Court of Appeals Upholds Drilling Permit Grants

COGCC granted permits before Senate Bill 181 passed, insulating the permits from scrutiny under new regulations

Oil pump jacks at sunset sky background. Toned.
The Colorado Court of Appeals affirmed two Weld County drilling permits granted to an extraction company before Senate Bill 181 went into effect. Permits granted prior to the bill’s passage will be safe from judicial review under the state’s new regulatory framework. / LAW WEEK FILE

As the Colorado Oil and Gas Conservation Commission grapples with new rulemaking for development in the state following a legislative overhaul of its directive and makeup, the Court of Appeals affirmed two permits granted to Extraction Oil & Gas in Weld County. The commission granted the permits in 2017, and cases involving challenges to permits granted before Senate Bill 181 passed will be largely safe from judicial review using the new regulatory framework. 

Weld Air & Water, Sierra Club, NAACP Colorado State Conference, and Wall of Women sued in district court to challenge the commission’s decision. The organizations claimed the commission acted arbitrarily and capriciously by not considering public comments when it granted the permits and also that the decision violated the commission’s setback rules.

The proposed drilling site is about 1,360 feet from Bella Romero Academy Middle School. The organizations based their claims about the commission’s decision on three concerns raised in public comments: health risk posed to students outdoors where the site was less than 1,000 feet from the school’s playgrounds and fields, Extraction Oil & Gas’s emergency response plan because of the development’s closeness to the school, and consideration of alternative locations farther from the school.

The district court dismissed the lawsuit, which the Court of Appeals affirmed. The commission cross-appealed the organizations’ standing to bring the lawsuit, but the Court of Appeals found they did have standing.

Wyatt Sassman, an assistant professor with the University of Denver Sturm College of Law’s Environmental Law Clinic who represented the plaintiffs, said the clinic is reviewing the decision and possible next steps but declined to provide more specific details.

The Court of Appeals based its analysis of the petitioners’ standing on the organizations having established injury to protected interests under the Administrative Procedure Act and Section 34-60-111 of the Oil and Gas Conservation Act.

Alex Obrecht, an energy regulation and litigation attorney at BakerHostetler, called looking at standing “Defense 101” to a third party’s challenge to an administrative action. “In general, environmental standing is pretty easy to establish,” he said. “To get some of these challenges tossed procedurally, [challenging standing is] the government’s first move in a lot of administrative, judicial review-type cases.”

Judge Terry Fox wrote in the opinion that the court gives deference to an agency’s factual findings when reviewing one of its decisions, unless the record doesn’t support the findings or doesn’t follow the statutory scheme. Given that the Oil and Gas Conservation Act gives broad jurisdiction to the COGCC, the court will overturn a determination it has made only if the decision is arbitrary and capricious or the agency has abused its discretion.

The Court of Appeals found that Extraction Oil & Gas appropriately documented its consideration of public comments. The court also found the company responded to concerns over Bella Romero students’ health, the company’s emergency response plan, and considerations for alternative drilling sites.

The court found the COGCC complied with its own setback rules for high occupancy buildings. The commission said its setback rules only address setbacks from buildings themselves, not from associated property boundaries or playgrounds. Extraction Oil & Gas stated the proposed drilling location had the farthest setback possible from the limits of the Bella Romero school property located to the northwest, while also as far back as possible from homes located to the south and east.

The Court of Appeals’ opinion comes after Gov. Jared Polis signed an overhaul of oil and gas operation oversight on April 16. 

Previously, the COGCC’s mission was to foster development of oil and gas in Colorado that balanced operations with public welfare considerations. Senate Bill 181 now requires the commission to prioritize those public welfare considerations when considering new development. The new law also changed requirements for the commission members’ backgrounds and handed significant authority to local governments to regulate oil and gas development.

The law applies to permits decided after it goes into effect, including permits pending at the time. But Obrecht said litigants may try to test exceptions to its forward-looking applicability with claims that permits granted under the old regulatory framework don’t pass muster under the new rules. 

Broadly, litigants might argue for re-reviews of granted permits claiming “the public interest in the General Assembly exercising its power to pass Senate Bill 181 outweighs the vested right oil and gas operators might have,” Obrecht said. 

But it’s difficult to guess where specific exceptions to the law’s timeframe might come up. 

Obrecht added retrospective review of permits granted under the commission’s old framework could be a slippery slope of figuring out how far back to allow challenges. He said issues such as local government regulations will likely be the most litigated components of the new law.

—Julia Cardi

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