Colorado Supreme Court Subjects Oil and Gas Industry to Colorado Water Law

Preventing Water Depletion and Waste During Oil & Gas Production

Thanks to Public Counsel’s success in 2009 in Vance v. Wolfe, Colorado is the only state in the Rocky Mountains in which the industry’s significant diversions of tributary ground water in connection with gas production are conditioned on avoiding injury to vested senior water rights. That Colorado Supreme Court ruling subjected the industry, for the first time, to Colorado Water Law. Oil & Gas industry producers must now first secure well permits and water court-approved augmentation plans in order protect senior property rights in ground and surface water held by others … farmers and ranchers, water districts and municipalities.

Evolution of a “best-facts” test case: the Vance v. Wolfe story

In 2005, Public Counsel hosted a mini-conference to design a “best-facts” test case to halt large-scale waste of groundwater by natural gas producers statewide. After interviewing dozens of landowners in the Northern San Juan Basin, long the epicenter of coalbed methane (CBM) production in Colorado, two families volunteered to become the rancher plaintiffs in a test case. Bill and Beth Vance were long-time alfalfa hay farmers near Bayfield east of Durango, and Jim and Terry Fitzgerald have a small organic produce farm a few miles further to the east.

Terry Fitzgerald

Jim Fitzgerald

 

Both families had senior vested water rights, which they believed were being depleted by CBM ground water diversions made outside the prior appropriation system. And both wrote letters to the Colorado State Engineer to request regulation of CBM ground water diversions made on or adjacent to their property. The State Engineer declined to regulate the CBM producers, and the ranching families sued in a case designed, funded and supervised by Public Counsel.

Our public counsel since 2005 has been Sarah Klahn, a partner in the Denver water law firm White & Jankowski, along with co-counsel Amy Beatie (currently executive director of the Colorado Water Trust) and, more recently, Alan Curtis.

In July of 2007, the Water Court in Durango agreed. After decades of de facto exemption from water law rules and priorities, La Plata County District Court Judge Gregory Lyman ruled that the State Engineer had a legal obligation to regulate CBM ground water diversions, since “produced water” diversions from coal seams to release the methane gas were made for a beneficial use—the production of CBM. In 2009, the Colorado Supreme Court agreed in Vance v. Wolfe. Since that ruling, Public Counsel has engaged in broad spectrum of implementation and enforcement activities including rulemaking, legislative initiatives, follow-up water court cases and a variety of public outreach and educational efforts.

The State Engineer expressed concern in 2009 that the outcome of Vance would require him to require permits, augmentation plans, or to curtail diversions for all 40,000 oil and gas wells in Colorado, not just the 5,000 CBM wells, and further that many of the conventional oil and gas wells were pumping non-tributary ground water which by its terms does not injure vested water rights.

The Colorado Legislature authorized the State Engineer to engage in rulemaking to determine which oil and gas formations contained non-tributary ground water, and thus avoid any obligation to permit or require augmentation plans of such wells. Public Counsel lawyers and engineers participated in every stage of this rulemaking. The rules were duly promulgated and have largely withstood the test of judicial review.

Thus, as Vance envisioned, oil and gas operations that divert tributary ground water are required to obtain permits and augmentation plans the same as other users of tributary ground water. This allows due process through the Water Court for other water rights holders to have notice of industry’s plans, and to participate in Water Court cases to ensure adequate terms and conditions are imposed on industry operations to avoid injury to vested water rights. By the same token, oil and gas operations that divert non-tributary ground water for enumerated non-beneficial uses may avoid regulation. This dual approach is protective of vested property rights, and requires the treatment of oil and gas diverters within the same legal regime as all other water rights users.

Son of Vance and other
Implementation Efforts

When we won Vance v. Wolfe in the Colorado Supreme Court in 2009, we immediately commenced efforts throughout the state to secure and then implement this victory. The Supreme Court for the first time in the west declared that “produced water” from many thousands of coal bed methane wells is a “beneficial use” of that ground water. As such, under Colorado law these massive amounts of water could no longer be wasted by industry, lost forever by deep injection wells and evaporation pits. Instead, such produced water must now be protected and subjected to well- permitting and Court-approved augmentation plans for its replacement, in order to respect and protect farmers, ranchers, municipalities and others with senior water rights.In 2010, Public Counsel initiated two complex litigation matters that were critical for both short and long-term success in implementing the Vance ruling statewide. Public Counsel won both of these cases in rulings by Water Courts in Greeley and Durango, and one is now awaiting oral argument in the Colorado Supreme Court. Here are a few of the highlights:

A. Son of Vance

The Son of Vance litigation consists of the representation of the San Juan Citizens AllianceOil & Gas Accountability Project, our rancher plaintiffs and many others – all as Objectors –  in a series of nine separate Water Court applications filed by industry involving over 4,000 CBM wells. The applications were filed on the same day in mid-2010 by BP America, Chevron USA, Conoco/Phillips, the Southern Utes and all the other major industry players in La Plata County (Durango) – the epicentre of the CBM industry in Colorado and the place where Vance originated as a test case in 2005.

Each of the nine Water Court applications consisted of both a Vance-compliant application for all of each company’s existing and admittedly tributary CBM wells and a surprise claim for water rights to all non-tributary (NT) water produced by each company’s thousands of wells. But each application was filed without the legally required written consent of the overlying landowners. This second claim was a brazen attempt to avoid having to negotiate with the overlying landowners and to appropriate at no cost yet another valuable commodity from energy production to market in the 21st century.

On May 27, 2011, we won Son of Vance et al in the same Durango Water Court that ruled for our rancher plaintiffs in 2007. This time, joined by the U.S. Forest Service, the City of Durango and many other municipalities, water districts and landowners, we secured outright dismissal of thousands of industry Water Court applications claiming ownership of non-tributary ground water underlying the over four-thousand CBM leases in the San Juan Basin.

Starting the week of September 19, 2011 and building upon this Water Court dismissal of industry’s non-tributary ground water claims, we launched a series of public meetings in Durango, Cortez, Walsenburg and Trinidad designed to encourage landowners to take appropriate steps to protect their non-tributary ground water. With our support, San Juan Citizens Alliance and other groups sent out over 6,000 postcard notices; our team developed a terrific step-by-step PowerPoint and templates to use in Water Court filings; and we have continued to offer technical assistance, referral services and other resources to assist these rural landowners. These simple steps enabled landowners to become insulated from any changes in Colorado statutory law that would give industry the right to withdraw this water without the overlying landowner’s consent, a move we anticipate might surface in a future legislative session.

B. The Pawnee Well Users “Non-Tributary Rules” Appeal

In 2010 we simultaneously filed the Pawnee Well Users v. Wolfe(the “NT Rules” appeal cases) in six of the seven Water Divisions and basins throughout Colorado. This litigation challenged the Non-Tributary Rules, adopted by the State Engineer (SEO) in January of 2010. The Rules were developed by the SEO in a rulemaking process hijacked by industry. In short, the Rulemaking was a sham.

The Colorado Supreme Court Multi-District Litigation Panel consolidated all cases into Division 2, the Water Court in Weld County (Greeley). The goal of this appeal was to ensure that the State Engineer’s NT rules (and underlying rulemaking authority as it may be wielded in the future) would not effectively undo or circumvent the sweeping effect of the Vance decision.

On September 8, 2011 the Chief Judge of the Weld County Water Court in Greeley found that the SEO Rules have no applicability or affect whatsoever in Water Court proceedings. In short, we succeeded in avoiding these non-tributary rules becoming industry’s way “around” the Vance decision. Both industry and the state appealed, the case is fully briefed in the Colorado Supreme Court, and oral argument is on November 8, 2012. We are anticipating a ruling that preserves the statewide benefits to landowners, communities and water rights holders established by that Court when it decided Vance in 2009.

Public Education and Outreach

Under the leadership of Alan Curtis and Matt Sura, Public Counsel is pursuing activities designed to build a broader and deeper citizen constituency to defend and expand existing regulatory and legal protections available to private property owners impacted by oil and gas development. Here is a brief summary of some of these activities and pending cases:

1. “Landowners’ Guide to Colorado Oil & Gas Development”

The Landowners’ Guide to Colorado Oil and Gas Development (Guide) was conceived of as a way to provide substantive information and assistance to Colorado landowners who are faced with oil and gas development impacts to their private property rights, whether those threats involve damage to the surface estate or water rights. Individual landowners, through their lease and surface use agreement negotiations, have significant power to protect their land, water and local environment. Recent changes in COGCC regulations, as well as changes brought about by the Vance decision, have increased landowners’ power to protect their property.

© Bruce Gordon

Unfortunately, most landowners do not understand these laws and regulations and are ill-equipped to negotiate a fair and protective lease or surface use agreement on their own, or to take steps to either adjudicate their own water rights or participate in industry’s efforts to obtain augmentation plans in Water Court. The Landowner’s Guide is an effort to get information into the hands of landowners that may act to level the playing field in their negotiations with the oil and gas industry.

The Guide is a production of Public Counsel of the Rockies with support provided by the Getches-Wilkinson Center for Natural Resources at the University of Colorado. The Getches-Wilkinson Center is willing to participate in the editing, layout and design of the Guide as well as pay for half of the printing costs. NRLC is also willing to host the Guide on the Intermountain West Oil and Gas BMP (Best Management Practices) website.

The Guide is being written by Matt Sura, an attorney specializing in the representation of landowners, mineral owners, and local governments in their negotiations and legal disputes with the oil and gas industry. The Guide will become a link on dozens of regional and statewide environmental and community organization websites (e.g., Oil and Gas Accountability Project (OGAP), Citizens Alliances, Western Resource Advocates, etc.), and a print run of 1000 will be used in Workshops and Forums across the state described below.

2. Statewide Workshops and Forums for Landowners

Public Counsel is organizing presentations over the next two years that will help raise the public’s level of understanding about individuals’ rights and remedies to protect private property, including ground and surface water, from impacts of oil and gas development. The presentations will be targeted in areas that are being hardest hit by oil and gas development as well as those that are experiencing oil and gas development for the first time. The presentations will cover many of the topics outlined in the Landowners’ Guide.

The presentations will be advertised on the Oil and Gas BMP website as well as through regional and statewide environmental and community organizations. In areas that are being hardest hit, where there are not local environmental or community organizations, we may set up presentations though homeowner associations, realtor associations, and service organizations.

The CU Law Natural Resources Law Center is expected to fund travel for Matt Sura and we propose that CU Law be a co-sponsor of these presentations. The University of Colorado is the state’s largest university and is widely perceived by the public as an unbiased source for information.

3. Database from Forums

The oil and gas forums in various places in Colorado will allow us to collect contact information from people interested in the topic of landowner and environmental protection during oil and gas development. These contacts are likely to happen in rural areas and possibly in politically conservative districts. Having some way to access these people, through the mail or email, may be very helpful in the event of a COGCC rulemaking or oil and gas legislative effort.

It is expected that the NRLC will be able to create and maintain this database at no expense to Public Counsel.

4. Continuing Legal Education for
Landowners’ Counsel

The CLEs envisioned will be directed at attorneys who have clients with oil and gas related water and surface use issues but who might not be specialists in either oil and gas or water law. The Natural Resources Law Center and White & Jankowski, LLP will also be sponsors of the events. Attorneys Matt Sura, Alan Curtis and Sarah Klahn would be presenters once the details and cost allocation of these events are pinned down.

5. The Future of Oil and Gas
Regulation in Colorado

Oil and gas development remains strong in Colorado. In 2010, the COGCC issued 5,996 drilling permits—the third highest total ever permitted. In 2011, the pace of development continued with  4,659 new drilling permits issued. The recent oil discovery in the Niobrara field, extending from NW Colorado to Weld County, and south to Douglas County, promises to keep Colorado’s oil and gas development booming for the foreseeable future.

Without a proactive effort to support and extend the current protections in Colorado Oil and Gas regulations, it is likely that many of those protections will eventually be rolled back.

Farmers know, ranchers know, water engineers know and municipal water managers know that water depletion in Colorado has incalculable economic cost. Unprecedented population growth and persistent drought exacerbate the projected impact. When water is ruined or wasted in the West and when iconic rural landowners are injured without recourse, the tables turn and the scales come into balance.

Public Counsel acknowledges that the principal funding for this project has been generously provided by The William and Flora Hewlett Foundation.


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