INITIATIVES ON OIL, GAS DRILLING RUN RISK OF LITIGATION
Colorado taxpayers could face billions of dollars in compensation claims if two ballot measures to limit oil and gas drilling in the state make it into the constitution, panelists speaking at the Rocky Mountain Energy Summit warned Tuesday.
“You will have years and years of litigation over takings,” said Jamie Jost, a Denver petroleum industry attorney. “Initiatives 75 and 78 could be devastating not only for the industry, but for the state.”
Initiative 75 would provide local governments a greater say in limiting oil and gas activity within their boundaries, including rules stricter than state standards. Initiative 78 would require new wells be set back 2,500 feet from inhabited dwellings and sensitive environmental areas, including waterways.
Signatures have been submitted for both initiatives. Colorado’s secretary of state has until Sept. 7 to determine whether they will make the November general election ballot.
Either measure would reduce future production in the state and the tax revenues that follow. But the bigger legal issue, Jost said, is who is on the financial hook for compensating the owners of mineral rights made inaccessible by the proposed rules if they are adopted.
Mineral rights owners could seek to be made whole under the takings clause of the Fifth Amendment of the U.S. Constitution, which prohibits public entities from seizing private assets without fair compensation.
If the initiatives make the Colorado Constitution, the state would have to defend against any litigation they trigger, said Matt Lepore, director of the Colorado Oil and Gas Conservation Commission.
“The governor is concerned about that,” he said.
Jesse Coleman, a researcher with Greenpeace who attended the panel, said that New York state banned hydraulic fracturing, impacting a large number of leases. No successful takings cases have followed and tighter Colorado regulations didn’t trigger them either.
“You hear the takings argument raised when regulation gets mentioned. I am not convinced it is a massive litigation problem,” he said.
Under Initiative 78, about 90 percent of the surface area in the state would be off limits to oil and gas drilling, primarily due to distance requirements from bodies of water, including seasonal streams, according to COGCC estimates.
Initiative 75 would have a more limited im-
pact, given that the state’s oil and gas resources are concentrated in a handful of counties with an economic interest in continued extraction.
But Jost said it could contribute to a patchwork of regulations that would scare off producers. Lepore said it would complicate the already complex task of regulating oil and gas activity in the state.
For example, a city could require drilling sites be fenced in a certain way, per its local municipal code. A state inspector would need to be expert in all the local rules or local governments would need to develop their own in-house oil and gas expertise.
What is the alternative? Lepore said the state remains a big proponent of operators and local governments hammering out voluntary agreements on a case-by-case basis.
The COGCC and Weld County, responsible for 90 percent of the state’s oil production, are also crafting an intergovernmental agreement that will provide the county more say and set a new precedent. Adams County is seeking approval to hire its own oil and gas inspector to add a local set of eyes.
Lepore notes the major rule-makings the COGCC has undertaken the past five years, from expanded setbacks to stricter environmental protections, have come at the request of the state legislature, which in turn was responding to the concerns of constituents.
“It is a sledge hammer approach when a fly swatter would do,” he said of the initiatives.
Coleman counters that supporters of the initiatives aren’t bent out of shape with the rule-making process, but rather with what they view as a failure of that process to protect public health and safety.
“People are sensing a lot of disquiet and searching for what can be done,” he said.