost, and the gas companies drove their big trucks and rigs onto his property and started drilling for methane gas. "They were putting roads in and cutting well pads. And within that day’s time, they had that well rig up there, drilling," he says.

What went through his mind? "Pretty much just probably what the Indians thought 125 years ago. You know? There goes my home," says Smith.

John Kennedy, an independent energy producer, doesn’t have much sympathy for cowboys like Smith. From his plane, you can still see herds of buffalo, but he says it’s the coal and gas industries, not ranching, that now provide the high-paying jobs and pay the taxes in Wyoming.

"This is the largest open-pit mine in the world," says Kennedy. "If the nation didn't have this coal, you know, turn your lights off and your computers."

Today, Kennedy is focusing on methane gas, and says there’s enough gas to keep him busy for at least 20 years. He doesn't have any leases to drill on Smith’s land, but if he did, he says he’d have the right to drill there.

"That individual knew that when he bought his ranch or should have known that," says Kennedy. "I make every effort to come to a reasonable accommodation with any landowner."

He says he pays them for access: "I want to pay you damages and I'm gonna pay you on an annual basis and I'm gonna pay you a lot of money. But you have no right to the oil and gas that's going to be produced."

When a well is sunk, ranchers are paid a fee, sometimes as little as $500, and then an annual fee, which averages about $1,000 for every well on their property.

Does Kennedy believe, however, that the law is basically on his side? "I don't like to operate that way, but yes," he says.

Ranchers like Smith say the companies often act like bullies. And although just one good well can produce hundreds of thousands of dollars worth of gas, Smith says it's a constant battle to collect the small fees promised by the companies.

"In this part of the country 100 years ago, you wouldn't have been talking much," says Smith. "You'd have been dealing other ways."

60 Minutes talked to the gas company drilling on Smith's land, and the company said it paid Smith everything he's due under his contract, more than $23,000 in the past year and a half.

But ranchers say it's not just about money. They don't like what gas drillers are doing to their land and their way of life.

Don Spellman ranches 8,000 acres. "I really don't think anyone has the right to come in and ruin your way of making a living so they can profit," says Spellman. "And it does change your way of life. It changes it tremendously."

Spellman says he’s seen up to 50 trucks a day rumbling down new roads that have been cut into the open range. But what bothers Spellman more than the dust and the noise is what the gas drillers are doing to the water supply, especially since Wyoming is still in the middle of a long drought.

For years, it’s been said in Wyoming: "Whiskey’s for drinking, but water’s for fighting."

"Water is really, and a lot of people don't understand this, but water is a commodity to us," says Spellman. "It really is. Our land is pretty worthless without it."

And the ranchers say the gas drillers are using an awful lot of their precious water. The drillers are pumping water out of the ground into reservoirs so they can get at the gas. It’s a cheap way to reduce the underground water pressure so the gas can bubble to the surface.

But rancher Eric Barlow says most of the water is being wasted. "They said, 'Well, you can use this water for the livestock and your wildlife,'" says Barlow. "I did the calculations. Eighteen minutes per day would put out enough water for all our livestock and my calculated wildlife numbers. So for 23 hours, 42 minutes, their water is a waste product. … They run all the time."

Is Kennedy concerned that what he's doing is taking away from water resources? "Not really," he says. "That amount of water is a miniscule amount of water when you look at the total water resources of the basin."

But a 2003 federal environmental impact study says the water table is depleted by gas drilling and may take 100 years to return to normal.

Some homeowners showed Rather how their wells have gone muddy or dry. They say it's because of gas drilling on or near their property. When that happens, gas companies often agree to truck in water for free, or drill a new well for the homeowners.

But Bill and Marjorie West, who have been fighting the gas companies for six years, say negotiating with them isn't easy. The Wests say it will cost millions of dollars to take them to court, and the companies have unlimited funds, and very deep pockets.

But Kennedy says lawsuits by the ranchers and environmental groups are slowing down his gas production, costing him, and ultimately the consumer, a lot of money.

"Because of the lawsuits, I mean, we’re made to do things that are worse than silly," says Kennedy. "It's ridiculous."

If he had his way, what would he do with them? "We need some common sense; that's completely lacking right now," he says.

Ruth Riele, who works for Kennedy, showed Rather what her boss was talking about.

"This is an archaeological study that we had done to permit 14 federal wells. This cost us a little in excess of $75,000," says Riele. "In addition to the archaeological study, we have to do wildlife studies, vegetation studies, soil studies. And you can see this is one of the historical artifacts that we had to pay to have surveyed. This is an old tin can."

"To those who say, wait a minute, 'Dan Rather, you’ve gone out in Wyoming, you’ve found some sort of whacko environmentalist,'" Rather asks Smith.

"Well, I’d say you were way off track there, because I’m not a tree hugging environmentalist," says Smith.

"We like to take care of the ground out here. We've been taking care of the ground for a lot of years," adds Smith. "If that's a conservationist, I just call it respect. Respect for the old boy, what he made to provide for us, right here."

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