A group of Broomfield homeowners on Wednesday filed a lawsuit that challenges the nearly century-old practice that allows oil and gas companies to drill under their property using “forced pooling.”
Forced pooling gives oil and gas companies the right to drill — without property owners’ consent — as long as the company makes a “reasonable” offer and at least one homeowner signs the lease.
With that sole thumbs up, the company can then ask the Colorado Oil and Gas Conservation Commission, the state body regulating the industry, to “pool in” the remaining land — over the objections of other owners. More than half the states in the country have some variation of this law, which originated in the 1930s as a way to insure that a property owner who didn’t want oil and gas rigs on his property could not deprive his neighbor of the right to develop them.
Once the pooling happens, non-consenting property owners have fairly little recourse. By refusing to sign the forced-pool lease, homeowners can be punished: they receive a limited royalty and are required to pay up to three times what consenting owners have to shell out to cover parts of the fracking project.
The lawsuit was initiated by the Wildgrass Oil and Gas Committee, a group of anti-fracking activists out of Broomfield. It represents more than 900 local residents who WOGC says were forcibly pooled into one parcel, according to a permit application that Extraction Oil & Gas filed with the COGCC.
Extraction Oil & Gas officials did not respond to a request for comment from The Independent.
But the Colorado Oil and Gas Association said the practice has long legal precedent and that land owners have ample opportunity to decide if they want to allow drilling.
“Pooling has not only stood on sound legal footing for nearly a century, but it is a critical step in energy development that now requires detailed communication among mineral right owners well before permits are ever filed,” said Dan Haley, president and CEO of the Colorado Oil and Gas Association, in a statement.
The Broomfield homeowners argue in their lawsuit that the practice of forced pooling is unconstitutional as it violates “the privileges and immunities clause of the United States Constitution because it grants exclusive privileges to private gas and oil operators and injures Wildgrass owners.”
Jean Lim is the WOGC co-chair. Her half-acre of land in a densely populated residential area is part of Extraction’s development site.
“We were very surprised to say the least that in the United States, our property rights could be taken from us by the state of Colorado without our consent, really,” Lim said.
Mineral rights are separate from property rights — owning a home doesn’t necessarily mean you own the rights to the minerals below it. But Lim owns both. She said she didn’t even realize she was a mineral owner until she walked to her mailbox one morning in June of 2016, when she and many of her neighbors found an offer letter from Extraction. The letter offered her 12.5 percent in royalties, mandated by law, in exchange for agreeing to allow her land to be used as part of an 84-well project in her neighborhood. Lim declined the offer, citing health and safety concerns as well as uncertainty over how much money she would actually make in the deal. Others in the area were worried about property values plummeting if all of a sudden their neighbor became an extension of an industrial site.
“They also left us liable in the terms of the lease for any accidents that would have occurred,” Lim said. “So we were getting a lease offer with awful lease rates, the liability was left in, and they also allowed access to our property.”
Since Lim received her letter in 2016, Colorado lawmakers have addressed the liability issue. In 2018, they clarified that non-consenting mineral owners can no longer be held liable for costs arising from spills, releases, damage or injury from oil and gas operations on their property.
The lawsuit names as defendants Gov. Jared Polis in his role as the state’s chief executive, as well as COGCC acting director Jeff Robbins. COGCC spokesperson Travis Duncan declined to comment, citing the pending nature of the litigation. Asked how many pooling permits were filed in 2018 or are currently pending, he said finding out would take the agency days of manually going through records.
As The Colorado Independent previously reported, according to former COGCC Director Matthew Lepore, the commission issued about 540 orders per year statewide between 2012 and 2015. About 40 percent of those were pooling orders, where multiple mineral owners were consolidated into one company’s drilling proposal, with and without the owners’ consent. The COGCC does not track how many owners voluntarily signed leases, and how many were “force-pooled.”
A Republican-controlled Senate killed a Democratic bill in 2017 which would have required COGCC to keep records of forced pooling orders.
Lawsuit faces steep odds
The lawsuit also seeks an immediate restraining order and a preliminary injunction given that construction of the Broomfield pad is slated to start in the coming days, with production scheduled to begin in early June.
But the constitutional argument at the core of this lawsuit faces an uphill battle, says Bruce Kramer, who taught oil and gas law at the University of Colorado law school for 11 years and has studied the issue of pooling for three decades.
“Those arguments have been made since the 1930s and have been universally rejected by state and federal courts,” he said. Just within the last year, Kramer said, the Ohio Supreme Court threw out a similar case.
The Wildgrass Oil and Gas Committee is not alone in its legal fight. Its suit, filed in the U.S. District Court of Colorado, is backed by Colorado Rising, the group behind last year’s contentious — and ultimately unsuccessful — Proposition 112 ballot measure, which sought to impose a 2,500-foot setback rule for all new oil and gas development in the state.
“The oil and gas industry has long used forced pooling as a means of coercing mineral owners into unreasonable, below market leases and forced extraction of their mineral property,” said Colorado Rising spokesperson Anne Lee Foster in a note to reporters. “The practice is relied on so heavily by the industry that some operators list changes to forced pooling regulations as a risk to their financial viability.”
COGA’s Haley says anti-fracking groups refuse to see the many benefits, including jobs, that oil and gas bring to Colorado. “Make no mistake, Colorado Rising is all about shutting down energy production,” Haley said. “Whether it’s their failed ballot initiatives or frivolous lawsuits meant to gum up our legal process, their stated intent is to end Colorado’s oil and natural gas industry and put working families on the unemployment line. That’s what this is about.”
A legislative fix?
In 2018 lawmakers came together and passed a reform bill that established a 60-day advance notice before COGCC holds a hearing on the pooling application. In that same session, though, a Democratic bill that would have exempted local governments and school districts that own mineral rights from forced pooling died in the Republican-controlled Senate.
For the activists, the adjustments made in 2018 didn’t go far enough. Their ask: At least 51 percent of mineral rights owners in a unit need to consent before a pooling permit application can be filed — rather than just one person, as is currently the case. They also seek market-value based royalties if they decide to sign a lease agreement.
Sen. Mike Foote, a Democrat from Lafayette, is considering such changes to forced pooling laws.
Foote said he is still working on legislation that could include several changes to how the state regulates the oil and gas industry. Prior efforts to do so were shot down in the Republican-controlled Senate. This year, however, Democrats control the House, Senate and governor’s office.
Given the new Democratic makeup of the legislature, Lim and other mineral owners haven’t given up on seeking a legislative fix while their lawsuit makes its way through the court system. Conversations are ongoing, she said. But after more than two years of petitioning lawmakers and COGCC members, for now they say they see their best bet for success in the courts.
