Boulder County was dealt a setback from the Colorado Supreme Court this month in a ruling on oil and gas leases within its borders. But county officials are trying to view the decision in a positive light, as the Supreme Court removed a stipulation from an earlier court ruling that would have been more detrimental to the county’s climate goals.
Boulder County filed a lawsuit in 2019 seeking to terminate two oil and gas leases on county property. Kate Burke, a senior assistant county attorney, told Boulder Reporting Lab that most oil and gas leases on county land are old and on land that has changed hands multiple times. The two leases the county was trying to terminate date back to the 1980s.
“Most of the [oil and gas] leases that Boulder County has are minimum 40 years old,” Burke said. “They were not written with the idea of massive hydraulic fracturing projects in mind, because they’re 40 years old.”
These leases reflect a time when environmental pollution surrounding oil and gas faced less pushback, contrasting sharply with today’s concerns driven by the fracking boom.
“Up until the last maybe 20 years, the prevailing circumstance has been, ‘We want as much drilling as we can possibly get,’” Burke said.
This resulted in leases being written without a firm end date. For example, the two leases the county tried to terminate will remain in effect “as long thereafter as oil or gas … is produced.”
“It would be like if you owned a building and you rented one floor to someone and the lease said they could live there as long as they were alive,” Burke said. “You can’t raise the rent. You can’t get rid of them if they’re horrible people. You’re stuck.”
So when these two leases, owned by Crestone Peak Resources Operating LLC, ceased production for a four-month period several years ago, county attorneys saw it as an opportunity to pursue legal action against the company to terminate the leases.
But rather than side with the county, an appeals court ruled even more favorably in the oil and gas industry’s favor, calling for a sweeping acceptance of the “commercial discovery” rule.
The commercial discovery rule means an oil and gas lease remains in effect not just if a well is producing, but as long as it has the ability to produce.
“All they have to do is have a well somewhere that could produce oil and gas, and that lease stays alive indefinitely,” Burke said of the commercial discovery rule.
Boulder County has 134 oil and gas wells that are able to produce, but are currently turned off.
“A lot of these older wells that are sitting out there are actually leaking methane, not in massive amounts, but in continuous small amounts,” Burke said. “So we think they’re worse than useless. They’re harmful.”
In its opinion, the Colorado Supreme Court said it wouldn’t universally support the notion of commercial discovery for oil and gas leases. Instead, it reaffirmed “the well-established tradition in Colorado of interpreting each oil and gas lease on its own terms.” This was the small win the county took from the Supreme Court ruling. Each lease would be considered based on its language, not on the unlikely possibility of gas production.
“Examining the specific leases at issue here,” the court’s opinion said in the Boulder County case, “we conclude that the four-month shut-in did not trigger termination under their cessation-of-production clauses.”
In other words, the court ruled that four months was not long enough to justify terminating the leases, especially because the downtime was mainly due to necessary pipeline maintenance. Burke said that the same lease that was out of production for four months has had an even longer period of inactivity since.
“They’ve been out of production for well over a year straight,” Burke said. “But once the case was underway, we made the decision not to amend our case.”
The state Supreme Court’s ruling against commercial discovery leaves the county open to argue for the termination of oil and gas leases on various grounds in the future, according to Burke. She said these reasons could include a more extended period of inactivity or variations in language within different leases.
“In law school we talk about cases with bad facts,” Burke said. “In this case, because the outage in production was short and it was a while ago, they weren’t the strongest facts. But that doesn’t mean that other and better cases wouldn’t succeed.”
Boulder County has a long history of fighting against oil and gas drilling. In 2012, the county passed its first drilling moratorium. The moratorium ended in 2016, when the Colorado Supreme Court stuck down such local bans. The county borders Weld County, which produces more oil and gas than any other county in Colorado. Both counties sit atop the oil- and gas-rich Denver-Julesburg Basin.