OIL AND GAS ALERT: Water Court Ruling – Water from a Coal Bed Methane Well May Not Be Yours

    1 December 2007

    The Colorado Water Court recently issued a ruling in the Vance case, Vance, et al. v. Simpson, Case No. 2005CW63 (Colorado District Court, Division 7, July 2, 2007), holding that removal of water in the production of a coal bed methane well amounted to a beneficial use of tributary water requiring the issuance of a well permit, plus the acquisition of a water right or plan for augmentation, if necessary, for such production. Ranchers owning the senior water right in the San Juan River basin sued coal bed methane producers.

    Under Colorado law, there is a presumption that all water is tributary. “Tributary” water has a hydrologic connection to surface waters; “nontributary water” can still be exempt. However, Colorado presumes that all groundwater is tributary. Even if it is tributary water, anyone can make a beneficial use of water, so long as there is no material injury to a senior water right. This case, if upheld on appeal to the Colorado Supreme Court, represents a tremendous shift in Colorado law because the water court overturned the state engineer’s determination that coal bed methane wells do not require a well permit, and because the court essentially shut down the production of water without any allegation of injury to a senior water right. Although the presumption is that water is tributary, a determination of whether water produced from a coal bed methane well is tributary, and therefore subject to the appropriation doctrine and administration to protect senior water rights, or non-tributary, as the defendants allege, must be made on a site-specific basis.

    The court in this ruling made a broad determination about the tributary nature of the water without taking any evidence, making this an unusual and concerning decision. While the case dealt with coal bed methane wells, it has the potential to also affect traditional oil and gas production as well as oil shale and other mining extractions. It is a truly landmark ruling that, if left uncorrected on appeal to the Colorado Supreme Court, will, at a minimum, severely impact coal bed methane production.