Hydraulic fracturing has become a hot button topic in Colorado as oil and natural gas development has increased near urban and residential areas. During the 2012 election, in response to citizen concerns, the cities of Longmont, Lafayette and Broomfield adopted some form of ban on hydraulic fracturing, despite strong warnings from the state and local industry trade groups that such bans were contrary to state law.
On July 24, 2014, the Boulder County District Court fulfilled those predictions and overturned the City of Longmont’s ban on hydraulic fracturing and storage and disposal of hydraulic fracturing waste within city limits. See Colo. Oil & Gas Assoc. v. City of Longmont, 13-cv-63 (Order Granting Motions for Summary Judgment, Boulder County Dist. Ct. July 24, 2014).
The State of Colorado’s Oil and Gas Conservation Commission (“COGCC”) and the Colorado Oil and Gas Association, as well as Top Operating Company, who has holdings in or adjoining the City of Longmont, challenged the City’s ban on the grounds that it is preempted by the Colorado Oil and Gas Act.
In its Order ruling on the parties’ motions for summary judgment, the Court sided with industry. The Court first considered Longmont’s argument that the COGCC does not regulate (or insufficiently regulates) hydraulic fracturing and, therefore, there could be no preemption. Disagreeing, the Court found ample evidence of COGCC Rules regulating hydraulic fracturing, and reminded the City that the COGCC’s role is “to provide oversight of the industry, not to micromanage it.” (Order at 9.)
Next, although the opportunity was ripe for a finding that the Oil and Gas Act impliedly preempt local regulation of hydraulic fracturing, the Court declined to base its decision on an implied preemption analysis relying instead on the “operational conflict” test announced by the Colorado Supreme Court in Board of County Comm’rs v. Bowen/Edwards Assoc., Inc., 830 P.2d 1045 (Colo. 1992) and Voss v. Lundvall Bros. Inc., 830 P.2d 1060 (Colo. 2002).
Consistent with these earlier decisions, the Court noted that oil and gas operations are a matter of mixed local and state concern. In such cases, both the state and local government may regulate an activity provided that there is no conflict between a local ordinance and a state statute. In the event of a conflict, the local rule must give way to state law. Thus courts are tasked with first determining whether the two can coexist.
Applying this principle the Court was unable to harmonize the local ban with the Oil and Gas Act’s purpose of fostering the efficient development and production of oil and gas resources in a manner that prevents waste and protects correlative rights. “Here, giving effect to the local interest, banning fracking, has virtually destroyed the state interest in production. […] The conflict in this case is an irreconcilable conflict.” (Order at 15-16.) Citing language we are sure to hear frequently as the issues of setbacks and local control head to the ballot box in Colorado, the Court acknowledged that local regulations can result in uneven production and resource waste, as well as negatively impacting royalty owners.
While the decision is good news for operators in and adjacent to the City of Longmont, the Court prohibited all hydraulic fracturing activity until further notice, anticipating the City may appeal the ruling.
This post was written by Carey Gagnon (carey.gagnon@nortonrosefulbright.com or +1 303 801 2721) from Norton Rose Fulbright's Energy Practice Group.
