PRODUCED WATER FROM COALBED METHANE PRODUCTION:

WATER LAW ISSUES AND DEVELOPMENTS

Zach C. MillerDavis Graham & Stubbs LLP

Denver, Colorado

December 14, 2007

TWO PENDING CBM WATER LAW CASES

COLORADO – VANCE v. SIMPSON• Ruling Against State Engineer – July 2007• Supreme Court Appeal Pending

WYOMING – WEST v. TYRELL• Filed June 2007• Early Stages

SEO/DWR CBM STREAM DEPLETION STUDIES

• San Juan Basin– Final Report – May 2006– Est. Depletions: 56 AF O/P; 150 AF Total

• Raton Basin– Draft Report – Nov. 2007

• Piceance Basin – Pending• On SEO Website

STATE ENGINEER’S OFFICE/DWR REGULATES:

• Permitting of Water Wells• Administration of Tributary Water Rights in

Priority• Approval of Substitute Supply Plans• Prevention of Material Injury to Water

Rights from Non-Water Right Water Diversions

• Conferral in Water Court Matters

ROLE OF WATER COURT

• Designated District Court in River Basin• Exclusive Jurisdiction Over “Water Matters”• Decree New or Changed Water Rights• Approve Augmentation Plans• Prevent Material Injury to Water Rights

COLORADO WATER LAW PRIMER

• Prior Appropriation Doctrine: First in Time, First in Right

• “Beneficial Use” = “Appropriation” = “Water Right”• Administered in Priority When Shortages• SEO Authority to Issue Well Permits• SEO Authority to Prevent Material Injury• Augmentation and Substitute Supply Plans• Water Court Approval of New or Changed Rights

and Augmentation Plans

SPECIAL STATUS OF “NONTRIBUTARY” GROUND WATER

• Not Deplete Natural Stream At Annual Rate > 0.1% of Annual Rate of Withdrawal in 100 Years

• Presumed Tributary Unless Rebutted• Governed Solely By Statute• Not Subject to Prior Appropriation Doctrine• Generally Allocated by Overlying Land Ownership• Generally Need SEO Well Permit• Special Mineral Extraction Statute: Not Need

SEO Permit “Unless Water Will be Beneficially Used” (37-90-137(7)

VANCE v. SIMPSON CASE

• Dec. Jdmt. Action in Div. 7 Water Court

• Filed December 2005

• Two Landowners vs. State Engineer

• Intervenor: BP America Production Co.

VANCE PLAINTIFFS’ CLAIMS

• CBM Produced Water Withdrawal = “Beneficial Use”

• Ergo, CBM Well = Water “Well” Requiring SEO Permit

• Water Court Decree and Aug. Plans Required

• SEO Must Curtail Pumping Until Permits Issued

VANCE CASE COVERAGE AND EXCLUSIONS

• Only CBM Wells in Water Division 7 (San Juan River Basin)

• CBM Wells Within So. Ute Reservation With Any Tribal Interest Are Excluded/Not Covered

WATER COURT SJ RULING – 7/07

• COGCC Not Have Exclusive Jurisdiction/Authority• CBM Produced Water Withdrawal = “Beneficial

Use”• SEO Required to Issue Water Well Permits• Aug. or Supply Plans Required Where/When Out of

Priority• Presume Produced Water Is Tributary Unless

Proven Nontributary• No Deference to SEO Guidance Documents• Granted “Relief Requested In Complaint”• Silent Re Nontrib and Tribal Wells

POST-DECISION STATUS

• Direct Supreme Court Appeal by State & BP• Ruling Stayed by WC Pending Appeal• WC Declined to Clarify Ruling, Except Costs• Cost Claim Pending• Appeal Not Briefed• Designation of Record

PRESENT EFFECT OF WC RULING

• Ruling Stayed Pending Supreme Court Decision• Not Cover/Address:

– CBM Wells with So. Ute Interests– CBM Wells Outside San Juan Basin– Non-CBM Oil and Gas Wells

• Precedential Effect or Supreme Court Ruling?• Possible Legislative Fix?

– Cf. Gravel Pit Case/Statute• To Be Continued!

WEST v. TYRELL LAWSUIT - WYOMING

• Dec. Jdmt Action Filed June 2007• 2 Landowners v. State Engineer• Intervenors (Pending): Devon & Pennaco• Hearing on Disputed Intervention• “Flip-Side” of Vance Case

WYOMING SEO POLICY/PRACTICE – 4/04

• Consider CBM Produced Water Withdrawal a “Beneficial Use” and Require Water Permit

• Water Permits Generally Issued Without Aug. Plans and No Court Involvement

• Simpler/Quicker Permit Processing Than Colorado

WEST PLAINTIFFS’ CLAIMS

• WY Constitution: No Appropriation Shall Be Denied, “Except When Such Denial Is Demanded By The Public Interest”

• SEO Fails to Evaluate “Public Interest”• SEO Must Require No-Injury Proof• SEO Must Provide for Public Comment and

Hearing• SEO Must Pass Rules for CBM Water Permits

OTHER WATER-RELATED DEVELOPMENTS

• Proposed New COGCC Rules– Water Monitoring and Protection

• Wyoming CBM Task Force– Drainage Ditch Legislation

• EPA CBM ELG-Setting Project– Voluntary/Mandatory “Surveys”– Critical to Provide Input

• Colorado Water Legislation?• Keep a Close Watch On!