Shale Daily

Broomfield, CO, Okays Tolling Agreement as Frack Ban Lawsuit Looms

Elected officials in the City of Broomfield, CO, unanimously agreed to a tolling agreement with Sovereign Operating Co. LLC on Tuesday, as the company moves forward with plans to put them in the crosshairs of a lawsuit over the city's newly enacted ban on hydraulic fracturing (fracking).

The city council voted 10-0 in favor of a resolution authorizing a tolling agreement and a letter agreement with Denver-based Sovereign, which is seeking declaratory judgment in district court over whether the frack ban applies to it.

Last November, voters in Broomfield -- a north Denver suburb of about 56,000 residents -- passed a charter amendment calling for a five-year ban on fracking. The measure, which passed by just 20 votes, was upheld by a state district court judge in March (see Shale DailyMarch 4Nov. 18, 2013).

"This allows [Sovereign] to move forward with litigation that they propose to file," City Attorney Bill Tuthill told the council before the vote. "I haven't talked to their lawyers, but I presume they would file it fairly shortly if the tolling agreement and the letter agreement get entered into.

"We are going to get sued. It's just a question of how broad the grounds [are going to be]. This lets us to keep them fairly narrow, which is much more cost effective at this point in time."

At issue is a memorandum of understanding (MOU) that Sovereign and the city entered into on Aug. 27, 2013. According to city documents, by entering into the MOU Sovereign had agreed "to adhere to roughly 35 local standards stricter than the standards applied by the state in 2013." Specifically, the company was looking to obtain permits for approximately 21 new wells on 10 different wellpads.

"This particular charter amendment has some unusual language in which it purports to apply retroactively, to begin at a date somewhere before the November election," Tuthill said. "The date is not identified, it is signaled as a time in which the clerk certified that there were enough signatures to put it on a ballot and city council placed it on the ballot.

"I admit that I have not calculated exactly what that date is, but I do know this -- it was before Aug. 27, 2013."

Tuthill said that shortly after the frack ban passed, an official from Sovereign and several of the company's lawyers visited with him and his staff to discuss "next steps."

"They indicated they believe they have strong legal theories that would entitle them to pursue drilling in the city and county of Broomfield," Tuthill said. He added that the company "also indicated that if in fact the ban was applied to them they would seek to file litigation attempting to overturn the ban, collect damages for breach of contract, to attempt to collect damages for a constitutional taking without compensation under the Colorado and United States constitutions."

Tuthill said Sovereign asked if the city "would let them go ahead and drill. And the response from staff and from my office was no, we have a charter amendment in place and until someone who's probably wearing a robe tells us that we have to allow you to drill, we shouldn't allow you to drill."

Ward 3 Councilman Kevin Jacobs said he supported the tolling agreement.

"I think this makes a lot of sense," Jacobs said before the vote. "It is going to be litigated in probably a variety of different ways. There's some conflict, because clearly council did support entering into the MOU, and that was prior to [the frack ban being passed]. That puts a wrinkle in things, but if we're going to be sued, I just assume be sued in the simplest possible way."

Ward 1 Councilman Todd Schumacher concurred.

"We entered into the MOU in good faith," Schumacher said. "I think we owe it to Sovereign to continue to proceed in good faith, even though it seems a little bit contradictory in that we're potentially being sued by them. But this is just one small step in the grand scheme of litigation that will take place all over the state and in other states in the country as well."

According to documents, Sovereign holds that Broomfield sits atop numerous geological formations, including the Niobrara Shale and the Codell and J-Sand formations. The company says all are believed to hold significant oil and gas resources.

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