CHAPTER 7 LOCAL REGULATION OF OIL AND GAS OPERATIONS: THE ROCKIES EXPERIENCE

• Jurisdiction: United States

Development Issues and Conflicts in Modern Gas and Oil Plays
(Nov 2004)
CHAPTER 7
LOCAL REGULATION OF OIL AND GAS OPERATIONS: THE ROCKIES EXPERIENCE
David R. Little ¹
Bjork Lindley Little PC
Denver, Colorado

David R. Little is an attorney and shareholder with Bjork Lindley Little PC in Denver, Colorado. He has been with the firm since 1998, focusing his practice on oil and gas and regulatory disputes in Colorado and Wyoming. His practice has involved a wide variety of tort, contract and regulatory issues. He has appeared in both state and federal courts in Colorado, state courts in Wyoming, the Colorado Oil and Gas Conservation Commission and in arbitration matters before the American Arbitration Association.

A native of Boulder, Colorado, Mr. Little graduated from the University of Colorado, Boulder, with a Bachelor of Science decree in Business Administration (Finance), in 1980. He received his J.D. in 1983 from Stanford Law School. After law school, David returned to Colorado and worked as a law clerk to former Justice Joseph R. Quinn of the Colorado Supreme Court. David has also worked as an Assistant Attorney General for the State of Colorado, defending the state, its agencies and employees in matters filed in state and federal trial and appellate courts, and also in private practice.

Today, I have directed the Federal agencies that oversee environmental and natural resource policies and programs to promote cooperative conservation in full partnership with states, local governments, tribes, and individuals. Local involvement is critical to ensuring successful, effective, and long-lasting conservation results. The executive order on cooperative conservation that I have signed today will help us continue to make sure that decisions in Washington, D.C., are well-informed by those closest to the land and their communities.

George W. Bush

President of the United States of America

August 26, 2004 ²

Watershed management provides an opportunity for local governments to play a central role in the conservation of biodiversity and the promotion of environmentally sustainable development. As the primary stewards of the nation's private lands, local governments can use their land use authority to curb activities involving the degradation of stream corridors and other sensitive lands.

A. Dan Tarlock

Professor of Law, Chicago-Kent College of Law ³

I. INTRODUCTION

As noted by one recent commentator, "the regulation of natural resource development by local governments is proliferating," especially in the Rocky Mountain West. ⁴ As discussed herein, there is good reason to think that this trend will continue. A wide range of interest groups, ranging from President George W. Bush to advocates of environmental protection such as Professor A. Dan Tarlock, have identified the partial "decentering" ⁵ of environmental law as a worthy goal. This paper describes this trend, analyzes its possible causes and consequences and uses the recent Colorado experience to assess its future. ⁶

II. HISTORIC TRENDS IN OIL AND GAS REGULATION

A. Initial Efforts to Regulate the Extractive Industry at the Local Level

Local regulation of oil and gas development is not a new phenomenon. In fact, with varying success, some of the earliest zoning laws were aimed at ameliorating the impact of extractive industries. ⁷ During the 1920s and 1930s several cities such as Oklahoma City, Long Beach and Los Angeles regulated or prohibited the production of oil and gas within city limits. ⁸ These regulatory efforts were, for the most part sustained by the courts on the ground that such limitations promoted the public welfare. ⁹ But local regulation failed to address and resolve some of the most pressing issues of the day -- most importantly, the need for pooling and unitization. "In 1927-28 several Kansas municipalities became the first governmental entities of any kind to adopt a compulsory polling regulatory scheme as a means of protecting correlative rights." ¹⁰

B. The Development of Conservation Commissions

One of the most important developments in the law of oil and gas during the first seven decades of the twentieth century was the rise to prominence of the state oil and gas commission. In most states, these commissions were empowered to bring order and common sense to efforts to develop oil and gas including, but not limited to, "most if not all phases of oil and gas drilling, development, well-siting, production, transportation to market, and site reclamation." ¹¹

The applicants and other parties appearing before them were property owners. For the most part, they owned interests in oil and gas and either wanted to develop them or wanted to protest actions by others that might harm their own ability to someday produce oil and gas. Empowered by state legislatures, blessed by the courts and staffed with technical experts, the commissions prioritized and, in some instances, conditioned or redefined oil and gas property rights so as to maximize production, minimize waste and protect correlative rights. ¹²

C. The Increasingly Important Federal Regulatory Role

A new era of oil and gas regulation began during the 1960s and 1970s. While state commissions often continued to dominate the oil and gas regulatory arena, the federal government began elbowing its way to the front of the stage, especially in the Rocky Mountain West. "The case for federal intervention was, and remains, strong, in part because local governments were slow to deal with many environmental problems, and when they did exercise their powers to define and prevent common law nuisances, the result was often to shift pollution to other areas." ¹³

Responding to citizen concerns about pollution and natural resource destruction, Congress enacted new, comprehensive environmental laws. "The ... goal of stimulating the competitive search for, or harvesting of, valuable resources began to be replaced by a restoration and protection goal." ¹⁴ The resulting legislation, including the 1964 Wilderness Act, the National Environmental Policy Act of 1969, the Clean Air Act of 1970 and the Clean Water Act of 1972, empowered the federal government and, literally, created the field of environmental law. ¹⁵ These statutes most often vested federal officials with the ultimate responsibility for either making wise environmental decisions or ensuring that designated state officials do so. ¹⁶

At about this same time, the Bureau of Land Management was completing and issuing its landmark study of federal lands. Significant statutory and regulatory changes soon followed with result being a greater emphasis on federal land use planning and control. With the adoption of the Endangered Species Act of 1973, the Federal Land Policy and Management Act of 1976, and the National Forest Management Act of 1976, ¹⁷ the federal government undertook significant land management planning roles that continue to shape the use of federal lands today.

D. The Re-emergence of Local Oil and Gas Regulation

In many western states, local governments have reemerged as yet another key regulator. Commentators have identified many reasons for this trend. Some point to "increased urbanization of the West and the significant surface development of many traditional oil and gas producing areas." ¹⁸ Some also point to improvements in technology and increased demand for oil and gas products that is leading to proposals to develop oil and gas properties more intensely and nearer urban centers. ¹⁹ Still others identify political opinions varying "from the normative assertion that the U.S. Constitution prefers state to national governance to more positive concerns about the limits of centralized governance." ²⁰

Whatever the reason, it is apparent that oil and gas producers and transporters must often now hurdle a new, third level of government regulation before they will be allowed to develop, produce and transport oil and gas. On August 26, 2004, President George W. Bush issued an Executive Order on facilitation of Cooperative Conservation. ²¹ The President defined "cooperative conservation" as "actions that relate to use, enhancement, and enjoyment of natural resources, protection of the environment, or both, and that involve collaborative activity among Federal, State, local and tribal governments, private for-profit and nonprofit institutions, other nongovernmental entities and individuals." ²² President Bush directed that federal land management agencies promote cooperative conservation to the extent permitted by law and also asked that annual reports be made by all agencies to the Council on Environmental Quality. ²³

III. CAUSES AND CONSEQUENCES OF RENEWED LOCAL REGULATION

A. Common Criticisms of Local Oil and Gas Regulation

Most commentators and oil and gas interest owners decry the trend toward increasing local regulation. The primary criticism centers on the inefficiency of multiple layers of government regulation. As concisely summarized by two leading scholars in their incisive recent study of overlapping federal, state and local regulation:

These barriers arise in ways that may be characterized as both 'vertical' and 'horizontal.' Vertically, layer after layer of state and local regulatory uncertainty and confusion force the developer to spend time, money, and effort attempting to understand whether, and how, state and local law applies to the development project. Horizontally, over the entire life cycle of the development, from permitting to reclamation, state and local regulations and restrictions operate, sometimes with maddening predictability, to deter, retard or stop the extraction of resources.

....

The relentless nature of these non-federal regulations sometimes discourages or halts otherwise useful and legally valid resource extractive operations. This consequence benefits neither the local governments imposing the regulations nor the frustrated developer. The American...