Oil and gas development comes close to home

One of the most interesting things about living in Colorado for the past five years has been the opportunity to witness the fascinating political and legal contests rising from oil and gas development on the Front Range. The environmental community’s efforts to completely ban hydraulic fracturing have not held up in court – at least in Colorado – but the fact that the challenges were even considered is evidence of a changing political climate for domestic oil and gas producers. For nearly a century, oil and gas companies have been able to acquire and develop resources with limited challenges from the general public. Oil and gas development was rooted in private property rights and provided substantial economic benefits for state and local economies. The industry brought high paying jobs, much needed tax revenue for local governments and added wealth to mineral owners. The recent debates over hydraulic fracturing and now local control over oil and gas development strike not only at the general (and valid) concerns about environmental stewardship but at the underlying “social license to operate” for the oil and gas companies and the accompanying rights of mineral owners to profit from their property interest. The social license to operate refers to the acceptance and general approval from the community and stakeholders for the presence of oil and gas companies and development operations.

A recent high-profile example of this challenge to the social license to operate was the City of Longmont’s short-lived ban on hydraulic fracturing and the storage/disposal of waste associated with the process within city limits. In the fall of 2012, Longmont added the following language to its home-rule charter under Article XVI:

“It shall hereby be the policy of the City of Longmont that it is prohibited to use hydraulic fracturing to extract oil, gas, or other hydrocarbons within the City of Longmont. In addition, within the City of Longmont, it is prohibited to store in open pits or dispose of solid or liquid wastes created in connection with the hydraulic fracturing process, including but not limited to flowback or produced wastewater and brine.”

The City of Longmont was subsequently sued by the Colorado Oil and Gas Association (COGA) and was joined by a number of parties including the Colorado Oil and Gas Conservation Commission (COGCC). The COGCC and other plaintiffs argued that the rules and regulations developed by the COGCC pursuant to Colorado law preempted further regulation or a ban by a municipality affecting oil and gas operations. The case found its way to the Colorado Supreme Court in City of Longmont Colorado v. Colorado Oil & Gas Association (2016 CO 29) which the court decided on May 2, 2016. The Supreme Court found that Article XVI of Longmont’s home rule charter would create an operational conflict with the state-level regulations and control over oil and gas operations. After describing the principles of preemption, the court found that: “Accordingly, we conclude that in its operational effect, Article XVI, which bans fracking and the storage and disposal of fracking waste within Longmont, materially impedes the application of state law, namely the Oil and Gas Conservation Act and the regulations promulgated thereunder. We therefore hold that state law preempts Article XVI.” (City of Longmont Colo. v. Colo. Oil & Gas Ass’n, 2016 CO 29, ¶ 62, 369 P.3d 573, 585). The Supreme Court granted the injunction sought by the plaintiffs that would prevent the City of Longmont from enforcing Article XVI and the fracking ban.

The primary discussion in City of Longmont was whether Longmont’s ban on hydraulic fracturing was “preempted” by state law. In the State of Colorado, cities and towns are granted independence from state interference in local affairs by the Colorado Constitution (Article XX, Section 6). On matters of local concern, the courts have found that a home-rule ordinance supersedes conflicting state laws. However, on matters where the concerns are either state-level or mixed local and state issues, state law supersedes the local ordinance. With respect to hydraulic fracturing, the Supreme Court concluded in City of Longmont that “the state’s interest in the efficient and fair development of oil and gas resources in the state suggest that Longmont’s fracking ban implicates a matter of statewide concern.” The Supreme Court went on to find that the Oil and Gas Conservation Act – which forms the legislative basis for the COGCC’s exercise of regulatory authority over oil and gas operations – preempted Article XVI because of an operational conflict. The operational conflict was based on “the state’s interest in the efficient and responsible development of oil and gas resources” and a “strong interest in the uniform regulation of fracking” which would have been prevented by Article XVI.   

The preemption discussion is especially relevant because cities and towns along the Front Range are continuing to challenge state authority over oil and gas regulations. A similar hydraulic fracturing ban passed by the City of Fort Collins was struck down the same day as the City of Longmont case. (City of Fort Collins v. Colo. Oil & Gas Ass’n, 2016 CO 28, 369 P.3d 586). The Denver metropolitan area has grown by an estimated 10.5% since the 2010 census. The population growth and housing demands have increasingly put homes and subdivisions near oil and gas operations that had previously occupied farms and ranches. On October 30^th, the COGCC announced that it would change its regulations of flow lines (lines that collect oil and gas from wells and transport it to storage or processing stations) in response to the explosion at a house in Firestone earlier this year. The Firestone incident exposed a gap in the regulatory system and has spurred new calls from concerned citizens for increased regulation of the oil and gas industry. The initial draft of the proposed changes, which would likely take effect in early 2018, were published on the COGCC website on October 15, 2017, and can be found here. In response to Firestone and other incidents, as well as continuing engagement with affected citizens, companies involved in oil and gas operations have been working to improve their operations while maintaining profitability – a delicate tightrope given the persistently lower oil prices in the past few years.

In the latest challenge to state management of oil and gas operations, the City/County of Broomfield has approved a ballot initiative amending its home-rule charter to include the ability to regulate oil and gas operations. The language on the ballot for Broomfield residents (which I was until April) is as follows:

“With regard to oil and gas development near the City’s populated areas and within the City’s boundaries, such powers shall include but not be limited to plenary authority to regulate all aspects of oil and gas development, including land use and all necessary police powers. As such, Broomfield shall condition oil and gas development permits to require oil and gas development to only occur in a manner that does not adversely impact the health, safety, and welfare of Broomfield’s residents in their workplaces, their homes, their schools, and public parks in order to protect the public’s health, safety, and welfare and to safeguard the environment and wildlife resources.”

The Broomfield initiative, called Question 301, will be in front of residents on November 7^th. While not the outright ban on hydraulic fracturing that the City of Longmont attempted in 2014, it is difficult to see how Question 301 would lead to a different result. In the City of Longmont and City of Fort Collins cases, the Colorado Supreme Court found that the state had an interest in the “efficient and responsible development of oil and gas resources” and that the state interest preempted the conflicting local ordinance. If the Supreme Court found that the regulation of a specific practice (hydraulic fracturing) by a municipality was preempted by state law, it would seem that a municipal ordinance attempting to seize regulatory authority from the state would be doomed to the same fate. Colorado law is clear that the power to regulate oil and gas operations is delegated to the COGCC exclusively (C.R.S. 34-60-105). Question 301, then, appears to run afoul of both the Colorado Supreme Court decisions in City of Longmont and City of Fort Collins cases, as well as existing Colorado statute. If Question 301 is successful, Broomfield residents should expect to see a strong legal challenge from the State of Colorado, the COGCC, and the oil and gas companies working in the county limits. More importantly, the underlying mineral owners who have a legitimate right to develop their property will be in a position to challenge any regulations that come from the City of Broomfield.

There are many arguments in favor of developing new oil and gas resources and using technologies like hydraulic fracturing and horizontal drilling. The United States has created a revolution in the energy industry that has made us more secure (since we are not dependent on foreign energy sources) and led to widespread economic benefits for our country (through increases in employment, higher tax revenues and greater economic activity). But we also need to remember that the extraction of oil and gas is an industrial process that has health, safety and environmental consequences for all of us. The recent questions involving the social license to operate for oil and gas companies have driven important safety and environmental changes in the industry, as well as increased involvement with stakeholders and affected citizens. All of us, including the thousands of our fellow citizens that work in the oil and gas industry, have a keen interest in ensuring that oil and gas development is done with as few health, safety and environmental impacts as possible. In Colorado, the best way to do so is to participate and engage with the Colorado Oil and Gas Conservation Commission to improve statewide regulations – not through a patchwork of local bans, rules and ordinances.

Photo by Martin Kníže on Unsplash