Water Allocation Law and the Oil and Gas Industry in Gas: an Update to the 1981 Neufeld Article
| Jurisdiction | Kansas,United States |
| Citation | Vol. 81 No. 8 Pg. 22 |
| Pages | 22 |
| Publication year | 2012 |
By Eva N. Neufeld, John C. Peck, and Adam C. Dees.
The Spring 1981 issue of the Journal of the Kansas Bar Association contained Eva Neufeld's article "The Kansas Water Appropriation Statutes and Their Effect Upon the Oil and Gas Industry in Kansas" (the 1981 Article).[1] We are updating the 1981 Article because in the intervening 30 years great changes have occurred in Kansas law and in oil and gas recovery methods, particularly in coalbed methane (CBM) production and fracing. The 1981 Article focused on the Kansas Water Appropriation Act (KWAA)[2] administered by the chief engineer of the Division of Water Resources (DWR) of the Kansas Department of Agriculture (KDA). The 1981 Article cited other non-KWAA statutes, including sections dealing with the Kansas Corporation Commission (KCC), civil procedure, and taxation. Over the last 30 years, the Kansas legislature has made numerous additions and amendments to the KWAA and other relevant statutes, and we analyze the effect of these changes on the oil and gas industry.
The 1981 Article began with a brief history of the KWAA and the KWAA's initial impact on oil and gas production. The 1981 Article then covered (1) water use in the initial drilling operation, (2) water as a by-product of oil and gas production, and (3) water use in secondary or enhanced oil and gas recovery. The final three sections dealt with the question of attachment of water rights to land in Oklahoma, Colorado, and Kansas; discussed policy issues and made suggestions; and advised on obtaining a water appropriation permit. This article updates and supplements the 1981 Article, but does not replace it; so, the articles should be read together. We use the same 1981 Article format and subtitles,[3] but in some cases add sub-subsections, and we do not discuss Oklahoma and Colorado law. Like the 1981 Article, this article focuses primarily, but not exclusively, on water allocation. Several developments in legislation, administrative regulations,[4] and in methods of oil and gas recovery necessitate mentioning several water quality concerns as they relate to allocation, but we do not discuss water quality concerns in detail. This article summarizes changes in the KWAA and the other related statutes and in DWR since 1981, and it ties them to recent advancements in oil and gas recovery methods. We deal with attachment of water rights, but only in Kansas and not in Colorado or Oklahoma. The section describing policy issues and making suggestions is reviewed as to current applicability. The final section on obtaining a water appropriation permit is updated and expanded.
History
The 1981 Article summarized the history of prior appropriation in Kansas, a system based on "first in time, first in right."[5] Since 1981 numerous changes in Kansas water allocation legislation and administrative regulations have occurred, DWR personnel have changed, and judicial decisions have been rendered. Guy Gibson, appointed chief engineer in 1972, retired in 1983. David Pope succeeded him, having served as assistant chief engineer since 1978. Legal counsel Leland Rolfs had joined the DWR staff in 1978. Pope retired in 2007, Rolfs in 2008. In the last 30 years, most of the legal changes in Kansas water allocation law occurred under Pope's and Rolfs' leadership.
The following are a few changes in the KWAA and related statutes since 1981. In 1983, the legislature enacted, and in 1993 amended, the Water Transfer Act[6] to regulate movement of large quantities of water (2,000 acre feet per year) over distances exceeding 35 miles;[7] in 1984, it added minimum desirable streamflow legislation;[8] in 1988, it required annual use reports;[9] in 1995, it enacted a change in the process for appointing the chief engineer;[10] in 1999, it changed the forfeiture period for non-use of a water right from three years to five years;[11] in 2001, it provided for "multi-year flex accounts,"[12] enacted water banking legislation,[13] and enabled the chief engineer to suspend a water use for failure to comply with provisions of the KWAA;[14] and in 2009, it enabled issuance of "term permits," which had until that time been allowed by regulation only[15] ("temporary permits" have been permitted by statute since 1977[16]). Those changes do not count the numerous other examples of the legislature's tweaking other sections of the KWAA, leaving few current sections in their 1981 form. The legislature also abolished the Kansas Water Resources Board and replaced it with the Kansas Water Authority and the Kansas Water Office headed by a direc-tor,[17] and it amended the water planning statutes[18] to provide a continuously modifiable State Water Plan, giving Kansas a dynamic water resources planning capability.[19]
In 1981, DWR had published few administrative regulations, but it was producing in-house "administrative policies and procedures." Over the next decade, DWR produced even more policies that filled two large three-ring notebooks and, although not necessarily having the force and effect of law,[20]guided DWR staff and lawyers dealing with DWR. In 1999 the legislature mandated that the chief engineer turn the administrative policies and procedures into full-fledged administrative regulations.[21] Found under K.A.R. Agency 5, DWR regulations contain 35 separate articles.[22] In addition to its usual duties of issuing original permits and change orders, DWR has established several intensive groundwater use control areas (IGUCAs)[23] and held many water rights abandonment hearings.[24]
Prior to 1981, Kansas had only a few appellate court cases dealing with the KWAA, most of them examining its constitutionality.[25] Since then, including still one more constitutional case,[26] the Kansas appellate courts have decided several cases that clarify various issues regarding abandonment of water rights,[27] standing to contest DWR decisions regarding issuance of permits,[28] condemnation powers of special water districts,[29] and changes in vested rights.[30] In addition, Kansas has been a plaintiff in two U.S. Supreme Court cases, one regarding allocation of the Arkansas River[31] and one regarding the Republican River.[32]
Initial Impact
As stated in the 1981 Article, it is common practice to include a clause in an oil and gas lease in which the lessor grants the lessee the right to use water. Most lease forms in Kansas, including the so-called Producers 88 form lease,[33] contain a "free use" clause granting the lessee the right to use water for its development and operations, except from existing wells of the lessor.[34] While an implied right to use water has been recognized in some states, including West Virginia and Texas,[35] Kansas water rights may be obtained only with a permit from DWR, and, as discussed below, temporary permits are allowable and may suffice for initial operations. The landowner must have a water right before the landowner can allow a lessee to use water in the production of oil and gas under the authority of the landowner's water right. Even then, the owner's water right is limited to a particular type of use, such as domestic or irrigation, and to divert and use water for any other purpose requires prior permission from DWR.[36] Even if DWR approves changing the use of the water right, DWR must ensure that the consumptive use remains the same.[37] If oil and gas producers plan to utilize a landowner's water right, the oil and gas producer must carefully evaluate the water right's current consumptive use and the prospect that a change may increase or decrease the consumptive use. Moreover, KWAA's Section 728 makes the diversion of water without a permit a criminal offense.[38] That section contains several exceptions that could apply,[39] but the operator needs to confirm that it either has a permit or meets one of the exceptions.
Any version of an oil and gas lease proffered by a producer may be modified by the parties, including an addendum providing that the lessee is not entitled to use any water from the leased premises whatsoever without first obtaining the written consent and approval of the lessor.[40] Lawyers should carefully review any proposed lease for such provisions affecting water.[41] Professor Pierce makes the following comment and recommendation regarding addressing water use to avoid disputes:
Although the lease purports to grant lessee the right to use water, in most cases the landowner will not have any sort of vested right in water on or in his land. Instead, the lessee must obtain a permit to appropriate water from the Chief Engineer of the Division of Water Resources. K.S.A. § 82a-711 (1984). [cites 1981 Article].Today, it would seem prudent to address the use of water in detail to avoid later disputes. For example, rights to water from ponds, streams, and wells should be specified. Rights to salt and fresh water produced from oil and gas wells should be granted to the lessee. The scope of "'use' should be addressed. For example, can the lessee use water from the lease to conduct enhanced recovery operations? ...[42]
He further recommends that the landowner carefully scrutinize the granting clause "to determine the activities which lessee can conduct on the lease land"[43] because the parties' rights may conflict. "If the lessor is using water from a pond on the leased land to water cattle, can the lessee use the water to conduct drilling or secondary recovery operations?" he asks.[44] He cites the 1932 pre-KWAA case of Wyckoffv. Brown,[45] which allowed the lessee to use water from a pond on the leased land to support drilling operations, because the lease gave the lessee the right to use water "produced on said land ... except water from wells of lessor."[46]...
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