Chase v. Colo. Oil & Gas Conservation Comm'n

• Decision Date: 19 July 2012
• Docket Number: No. 11CA1249.,11CA1249.
• Citation: 2012 COA 94,284 P.3d 161
• Parties: Laura “Wendy” W. CHASE and Michael Sutak, Plaintiffs–Appellants, v. COLORADO OIL AND GAS CONSERVATION COMMISSION; Colorado State Board of Land Commissioners; and Magpie Operating, Inc., Defendants–Appellees.
• Court: Colorado Court of Appeals

284 P.3d 161
2012 COA 94

Laura “Wendy” W. CHASE and Michael Sutak, Plaintiffs–Appellants,
v.
COLORADO OIL AND GAS CONSERVATION COMMISSION; Colorado State Board of Land Commissioners; and Magpie Operating, Inc., Defendants–Appellees.

No. 11CA1249.

Colorado Court of Appeals,
Div. I.

June 7, 2012.
As Modified on Denial of Rehearing July 19, 2012.

[284 P.3d 162]

Phillip D. Barber, PC, Phillip D. Barber, Denver, Colorado, for Plaintiffs–Appellants.

John W. Suthers, Attorney General, Jake Matter, Assistant Attorney General, Denver, Colorado, for Defendant–Appellee Colorado Oil and Gas Conservation Commission.

John W. Suthers, Attorney General, Casey A. Shpall, Deputy Attorney General, Ed Hamrick, First Assistant Attorney General, Heather A. Warren, Assistant Attorney General, Denver, Colorado, for Defendant–Appellee Colorado State Board of Land Commissioners.

Davis Graham & Stubbs LLP, John R. Jacus, Sam Niebrugge, Denver, Colorado, for Defendant–Appellee Magpie Operating, Inc.

Opinion by Judge FOX.

¶ 1 Plaintiffs, Laura W. “Wendy” Chase and Michael Sutak (collectively Landowners), appeal the district court judgment affirming orders of defendant the Colorado Oil and Gas Conservation Commission (COGCC): (1) declining to interpret the lease between defendants Magpie Operating, Inc. (Magpie) and the Colorado State Board of Land Commissioners (the Board); (2) denying Landowners' request to have their property deemed a Designated Outdoor Activity Area (DOAA); and (3) granting a permit to drill for natural gas to Magpie. We affirm in part, reverse in part, and remand for further findings by the COGCC.

I. Background A. Nature and History of the Surface Estate

¶ 2 In 1997, Landowners purchased a seventy-seven-acre surface estate in Larimer County (the property or the surface estate) knowing it was subject to a mineral rights reservation. The 1916 patent transferring the surface estate (as part of a larger parcel) reserved to the state all mineral rights and “the right of ingress and egress for the purpose of mining together with enough of the surface of [the property] as may be necessary for the proper and convenient working of such minerals and substances.” The Board owns the mineral estate and manages it for the benefit of the School Trust pursuant to Colorado Constitution, article IX, sections 9(6) and 10.

¶ 3 An irrigation ditch divides the property into two parcels. Landowners use part of the south parcel for agricultural purposes. The south parcel also contains a residence, agricultural outbuildings, and an indoor riding arena. Although the property is zoned for agricultural use, Landowners improved the property to facilitate its use as a training and competition area for equestrian events.

B. The Mineral Estate and Gas Drilling Proposal

¶ 4 Since 1977, the Board has been a party to Oil and Gas Lease No. OG77/2130S (the lease) for production of oil and gas over a 640–acre section of land that includes the property. The lease was assigned many times, most recently to Magpie in 1998. The first attempt to access the mineral estate occurred in June 2008, when Magpie submitted two applications for permits to drill (APD) wells ¹ on the property.

¶ 5 On November 21, 2007, before submitting its APDs, Magpie had contacted Landowners to solicit their input regarding the locations of the wells and other operations needed to facilitate gas drilling. After Magpie's representative and Landowners met in late 2007, Magpie sent a letter notifying Landowners of its intent to drill.

¶ 6 On December 7, 2007, the COGCC received Landowners' request for onsite inspection of the property to assist in identifying a gas drilling site. ² After receiving the

[284 P.3d 163]

request, COGCC staff participated in consultations between Landowners and Magpie concerning gas extraction activities. The COGCC inspected the property on August 27, 2008. The inspection was intended to determine whether an alternative drilling site could accommodate Landowners' concerns about the potential impact of drilling on their equestrian activities.³

¶ 7 After Magpie submitted the APDs, but before completion of COGCC's proposed survey, Landowners applied to have their surface estate declared a DOAA. A DOAA is defined as

¶ 8 a well-defined outside area (such as a playground, recreation area, outdoor theater, or other place of public assembly) that is occupied by twenty (20) or more persons on at least forty (40) days in any twelve (12) month period or by at least five hundred (500) or more people on at least three (3) days in any twelve (12) month period.

¶ 9 COGCC Rule 100 (Definitions). Magpie and the Board filed timely protests to the DOAA request.

¶ 10 The COGCC survey, completed on November 30, 2009, revealed that the alternative location for State–Chase 33–36 was outside the drilling window established by COGCC Rule 318A. Even so, a COGCC staff analysis recommended that the COGCC address Landowners' request for a DOAA, and, if the DOAA was denied, allow drilling on the alternative site.

¶ 11 The staff analysis noted that the authorization to drill on the alternative site, even though outside the drilling window, was consistent with Rule 318A.h., which “permits exception locations” as allowed under Rule 318.c. “for environmental or topographic reasons or other ‘good cause.’ ” Only the mineral estate owner, not the surface estate owner, needed to agree to the exception. The Board, as the mineral estate owner, approved the alternative well location on December 12, 2009.

¶ 12 The staff analysis also recommended the following conditions to approve the APDs for the State–Chase 33–36 and State–Chase 34–36 wells:

• “Drilling and completion activities shall occur between October 31 and March 1, outside of the irrigation season.”

• “Interim reclamation shall commence immediately following well drilling and completion.”

• “The operator shall implement all practicable measures to ensure that disruption to the surface owners' irrigation practices [is] minimized.”

• “In addition to the required notice for site preparation, drilling and completion, the operator shall provide 30 days['] notice to the surface owner for any non-emergency workover or well treatment. If the surface owners fail to notify the operator of a scheduled event 14 days in advance of the scheduled work[,] then the operation may proceed. Otherwise[,] if [there] is a conflict then the operator shall work with the surface owner[s] to avoid the work during the surface owner[s'] scheduled equestrian events.”

C. Landowners' DOAA Request

¶ 13 The COGCC held a hearing on Landowners' DOAA request on February 22, 2010. After the evidentiary hearing, COGCC commissioners expressed concern over several matters, including whether the number of people present on the property met the DOAA definition's requirements, whether the property was of the type anticipated to be protected under the rule, and whether waste would occur if Magpie's APDs were denied.

[284 P.3d 164]

D. COGCC Decision on the DOAA Request

¶ 14 The COGCC ultimately denied Landowners' DOAA request. The COGCC's March 24, 2010, report concerning the DOAA hearing noted the testimony of the various witnesses, as well as the COGCC staff recommendation. The COGCC order stated:

After deliberations, the Commission voted 6 to 3 to deny the Sutak–Chase application for a DOAA based on questions regarding the definition of “designated outside activity area,” whether the property fell within the definition, whether it was the type of property or activity that was contemplated when ... the Commission [promulgated the definition], and whether waste will be committed because the wells cannot be located on the property if the [DOAA] application is granted.

The COGCC therefore ordered that (1) the DOAA request was denied; (2) the order was effective immediately; (3) the COGCC reserved its right to amend or repeal any or all of the order; (4) the order was final agency action for the purposes of judicial review pursuant to the Colorado Administrative Procedure Act (APA); and (5) no application for reconsideration was needed to seek judicial review.

E. Magpie's Modified APD

¶ 15 After the hearing on the DOAA request, Magpie proposed a resolution to the conflict with Landowners whereby it would withdraw the APD for State–Chase 34–36 and ask for an exception to move State–Chase 33–36. Magpie asserted that COGCC Rule 318A authorized this exception, which would “achieve the desired mitigation of impacts” from its operations, while allowing for more cost-effective vertical drilling. Under the exception, Magpie would be able to access the well via a road along the eastern edge of the property and intersecting a county road. Finally, Magpie proposed locating a tank battery to serve the well at the far end of the access road.

¶ 16 Landowners responded to Magpie's proposal by (1) offering an alternative location for the well, and (2) requesting certain accommodations, including that (a) a horse-safe access gate be installed that could be operated by Landowners and Magpie; (b) all gas flow lines run under the access road (without easements for the gas flow lines); (c) drilling and major work should be conducted between November 15 and March 1; (d) reclamation and reseeding should commence after well drilling; (e) Magpie should take all practicable measures to minimize disruption to Landowners' irrigation practices; (f) access to well sites should occur only before 8 a.m.; and (g) Magpie would give thirty days' notice before any site preparation and drilling.

¶ 17 The COGCC granted Magpie's APD for State–Chase 33–36 at the location suggested by Landowners. The COGCC also imposed many of Landowners' proposed conditions within the permit, including the Landowners' request to allow drilling only between November 15 and March 1, when equestrian training and events were not occurring (or were minimal).

F. District Court Appeal

¶ 18 After the COGCC granted the APD for the State–Chase 33–36 well,...