County Commissioners and Attorneys are Fighting an Oil and Gas Company Over Lease Technicalities; Could Establish Legal Victory for Deep Ecology but with a Further Troubled Petroleum Market
Disputed territory, and the ground beneath it, are the subject of a face-off in Boulder County. Crestone, an oil and gas development concern that is now part of Civitas Resources Inc., is fighting back against dogged litigation by the county.
This litigation seeks to stop certain oil and gas wells. These wells were dug in and around parts of the land to which the county has a legal claim. However, the mineral resources of those lands are apparently owned by Civitas.
If Boulder wins, they’ll have mineral rights. But why does a strongly environmentalist community want those?
The hyper-sensitive oil exchange – including the US’ number five petroleum-producing state Colorado–could take a big hit. Lawsuit-ready environmentalists, if they win, could get a new tool in their judicial shed.
If it is a Question of Words and Names
Several laws and policies are in play. Additionally, there are colliding lexical squabbles and lease-related arguments.
The thrust of the county case is a 96-word sentence in Colorado’s Protect Public Welfare Oil and Gas Operations law passed in 2019. It reads, in part:
“Section 4 clarifies that local governments have land use authority to regulate the siting of oil and gas locations to minimize adverse impacts to public safety, health, welfare, and the environment and to regulate land use and surface impacts . . “.
The county is also arguing a literalistic interpretation for parts of oil and gas leases. Specifically, is something considered off if it’s being fixed?
Does Maintenance Mean Something is Off?
Boulder County claims that oil and gas wells must be physically dispensing a petroleum product to be considered producing. That is, to be active and not dormant.
The county lost in Boulder District Court. The Colorado Court of Appeals, again, went in favor of Crestone, citing the “commercial discovery rule.” This rule designates a well as active when the given substance is found and it can be extracted. If the 122 days of good maintenance constitute clear-cut dormancy, Boulder likely wins.
In his legal defense of Crestone, attorney Fred Yarger, quoted in the Gazette, posits the dispute is mainly over a “shut-in royalty clause.” To simplify, he says, Crestone’s case is essential that the county seeks to “terminate two proven commercially productive leases operated by a prudent operator simply because a decade ago [2014], a downstream gas pipeline” had to undergo extensive maintenance. There is also disagreement about royalty payments.
A complex-business arrangement of two companies owned and operated that downstream apparatus under maintenance at the time. Technically, Crestone by itself did not own it. This detail has come up in court.
Katherine Burke, Senior Assistant County Attorney for Boulder, argued, in effect, that Crestone should have thought of that detail. As that disputable ownership caveat isn’t in print, it’s not valid. “That’s the way the lease is written,” she is quoted in Longmont Leader.
Boulder Victory as Environmental Advancement Could Have Big Costs
If Fred Yarger is right, a ruling in favor of Boulder’s efforts to add restrictions to oil and gas businesses will damage the industry in Colorado. It will change the meaning of many oil and gas leases and agreements throughout the state, according to Yarger.
There are two categories to consider regarding this change: legal precedent and oil markets.
Precedent is a large and inescapable part of American law. If the Colorado Supreme Court allows Boulder law officials have readily admitted they’re not engineers. Yet, they’re eager to tighten oil and gas development procedures. This could easily set a precedent. Myriad other environmentalists in Colorado and elsewhere could use that precedent. Such a ruling could have a “chilling effect” on the gas leasing program – in addition to exploration and investment – in Colorado and elsewhere.
And environmentalism gets a lot of time in court. Some cases are businesses, private citizens, or others trying to stop or reverse aggressive environmental laws. But mostly, the court’s actions are environmentalists seeking to weaken and halt anything they see as polluting.
A ruling in favor of Boulder means an oil-hostile precedent line of argument in litigation thereafter.
The Columbia Law School Sabin Center database, using the keyword “oil,” shows 130 climate change court actions in the US since 2016 inclusive. There have been 50 climate-change court actions under the keyword “Colorado” since 2016.
Additionally, there is the financial and commonwealth consideration. Oil is a worldwide commodity. The US is the highest-producing oil and gas development country, and Colorado is about 4% of that. Oil is a volatile market “with large price fluctuations sometimes occurring on a daily basis,” according to Investopedia.
The ripple effect goes beyond the logical inference that Colorado’s gas prices will probably go up if the Colorado Supreme court agrees with Boulder.
Boulder Law Official Losing, Getting Queried on Motive, and Not Taking it Well
Boulder lost in district court. Their case, outside the 2019 law, appears to be a lexical, technicality-based line of argument. After this loss, the Colorado Court of Appeals repudiated Boulder County’s further efforts. They issued a 13-page summary judgment in May 2021, upholding the district court.
The Court of Appeals’ reasoning cited, among others, the “commercial discovery rule” from a 1980’s case in the Kentucky Supreme Court: “ ‘The oil was there and all parties knew it.’ “
Despite this, Burke seems to have bristled at but didn’t deny, the implication by Colorado Supreme Court Justice Monica Marquez that this was some environmentalist end-run effort by the county to shut down oil and gas wherever possible.
According to the Longmont Leader, Burke responded to a sitting judge at the state’s highest court that, “Boulder County has the reputation it has, and it has the interests it has. . . It shouldn’t matter to your analysis what Boulder County’s intention is with these mineral rights.”
Green Grow the Lilacs
The county cites community health and property rights as the public sector cause against oil and gas development in Boulder, or in property technically owned by the county. However, the fierceness of Boulder county’s environmentalist reputation means a likely overlap in motives.
The county lists well over 100 environmentalist organizations in its city, including various fringe interests such as pollination clubs and extremist groups such as Earth Guardians. A recent headline on the city website’s news page was a registration notice for something called the 2022 “Soil Revolution Conference.”
Arguments Made at State Supreme Court in September; Fight Continues
Of the three judges rendering the Colorado Court of Appeals case, they all ruled in favor of Crestone. It was unanimous. Nonetheless, oral arguments were made at the Colorado Supreme court in September. A search of the best available data shows the decision has yet to be rendered as of mid-November.
Resources held underground can’t be literally produced. Can anyone ultimately “produce” crude petroleum? Or is the reasonable understanding that the extraction process is essentially the same as production, well, reasonable? The Supreme Court of Colorado considers the spirit of the law versus the letter.
