A recent decision from the Colorado Court of Appeals (“Court”) could mean a new focus for the Colorado Oil and Gas Conservation Commission (COGCC). On March 23, a three-judge panel issued a split decision in Martinez v. Colo. Oil & Gas Conservation Comm’n, 2017 COA 37, with two of the three Judges rejecting the COGCC’s assertion that its role under the Oil and Gas Conservation Act (Colo. Rev. Stat. §§ 34-60-101 to -130) (the “Act”), is to balance oil and gas development with other public interests such as public health, safety, and welfare.

At issue was a petition for rulemaking filed with the COGCC in 2013 by members of the Boulder-based Earth Guardians asking that the COGCC “not issue any permits for the drilling of a well for oil and gas unless the best available science demonstrates, and an independent, third party organization confirms, that drilling can occur in a manner that does not cumulatively, with other actions, impair Colorado’s atmosphere, water, wildlife, and land resources, does not adversely impact human health and does not contribute to climate change.” The COGCC solicited and reviewed a substantial amount of public input on the matter, and later denied the petition, finding, inter alia, that the proposed rule would require it to “readjust the balance crafted by the General Assembly under the Act,” thus making the proposed rule “beyond the Commission’s limited grant of statutory authority.” The petitioners appealed that decision to the Denver District Court, which affirmed the COGCC’s denial of the petition.

In reversing the lower court decision, the Court found that the district court and the COGCC had erred in interpreting the scope of the COGCC’s authority under the Act. Specifically, the Act provides that it is in the public interest to “[f]oster the responsible, balanced development, production, and utilization of the natural resources of oil and gas in the state of Colorado in a manner consistent with protection of public health, safety, and welfare, including protection of the environment and wildlife resources.” Colo. Rev. Stat. § 34-60-102(1)(a)(I). The COGCC argued that this requires it to balance oil and gas production with other public interests such as those outlined in the proposed rule. The Court, after a lengthy analysis of the phrase “in a matter consistent with,” disagreed, holding that the quoted language instead indicates that “fostering balanced, nonwasteful development is in the public interest when that development is completed subject to the protection of health, safety, and welfare.”

The Court went on to discuss numerous amendments to the Act since its adoption, finding that cumulatively “[t]hese amendments reflect the General Assembly’s general movement away from unfettered oil and gas production and incorporation of public health, safety, and welfare as a check on that development.” Rather, the Court found, “the clear language of the Act – supported by the Act’s legislative evolution and the Commission’s own enforcement criteria – mandates that the development of oil and gas in Colorado be regulated subject to the protection of public health, safety, and welfare, including protection of the environment and wildlife resources.”

Judge Booras dissented, finding that the quoted language from the Act signifies the need for a balancing process, as the COGCC had argued, not the elevation of one interest over all others. She also noted that this language is located in the legislative declaration to the Act, which is generally only used to interpret an ambiguous statute, and cannot “override the language of a statute.” Instead, she pointed to the COGCC’s “actual” statutory authority, located in Colo. Rev. Stat. § 34-60-106(2)(d), which provides that “[t]he commission has the authority to regulate . . . [o]il and gas operations so as to prevent and mitigate significant adverse environmental impacts on any air, water, soil, or biological resource resulting from oil and gas operations to the extent necessary to protect public health, safety, and welfare, including protection of the environment and wildlife resources, taking into consideration cost-effectiveness and technical feasibility.” This language, she concluded, further supported the COGCC’s interpretation of the Act as on the whole requiring a balancing of numerous competing interests.

Procedurally, the case has now been remanded back to the district court for a decision consistent with the Court’s opinion. The Court did not rule on the merits of the rulemaking petition, meaning that the COGCC is not necessarily required to adopt the proposed rule. Instead, the ruling permits the petitioners to resubmit their petition for rulemaking, which cannot now be denied on the grounds that the COGCC lacks authority to implement it. That said, it is anticipated that the COGCC will appeal the decision to the Colorado Supreme Court.

What the Martinez decision means for the future of oil and gas operations in Colorado is unclear. On the one hand, the Opinion may simply mean business as usual for the COGCC. The Commission and other state agencies already use a myriad of rules and regulations to require oil and gas developers to protect public health, safety, and welfare. These efforts were outlined at length in a 753-page Memorandum prepared by COGCC Director Matt Lepore for use by the Commissioners in considering the proposed rule. On the other hand, the Opinion could be read as requiring a comprehensive reorientation of the COGCC, away from “balancing” oil and gas development with other public interests and toward a focus on the pre-condition of protection of public health, safety, and welfare. This is the interpretation that the conservation groups are advocating.

This decision has been criticized by the COGCC and numerous industry groups, and many are encouraging the COGCC to appeal the decision to the Colorado Supreme Court. We could hear more after May 1, when the Commissioners next meet.