A group of Broomfield homeowners fighting oil and gas drilling in their neighborhood have filed a lawsuit in Denver federal district court arguing that the state’s “forced pooling” law violates the U.S. Constitution in at least four different ways.
The lawsuit by residents of the Wildgrass subdivision is backed by Colorado Rising, the activist group that sponsored an initiative on the November ballot that would have increased the distance between homes and drill sites to 2,500 feet. The ballot measure was defeated.
“We are going after the source of the oil and gas industry’s ability to coerce people to enter into contracts they wouldn’t otherwise,” said the homeowners’ attorney, James Leftwich. “This is what props up the industry.”
The Colorado Oil and Gas Association, the state’s major trade group, called the lawsuit frivolous and aiming “to gum up our legal processes.”
“Make no mistake, Colorado Rising is all about shutting down energy production,” COGA President Dan Haley said in a written statement.
The pooling law enables oil and gas operators to get an order from the state to combine the mineral rights held by various owners to create a cohesive drilling unit — even without their consent. (Colorado operates under a split estate rule, which allows minerals below the surface of the land, such as oil and gas, to be owned by someone other than the person who owns the land.)
Pooling laws exist in most major oil-producing states
There are pooling laws in 34 states, including all the major oil-producing states except California. They were designed to prevent waste in oil and gas development and ensure that every owner in an area being drilled is compensated.
Critics maintain that the statute is being used to ride roughshod over homeowners and say there is little oversight, claiming the Colorado Oil and Gas Conservation Commission has never rejected a driller’s request for a pooling order. The commission and Gov. Jared Polis are named as defendants in the lawsuit.
COGCC spokesman Travis Duncan said the regulatory agency does not comment on pending litigation. Polis’ office did not immediately return a request for comment.
There are about 900 owners in the Broomfield pooling order pending before the COGCC, some of whom own both homes and mineral rights, according to Jean Lim, a member of the Wildgrass Oil and Gas Committee. The Wildgrass subdivision boasts homes with scenic mountain views and price tags near $1 million.
The committee has intervened at both the local and state level, at the COGCC and the legislature, seeking relief from a plan by Extraction Oil and Gas to drill 84 wells.
Broomfield did not OK the plan until Extraction agreed to a set of operational, health and safety practices and moved the pads farther from homes.
Oil and gas operators try to sign lease agreements with landowners for their mineral rights, offering signing bonuses and royalties on the oil and gas produced. In Wildgrass, some homeowners had been offered a $500 bonus and a 15 percent royalty.
Any landowner who does not sign and is forced pooled becomes a fractional owner in the well project, does not receive a bonus and is entitled to a share of profits after paying their share of costs. This is done by the driller keeping 87.5 percent of the property owner’s share. That leaves the landowner with a 12.5 percent royalty.
“We’ve been trying to seek justice for over two years,” Lim said. “This has been a long process. We feel we’ve exhausted out possibilities otherwise.”
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Law’s constitutionality challenged before
The lawsuit contends that forced pooling law is in violation of the “privileges and immunities clause” in Article IV of the U.S. Constitution, which says that a state can’t enact a law that abridges a citizen’s rights or take property without due process.
Compared to a public taking of land by eminent domain, the homeowners are being denied due process because that taking requires a determination of fair market value. “There is no setting fair market value in pooling,” Leftwich said. “It is whatever the oil company says it is.”
The state statute also has been challenged as violating due process requirements under the Fifth and 14th amendments.
The pooling law “allows the COGCC to deprive a party of property without engaging in fair procedures to reach a decision, and actually requires the COGCC to deprive mineral owners of property for an arbitrary reason,” the suit contends.
The lawsuit goes on to say that the pooling law also violates the free speech of mineral owners by “compelling them to subsidize private speech on matters of substantial public concern” and that it breaches the Constitution’s contract clause.
“The act substantially impairs nonconsenting owners’ ability to negotiate the value, rights, and duties of a contract with a private oil and gas company,” the lawsuit said.
There have been several lawsuits around the country challenging forced pooling laws, mostly focused on property rights and compensation issues.
“Many view the forced extraction of mineral resources as an issue of eminent domain and question the fairness of cost and risk sharing mechanisms,” the National Conference of State Legislators said in a 2014 review of forced pooling. “Despite this criticism, courts have consistently found mandatory pooling laws to be constitutional.”
In a June 2018 ruling in an Ohio case challenging that state’s pooling statute, Patricia Anne Gaughan, the district court’s chief judge, wrote “in the context of oil and gas mineral rights, however, the Supreme Court has consistently held that it is ‘undeniable that a state may adopt reasonable regulations to prevent economic and physical waste of natural gas,’ even if those regulations have the effect of impacting the property rights of individual landowners.”
In June, former Gov. John Hickenlooper signed a law to give homeowners more time and better information about leasing and pooling, which was supported by both the industry and community groups. The law doubled the amount of time owners have to respond to 60 days and also removed individual owners from liability for accidents related to drilling.