Wildgrass Oil & Gas Comm. v. Colorado

• Decision Date: 18 March 2020
• Docket Number: Civil Action No. 19-cv-00190-RBJ
• Citation: 447 F.Supp.3d 1051
• Parties: WILDGRASS OIL AND GAS COMMITTEE, Plaintiff, v. State of COLORADO, Jared S. Polis, in his official capacity as Governor of the State of Colorado Colorado Oil and Gas Conservation Commission, and Jeffrey Robbins, in his official capacity as Director of the Colorado Oil and Gas Conservation Commission, Defendants, American Petroleum Institute, and Colorado Oil and Gas Association, Intervenors.
• Court: U.S. District Court — District of Colorado

447 F.Supp.3d 1051

WILDGRASS OIL AND GAS COMMITTEE, Plaintiff,

v. State of COLORADO, Jared S. Polis, in his official capacity as Governor of the State of Colorado Colorado Oil and Gas Conservation Commission, and Jeffrey Robbins, in his official capacity as Director of the Colorado Oil and Gas Conservation Commission, Defendants,American Petroleum Institute, and Colorado Oil and Gas Association, Intervenors.

Civil Action No. 19-cv-00190-RBJ

United States District Court, D. Colorado.

Signed March 18, 2020

James Daniel Leftwich, MindDrive Legal Services LLC, Boulder, CO, Joseph Anthony Salazar, Eastlake, CO, for Plaintiff.

David Austin Beckstrom, Eric R. Olson, Kyle William Davenport, William V. Allen, Colorado Attorney General's Office-Dept.of Law Department of Law, Denver, CO, for Defendants.

David Meschke, Mark J. Mathews, Stanley L. Garnett, Brownstein Hyatt Farber Schreck LLP, Denver, CO, for Intervenors.

ORDER

R. Brooke Jackson, United States District Judge This lawsuit arises out of plaintiff's efforts to prevent hydraulic fracturing or "fracking" from occurring in their residential neighborhood. Plaintiff Wildgrass Oil and Gas Committee ("Wildgrass") was formed by the Wildgrass Homeowners’ Association of the Wildgrass residential subdivision in Broomfield, Colorado to assist Wildgrass homeowners in advocating against local fracking projects. Plaintiff also seeks to challenge "forced pooling," the process by which local mineral owners may be forced to allow oil and gas companies to extract their minerals. Defendants the Colorado Oil and Gas Conservation Commission ("COGCC"), COGCC Director Jeffrey Robbins, and Colorado Governor Jared S. Polis ("state defendants") as well as intervenor defendants American Petroleum Institute and Colorado Oil and Gas Association ("intervenor defendants") move to dismiss all claims for both failure to state a claim and pursuant to the Court's discretionary authority under the Burford abstention doctrine. ECF Nos. 66, 67. State defendants also move to dismiss the Governor of Colorado Jared Polis based on Eleventh Amendment Immunity. ECF No. 67. In addition, intervenor defendants move to dismiss the issue as a non-justiciable political question. ECF No. 66. For the reasons set forth in this order, the case is dismissed.

BACKGROUND

Wildgrass brings constitutional challenges to Colorado statute C.R.S. § 34-60-116, a provision of the Colorado Oil and Gas Conservation Act. Defendant COGCC is the state agency responsible for administering § 34-60-116.

A. § 34-60-116

The statutory provision creates a process through which private entities can apply to pool the interests of a group of mineral owners. This process was intended to allow for more efficient oil and gas drilling by decreasing waste and avoiding drilling of unnecessary wells. § 34-60-116. Once a drilling unit has been established, operators may extract oil and gas and the proceeds from the venture are divided among the well operator and the pooled mineral owners according to the statutory compensation scheme. Id.

The provision attempts to address flaws in the "rule of capture," under which the lessee of an oil and gas lease acquires title to all oil and gas produced from a drilled well, including minerals that may have migrated from adjoining lands. The rule of capture acknowledges the natural movement or migration of oil and gas across property lines without any human intervention. The rule also incentivizes increased well-drilling so that individual mineral owners do not lose the race to extract their resources. Pooling reduces the number of wells drilled while also compensating mineral owners for their share of the resources extracted.

In Colorado, the rule of capture has been applied to both conventional drilling and fracking methods of extraction. Fracking is a drilling technique in which rock formations are fractured by pressurized liquid, releasing gas and other minerals into the well. Unlike in conventional drilling, fracking allows operators to access non-migratory minerals contained in rock formations that have not escaped into adjoining lands. Current methods allow fracking operators to drill over two miles horizontally from the central well pad, allowing access to minerals far from the site of drilling.

Operators may apply to the COGCC to establish drillings units and pool the interests of mineral owners within those units. § 34-60-116. Owners of the relevant interests may participate in pooling voluntarily, or operators may apply to the COGCC for permission to "force pool" non-consenting owners. § 34-60-116(6)(b)(I). COGCC may grant permission to force pool to "any interested person" who applies. Id. The operator must make a "just and reasonable" offer to the interest owners, and the COGCC must provide notice and a hearing before issuing the forced pooling order. § 34-60-116(6)(b)(II). The COGCC has authority to determine what constitutes a reasonable offer. § 34-60-116(7)(d)(II). Wildgrass claims that the COGCC "routinely grants forced pooling applications so long as the operator can show that it was able to convince any mineral owners in the space to sign the lease at issue." ECF No. 65 at 8. Once the operator is granted authority to force pool, mineral owners who do not lease their rights are considered non-consenting and subject to forced pooling. Id.

In addition to permitting operators to extract non-consenting owners’ minerals, forced pooling also imposes other consequences: Operators may recover one hundred percent of the non-consenting owners’ share of equipment and operation expenses, as well as two hundred percent of some preparation and equipment costs. After these costs are recovered, the non-consenting owners become working interest owners. Id. at 9.

B. Extraction's Application for Forced Pooling

In June of 2018 Extraction Oil & Gas, Inc. ("Extraction") sent lease offers to mineral owners in Broomfield, including Wildgrass mineral owners. Shortly after, Extraction began the COGCC applications to establish spacing units in the Broomfield areas, proposing to construct up to 120 horizontal wells from four well mega-pads in residential areas of Broomfield. ECF No. 65 at 11.

On July 17, 2018 Extraction sent an election letter to Wildgrass owners giving them 35 days to respond to either participate in these "Livingston" wells or refuse to consent. Id. at 2. The letter stated that the non-consenting owners would be subject to a non-consent penalty. Id. Extraction then sent a second election letter on August 27. The second letter asked for a response with each owner's election within 60 days. Id. On August 31 Extraction filed an application with the COGCC to force pool the Wildgrass owners. Id. at 11. The COGCC originally set the hearing on the application for October 29 and 30, 2018, but it did not occur until March 12, 2019. ECF No. 65 at 14.

On July 6, 2018 Wildgrass filed a lawsuit in Denver District Court challenging the various COGCC decisions under the Colorado Administrative Procedure Act (Case No. 2018cv32513). The Denver District Court ruled against Wildgrass, and Wildgrass has filed a pending appeal (Case No. 2019CA001212).

Wildgrass filed a complaint in this court seeking a restraining order against the COGCC on January 23, 2019. ECF No. 1. It filed an amended complaint on April 30, 2019. ECF No. 65. The complaint challenges the constitutionality of the forced pooling statute and the COGCC's approval of Extraction's forced pooling application, as well as the COGCC's refusal to consider health, safety, welfare, and environmental concerns in its decisions. Id.

On February 8 and 12, 2019 this Court heard oral arguments and testimony from Wildgrass and the COGCC. ECF Nos. 36, 37. At the hearing, Wildgrass voiced its concern that Extraction planned to begin drilling before the forced pooling hearing or ruling would occur. ECF No. 36. However, Extraction had revised its timeline to begin drilling in June. ECF No. 37. The Court also noted that the issues Wildgrass raised were not ripe because the forced pooling hearing had not yet occurred. Id. The Court directed COGCC to consider the health, safety, welfare, environmental and economic concerns raised by Wildgrass at the upcoming hearing. Id.

C. March 12, 2019 COGCC Forced Pooling Hearing

At the COGCC hearing Wildgrass was given an hour and fifteen minutes to speak. It argued this was insufficient time to present its case on public safety, welfare, and environmental facts, which involved numerous witnesses and documents. ECF No. 65 at 14. Wildgrass also argued that the COGCC did not have jurisdiction to hear the pooling application because the rule of capture did not apply to non-migratory minerals captured through fracking. Id. at 13. Some commissioners expressed agreement with the sentiment that the pooling statute was "written for a different time and a different type of context." Id. at 19. Wildgrass finally argued that Extraction had not met its burden of contacting at least some of the mineral owners, and that Extraction should have provided discovery on its "economic stability." Id. at 14.

During the hearing, Extraction admitted it did not have 13 percent of the leases of the relevant mineral interests. Id. at 15. Although Extraction claimed it had certified mailing receipts documenting its attempts to contact mineral owners, such receipts were never produced to Wildgrass or to the COGCC. Id. Extraction did produce a spreadsheet documenting lease offers made to mineral owners. Id. The COGCC commissioners stated that based on the evidence provided "it is impossible or nearly impossible[ ] for the commission to assess whether the terms were offered [sic] are just and reasonable." Id. at 16.

Wildgrass again raised health, safety, and environmental concerns during the hearing. In response, a commissioner stated that the hearing should have been limited to the issues of "whether the offers tendered were reasonable and complied with the statute and the [COGCC...