Voters may decide future of fracing in Colorado

Paul S. Enockson
BakerHostetler
Denver, Colo
.

This year, all eyes will be on Colorado as numerous ballot initiatives have been proposed that could impact the future of hydraulic fracturing. The citizen-initiated petitions that have been proposed are the result of prolific oil and gas development that is occurring in the Niobrara shale along Colorado's front range.

The Niobrara shale is located in the Denver-Julesburg basin. With the advances in horizontal drilling and hydraulic fracturing, development has surged along Colorado's populated front range. And it is this development's close proximity to populated areas that has resulted in citizens attempting to regulate the industry through the ballot box.

Fracing bans

In November 2013, four Colorado municipalities had citizen-initiated petitions on the ballot: Boulder, Broomfield, Lafayette, and Fort Collins. These cities are all within the Niobrara shale. Each petition sought to enact voter-approved ordinances or charter amendments prohibiting hydraulic fracturing and related activities.

Each petition passed.

In Boulder, 67% of voters sided in favor of the moratorium. In Fort Collins and Lafayette, 55% and 58% respectively cast their votes in favor of banning fracturing. And in Broomfield, after a back-and-forth recount and an election challenge, that city's moratorium narrowly passed.

These four ballot initiatives follow a successful measure that passed in Longmont. Longmont, which is another city along Colorado's Front Range within the Niobrara shale, passed a voter-initiated charter amendment in 2012 that bans hydraulic fracturing and the disposal or storage of related waste within the city limits. This voter-initiated ban was passed shortly after the Longmont City Council adopted extensive regulations relating to oil and gas operations within its jurisdiction. The Longmont regulations set forth a detailed regulatory scheme that address topics ranging from when multi-well sites, and directional and horizontal drilling techniques can be used; setback requirements; chemical reporting rules; and the protection of wildlife habitat.

In response to these citizen-initiated regulations and prohibitions, litigation quickly followed. Longmont is embroiled in litigation against the State of Colorado and the Colorado Oil and Gas Association (COGA) over its regulations and the citizen-initiated bans. A trial is currently set for August 2014. COGA has also sued Fort Collins and Lafayette, challenging their bans as well.

State preemption

In Colorado, the state policy is to encourage the full development of natural resources for the benefit of all citizens. With respect to oil and gas resources, the oil and gas industry is regulated by the Colorado Oil and Gas Conservation Commission (COGCC). COGCC's statutory mandates include fostering, encouraging, and promoting the development, production, and utilization of oil and gas resources in the state consistent with the protection of public health, safety, and welfare.

To accomplish its mission, COGCC has a set of rules and regulations that govern all aspects of oil and gas development and operations in the state. These rules include, among others, permitting, drilling, production, spacing, unitization, chemical treatment of wells, and setback requirements. COGCC's rules also address environmental concerns relating to air, water, and soil. Commentators often refer to Colorado's regulations as a model for the industry.

Colorado also has home-ruled municipalities. Under the Colorado Constitution, a home-rule municipality has the right to self-governance in purely local, municipal matters. The Colorado Constitution provides that a home-rule municipality's ordinances pertaining to local matters supersede, within its territorial limits, any law of the state in conflict therewith. Zoning authority and land use have routinely been recognized as matters of local concern that are within a home-rule municipality's power to regulate.

As a result of these two competing interests, the battle between state and local regulation of oil and gas development in Colorado has resulted in a well-developed body of preemption case law in Colorado. Under applicable law, while the Colorado Oil and Gas Conservation Act does not completely preempt county regulations, local regulations may be partially or totally preempted to the extent that they conflict with the achievement of the state's interests. Colorado courts have reasoned that the state's interest in efficient oil and gas development and production throughout the state is sufficiently dominant to override a home-rule city's imposition of a total ban on the drilling of any oil, gas, or hydrocarbon wells within city limits.

It is against this backdrop that groups opposed to fracing have submitted ballot initiatives in an attempt to constitutionally overcome existing preemption law that places local fracing bans at risk of being declared preempted under existing state law.

Ballot initiatives

The Colorado Secretary of State's office has been flooded with oil and gas ballot initiatives. In January 2014, the Colorado Community Rights Network's Right to Local Self Government initiative was the first to be submitted. This proposed constitutional amendment is broad. The amendment would give local communities the right to enact local laws relating to any type of business operating in their jurisdiction—these laws would not be subject to the preemptive forces of state law, according to its proponents. While the Community Rights Network's amendment does not specifically mention hydraulic fracturing, the intent is undoubtedly aimed at giving local municipalities the ability to ban fracing.

Since the filing of the Community Rights Amendment, additional constitutional amendments have been submitted that are expressly aimed at giving local communities the ability to regulate oil and gas development. These ballot initiatives attempt to give local communities the ability to pass laws that are more restrictive than laws passed by the General Assembly or regulations promulgated by COGCC. Some of these proposed initiatives even attempt to take on the Takings issue by declaring that any such law, rule, or prohibition would not constitute a Taking requiring just compensation.

In addition to the local control amendments, a group of proposed initiatives also seek to insert oil and gas setback requirements directly into the state constitution. Setback requirements in Colorado were revised by COGCC in August 2013. The proposed initiatives seek to amend COGCC's recently amended regulations. Depending on which initiatives proceed forward, the proposals would change the setback requirements for occupied structures to 1,500-2,600 ft for new oil and gas wells.

In response to these proposed initiatives, competing initiatives have also been proposed. One proposed ballot initiative would expressly state in the Colorado Constitution that local governments cannot enact laws, regulations, or charter provisions regulating oil and gas development or operations in a manner that is more restrictive or in conflict with regulations adopted by COGCC. Another initiative sponsored by Frank McNulty, the former Speaker of the Colorado House of Representatives, would change state law by prohibiting local governments that ban or prohibit energy development from receiving a share of state tax revenue that comes from oil and gas development.

Conclusion

The deadline to submit signatures for the various ballot measures is Aug. 4, 2014. It remains to be seen which initiatives will actually make it onto the ballot in November. Assuming one or more initiatives make it onto the ballot, certainty will not be achieved on election night. More litigation will follow.

Even though the local control initiatives attempt to overturn Colorado's law on preemption, challenges will still be made given the language of the initiatives. Constitutional issues will also take center stage. The Taking issue will be litigated.

While the language of the Takings Clause is straightforward, the Takings case law that has developed is anything but clear. In the oil and gas context, one law may be held to be a Taking while a similar law may not be found to constitute a Taking. This round of citizen initiated legislation could also bring the US Constitution's Guarantee Clause into the mix. The Guarantee Clause guarantees each state a republican form of government. What that means in today's climate of ever increasing citizen initiated legislation is anyone's guess. But it will likely be raised should one or more oil and gas ballot initiatives pass.

The future of fracing in Colorado is at risk. All eyes will be on Colorado in November.

Paul S. Enockson (PEnockson@bakerlaw.com) is a partner in BakerHostetler's Denver Office. He is a member of the firm's national shale team and a frequent contributor to the firm's North America Shale Blog (www.northamericashaleblog.com). His practice focuses on complex commercial litigation, including oil and gas dispute.

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