Nonconsenting Owner in a Colorado Oil and Gas Well Must First Pursue Claim for Payment of Proceeds of Production at COGCC – not District Court

A recent Colorado Court of Appeals decision involves two parts of the statutes regarding the Colorado Oil and Gas Conservation Commission (Commission):  the pooling statute and the statute regarding payment of proceeds of production.  In Grant Brothers Ranch, LLC v. Antero Resources Piceance Corporation, ___ P.3d __ (2016), 2016 COA 178, the court held that the nonconsenting owner was required to exhaust its administrative remedies by bringing its claim at the Commission, and that the nonconsenting owner’s claim brought in district court should have been dismissed without prejudice.

The Commission established two drilling and spacing units to produce oil and gas in Garfield County.  Antero Resources Piceance Corporation (Antero) offered to lease the mineral interest owned by Grant Brothers Ranch, LLC (Grant Brothers) in the units.  Grant Brothers did not lease its interest and also refused Antero’s offers for Grant Brothers to participate in the wells.  After Antero’s requests, the Commission entered orders pooling all nonconsenting interests in the units. 

As a result of the Commission’s pooling orders, Grant Brothers was a nonconsenting owner under section 34-60-116(7), C.R.S. 2016.  Grant Brothers would not receive payment until the wells reach payout of the costs under the statute (often called the “force pooling statute”).  The orders required Antero to furnish Grant Brothers with monthly statements showing the costs and proceeds of the wells.  

Eventually, Grant Brothers sued Antero and Ursa Operating Company, LLC (collectively, Operators) in district court, requesting an equitable accounting and asserting that the wells had reached payout but Operators had not paid Grant Brothers.  Operators filed a motion for summary judgment, stating that Grant Brothers had to exhaust its administrative remedies available under the Oil and Gas Conservation Act, §§ 34-60-101 to -130, C.R.S. 2016 (Act).  The district court agreed with Operators, granted summary judgment in Operators’ favor and dismissed the case with prejudice. 

The Act has a procedure for the Commission to determine the date on which payment of proceeds is due and any amount of proceeds or interest due.  § 34-60-118.5(5)(a) and (c), C.R.S. 2016.  There is also a provision that if the Commission determines there is a bona fide dispute regarding the interpretation of a contract defining the rights and obligations of the payer and payee, the Commission shall decline jurisdiction over the dispute and the parties may seek resolution of the matter in district court.  The Commission also has jurisdiction to determine the reasonableness of costs used in the payout calculation for a nonconsenting owner.  § 34-60-116(7)(d). 

The court noted that there was no contractual dispute involved in this case, since there was no contract between the parties.  The court held that Grant Brothers was required to exhaust its administrative remedies before bringing a claim in district court.  Thus, Grant Brothers would have to bring its claim at the Commission.  

On a procedural issue, the court found the case should have been handled as a motion to dismiss for lack of subject matter jurisdiction and that the dismissal should have been without prejudice.