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Colorado Supreme Court: Water Permits Needed to Produce CBM

The Colorado Supreme Court ruled last week that groundwater used to produce coalbed methane (CBM) is not a waste product, and producers will have to separately obtain water permits if supplies are affected.

The ruling upheld a declaratory judgment (see NGI, July 9, 2007) made in 2007 by Colorado District Court, Water Division 7, which held for La Plata County, CO, ranchers William S. Vance Jr., Elizabeth S. Vance, James G. Fitzgerald and Mary Theresa Fitzgerald (Vance v. Wolfe, No. 07SA293).

The ranchers had asked the state water court to determine the legal obligations of the state engineers and division engineers regarding well permits and augmentation plans when groundwater was diverted to produce CBM. The engineers and BP America Production Co., which intervened in the action, argued that the use of water in CBM operations was not a "beneficial use" and thus need not be regulated.

The water court held that CBM production constituted an appropriation for a "beneficial use" of water and that state engineers should not allow water to be diverted without a well permit. The Colorado Supreme Court affirmed the ruling in an en banc hearing in which. Justice Allison Eid delivered the opinion, Justice Nathan B. Coats concurred in part and dissented in part. Justice Alex J. Martinez did not participate.

According to Eid, the state's Water Right Determination and Administration Act of 1969 defined "beneficial use" as the "use of that amount of water that is reasonable and appropriate under reasonably efficient practices to accomplish without waste the purpose for which the appropriation is lawfully made." Under the language, she wrote, the CBM process "uses" water by extracting it from the ground and storing it in tanks to "accomplish" a particular "purpose" -- the release of methane gas.

"Consequently, the extraction of water to facilitate coalbed methane production is a 'beneficial use'...and a 'well' as defined in the Colorado Ground Water Management Act," Eid wrote. "Coalbed methane production is therefore subject to regulation under both acts. We reject the argument that water used in coalbed methane production is merely a nuisance rather than a 'beneficial use.' On the contrary, the use of water in coalbed methane production is an integral part of the process itself. The presence and subsequent controlled extraction of the water makes the capture of methane gas possible..."

The engineers and BP asserted that the use of water during the CBM process was not a "beneficial" use because the water was "merely a nuisance," said Eid. "They stress that the goal of the CBM process is to capture the gas, not the water. The water, they continue, is simply an unwanted byproduct of the process. In sum, they question how the use of the water in this case can be termed 'beneficial' when they consider it to be a hindrance." Based on similar cases, Eid said the court disagreed.

"In fact, the presence of water and its subsequent extraction during CBM production is far more than an 'inevitable result,'" Eid wrote. "Indeed, the presence and extraction of water are integral components to the entire CBM process. CBM producers rely on the presence of the water to hold the gas in place until the water can be removed and the gas captured. Without the presence and subsequent extraction of the water, CBM cannot be produced."

About 5,000 of the estimated 38,000 active wells in Colorado are CBM wells, the state noted. The Colorado Oil and Gas Commission (COGA), which represents the state's producers, said CBM drilling hadn't been shown to harm the water rights of the state's landowners.

"The confusion brought about by this decision will just add more fuel to the fire of uncertainty affecting the oil and gas business in Colorado," COGA said.

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