STATE CONSERVATION PRACTICES: A PRACTICAL LOOK AT COLORADO

• Jurisdiction: United States

Onshore Pooling and Unitization
(Jan 1997)
CHAPTER 5A
STATE CONSERVATION PRACTICES: A PRACTICAL LOOK AT COLORADO
John F. Welborn
Welborn Sullivan Meck & Tooley, P.C.
Denver, Colorado

SPECIAL INSTITUTE ON ONSHORE POOLING AND UNITIZATION

I. Review of Basic Theories Behind the Colorado Act.

A. The Model Conservation Act first approved by the IOCC (now the IOGCC) in 1949 is the basis for the Colorado Oil and Gas Conservation Act ("Colorado Act"), C.R.S. § 34-60-101, et seq., which creates and empowers the Colorado Oil and Gas Conservation Commission ("COGCC").

B. The Colorado Act incorporates, as a legislative declaration, the purposes set forth in the Model Act: to foster, encourage and promote the development, production and utilization of oil and gas; to prohibit waste of oil and gas in development and production operations; and to protect the correlative rights of mineral owners and producers in common pools of oil and gas. C.R.S. § 34-60-102(1).

C. Since 1994, the Colorado Act has also provided that development, production and unitization occur "in a manner consistent with protection of public health, safety and welfare." C.R.S. § 34-60-102(1).

D. This means that the primary objective of the Colorado Act, which is conservation through the prevention of waste of oil and gas, is now tempered by a police power requirement. The COGCC now serves two gods, the god of conservation and the god of public health, safety and welfare. This fact necessarily increases the political nature of many of its decisions and increases the potential for conflict between it and local governments which also have police power responsibility.

E. In order to help the COGCC fill both of these roles, it was expanded to seven members, two of whom are not to be employed by the oil and gas industry and must have formal training or substantial experience in agriculture, land reclamation, environmental protection or soil conservation.

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II. Definition of Waste.

A. The concept of waste is traditionally defined in Colorado to include the following:

1. practices which unnecessarily leave producible oil or gas in the ground including the improper use or dissipation of reservoir energy and well spacing which is not sufficiently dense to drain the area drilled;

2. the drilling of unnecessary wells, i.e. the drilling of more than one well in a part of a formation which can be drained efficiently and economically by one well; and

3. surface waste of produced product, i.e., gas venting and wasteful oil handling or storage. C.R.S. § 34-60-103(11), (12) and (13).

B. Colorado also specifically defines the abuse of correlative rights to be waste. C.R.S. § 34-60-103(13)(c).

C. Market demand is excluded from consideration in conservation matters and, thus, is not an issue in determining whether waste will occur. C.R.S. § 34-60-102(1).

III. Abuse of Correlative Rights.

A. Protection of correlative rights is an equitable concept in Colorado based upon the opportunity to produce; i.e., each owner and producer in a common pool or source of supply of oil and gas is to have an equal opportunity to obtain and produce its just and equitable share of the oil and gas underlying such pool or source of supply. C.R.S. §...