Colorado Supreme Court upholds retroactive tax assessment against oil and gas lessee

On June 19, 2017, the Colorado Supreme Court ruled against the petition of Kinder Morgan CO2 Co., LP -- the operator of oil and gas leaseholds -- disputing the Montezuma County Assessor's 2009 corrective tax assessment on leaseholds for the prior tax year which resulted in a retroactive assessment of over $2 million in property taxes. Kinder Morgan CO2 Co., L.P. v. Montezuma County Board of Commissioners; Colorado Board of Assessment Appeals; and Colorado Property Tax Administrator. The Board of Assessment Appeals upheld the retroactive assessment finding that Kinder Morgan had underreported the selling price of its production by over-deducting its costs.

Oil and gas leaseholds and lands are valued under Colorado statutes, Article 7 of Title 39, pursuant to which a lessee must submit an annual statement (reporting the volume and price of product sold at the wellhead), following which the county assessor determines property value and tax liability. See § 39-7-101 -103(2). Because the sale of unprocessed oil or gas rarely occurs at the wellhead, an operator usually estimates the wellhead selling price, deducting costs for, e.g. gathering, processing, and transporting the extracted material – called the “netback” method of calculating the wellhead price. See § 39-7-101(1)(d) (“The net taxable revenues shall be equal to the gross lease revenues, minus deductions for gathering, transportation, manufacturing, and processing costs borne by the taxpayer pursuant to guidelines established by the [Property Tax Administrator].”). The resulting price for purposes of § 39-7-101(1)(d) is an estimate. An “operator’s netback calculation depends on whether the operator contracts with a related or an unrelated party to perform these gathering, processing, and transportation services. If the operator enters into a bona fide, arm’s-length transaction with an unrelated party to perform these services, then the operator may deduct the full amount paid for these services from its final, downstream sales price in its netback calculation (the ‘unrelated-parties netback method’). See 3 Div. of Prop. Taxation, Colo. Dep’t of Local Affairs, Assessor’s Reference Library: Real Property Valuation Manual (ARL) 6.35–6.36 (Rev. Jan. 2017).” Accordingly, if, as here, “the operator instead enters into a transaction with a related party . . . then it may deduct only a portion of the amount paid for these services (the ‘related-parties netback method’). 3 ARL 6.39–6.41.” (Emphasis added.)

Continue reading
43 Hits


Colorado Supreme Court Rules in Favor of Condominium Developers in Construction Defects Cases

On June 5, 2017, the Colorado Supreme Court issued a decision in Vallagio at Inverness Residential Condo. Ass’n v. Metro Homes, Inc., 2017 CO 69, June 5, 2017 (“Vallagio”) that will likely benefit condominium developers in Colorado by helping to alleviate litigation costs related to construction defects claims, thereby incentivizing new construction of condominiums along the Front Range.

For the past several years, the Colorado General Assembly has ardently debated construction defects reform. Senate Bill 156, introduced earlier this year, was intended to make arbitration mandatory for construction defects claims, but failed to pass. House Bill 1279 requiring the consent of the majority of condominium unit owners to bring a claim, as opposed to just the HOA board, passed this session. Developers supported both of these bills as a means to decrease the amount of construction defects claims that would be brought, thereby spurring more condominium projects in Colorado.

Continue reading
91 Hits


Paris Agreement Exit: Who Holds the Real Power?

President Trump announced on June 1 that the United States is withdrawing from the Paris Agreement. The announcement follows months of uncertainty about whether President Trump would fulfill his campaign pledge to withdraw U.S. participation in the deal (which was signed by 195 countries with only two countries in opposition--Nicaragua (because it wasn’t stringent enough) and Syria).

According to the President, the decision is necessary to protect the U.S. economy from burdensome emissions restrictions and foreign interference in U.S. energy policy:

Continue reading
122 Hits


Monument Making, the Antiquities Act of 1906 and the Extent of Presidential Power

On April 26, 2017, President Trump issued an Executive Order (“EO”), “Review of Designations under the Antiquities Act,” to address what he called a “massive federal land grab.” The EO directs Interior Secretary Zinke to review all monument designations made under the Antiquities Act since 1996 that either exceed 100,000 acres or were “made without adequate public outreach and coordination” and make recommendations on legislative or administrative changes. The following week, on May 2, 2017, the House Natural Resources Subcommittee on Federal Lands held an oversight hearing, “Examining the Consequences of Executive Branch Overreach of the Antiquities Act,” to hear from witnesses in states with “widely opposed designations.” Why all the high-level interest in a 111 year-old law?

We last blogged on this topic in October 2015 to highlight how President Obama was using the Act’s authority for his conservation legacy and to note that Congress was reacting by considering legislation to limit the Act. President Obama used his last year in office to create or expand 15 monuments from the expansion of the enormous Hawaiian Papahānaumokuākea Marine National Monument (283.4 million acres) to the designation of the tiny Stonewall National Monument (0.12 acre) in New York and, in late December, the Utah Bears Ears National Monument (1.35 million acres). In total, as was described in the Subcommittee Hearing memo, President Obama used the Act 34 times “to lock up 553,599,880 acres of land and water as national monuments” which represents “66% of all monuments ever designated.” See list in CRS, “National Monuments of the Antiquities Act” App. C (Jan. 30, 2017).

Continue reading
227 Hits


Wyoming Supreme Court Justices Disagree: Were Tax Assessments of Minerals Constitutional?

As noted in a prior blog post, Wyoming’s Supreme Court Justices agree most of the time. In fact, in 2016 more than 95% of the Court’s orders and opinions were unanimous. This post highlights a recent disagreement between the members of the Wyoming Supreme Court in the case of Anadarko Land Corp. f/k/a Union Pacific Land Resources Corp., and Three Sisters, LLC v. Family Tree Corporation, 2017 WY 24, 389 P.3d 1218 (Wyo. 2017) concerning a 1911 tax assessment that changed--or did it--the ownership of minerals in 2017.

This case features the appeal of a district court decision upholding the validity of a 1911 Laramie County tax assessment against minerals owned by Anadarko Land Corporation’s (“Anadarko”) predecessor-in-interest1. Anadarko’s predecessor, the Union Pacific Railroad, acquired the mineral interests at issue in a Patent issued by the United States in 1901. In 1911, Laramie County assessed taxes on these unproduced minerals. Anadarko’s predecessor did not pay the assessed taxes, and Laramie County put the mineral interests up for bid at a tax sale. When no bids were made for the mineral interests, Laramie County acquired the minerals and then, by a tax deed in 1919, sold the mineral interests to Iowa Land & Livestock Company. At this point, two divergent chains of title emerged. One chain derived from Anadarko’s predecessor and the other from the Laramie County tax sale

Continue reading
220 Hits


Colorado Legislature Considers Limitations On “Force Pooling”

Rep. Mike Foote (D-Lafayette) and Rep. Dave Young (D-Greeley) introduced House Bill HB17-1336, legislation which would prevent a lessee representing less than a majority of the mineral royalty owners from obtaining a force pooling order. The authors of the legislation argue the intent of the bill is to prevent a mineral rights owner or lessee from forcing adjacent mineral interest owners to lease their minerals and to provide better information to affected parties. In addition, the legislation would provide mineral owners with additional time to decide whether to lease, participate in proposed well(s), or decide not to participate in the drilling of proposed well(s). Proponents of the legislation also argue that under current law, an oil and gas operator has too much of an advantage when it can tell an unleased mineral owner that if he or she does not sign a lease, then they will be force pooled.

The bill was introduced late in the session where rules allow expedited consideration, with the probable strategy being to prevent extended deliberation. The bill appears to conflict with Colorado property and constitutional law. Given significant departures from existing law, a longer time is necessary to fully appreciate how current law would be changed. Here are some of the problems:

Continue reading
214 Hits


COGCC: A Balancing Act or “Subject To” Protection of Health, Safety, and Environment – A Surprising Decision from the Colorado Court of Appeals

A recent decision from the Colorado Court of Appeals (“Court”) could mean a new focus for the Colorado Oil and Gas Conservation Commission (COGCC). On March 23, a three-judge panel issued a split decision in Martinez v. Colo. Oil & Gas Conservation Comm'n, 2017 COA 37, with two of the three Judges rejecting the COGCC’s assertion that its role under the Oil and Gas Conservation Act (Colo. Rev. Stat. §§ 34-60-101 to -130) (the “Act”), is to balance oil and gas development with other public interests such as public health, safety, and welfare.

At issue was a petition for rulemaking filed with the COGCC in 2013 by members of the Boulder-based Earth Guardians asking that the COGCC “not issue any permits for the drilling of a well for oil and gas unless the best available science demonstrates, and an independent, third party organization confirms, that drilling can occur in a manner that does not cumulatively, with other actions, impair Colorado’s atmosphere, water, wildlife, and land resources, does not adversely impact human health and does not contribute to climate change.” The COGCC solicited and reviewed a substantial amount of public input on the matter, and later denied the petition, finding, inter alia, that the proposed rule would require it to “readjust the balance crafted by the General Assembly under the Act,” thus making the proposed rule “beyond the Commission’s limited grant of statutory authority.” The petitioners appealed that decision to the Denver District Court, which affirmed the COGCC’s denial of the petition.

Continue reading
300 Hits


Earthquakes: State Regulation of O&G Injection Wells Is OK Oklahoma Judge Dismisses Federal Lawsuit on Jurisdictional Grounds

On Tuesday, April 4, 2017, Judge Stephen P. Friot, United States District Court for the Western District of Oklahoma, dismissed a nationally significant lawsuit brought over earthquakes linked to oil and gas wastewater injection wells on jurisdictional grounds.  See Sierra Club v. Chesapeake Operating, LLC, et al., No. CIV-16-134-F (W.D. Okla., Order dated 4/4/2017) (unpublished), The court deferred to the expertise of the Oklahoma Corporation Commission (“OCC”), the state body governing wastewater injection wells in Oklahoma. Citing the actions and capability of the OCC, Friot concluded:

Every night, more than a million Oklahomans go to bed with reason to wonder whether they will be awakened by the muffled boom which precedes, by an instant, the shaking of the ground under their homes. Responding to earthquake activity is serious business, requiring serious regulatory action. The record in this case plainly demonstrates that the Oklahoma Corporation Commission has responded energetically to that challenge. Of equal importance, it is plain that the Oklahoma Corporate Commission has brought to bear a level of technical expertise that this court could not hope to match.  The challenge of determining what it will take to meaningfully reduce seismic activity in and near the producing areas of Oklahoma is not an exact science, but it is no longer one of the black arts.  This court is ill-equipped to outperform the Oklahoma Corporation Commission in advancing that science and putting the growing body of technical knowledge to work in the service of rational regulation.

Continue reading
230 Hits


What's Up With Chevron and Does It Matter?

If you have paid any attention to the U.S. Senate confirmation process for Colorado’s Judge Neil Gorsuch to the U.S. Supreme Court, you’ve heard Chevron come up.  According to Senator Al Franken (D-Minnesota), “For anyone who cares about clean air or clean water or about the safety of our food and medicines, it’s incredibly important . . . [it] simply ensures that judges don’t discard an agency’s expertise without good reason.”  In a 2016 opinion, Judge Gorsuch called Chevron a behemoth and argued that it “permit[s] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the constitution of the framers’ design.”

Chevron refers to a U.S. Supreme Court decision decided 33 years ago, Chevron U.S.A., Inc. v. Natural Resources Defenses Council, Inc., 467 U.S. 837 (1984) that embodies the judicial doctrine of court “deference” to an agency’s interpretation of ambiguous federal statutes.1   In Chevron, the Supreme Court reasoned that an agency is the subject matter expert and should have the authority to make policy choices – within reason.

Continue reading
284 Hits


Wyoming Wolves De-Listed Under the Endangered Species Act

On March 3, 2017, the D.C. Circuit reinstated the rule promulgated by the United States Fish and Wildlife Service (“FWS”) in 2012 to remove the Northern Rocky Mountain gray wolf in Wyoming from the endangered species list under the Endangered Species Act (“ESA”). Defenders of Wildlife v. Zinke, --F.3d.--, 2017 WL 836089 (D.C. Cir. Mar. 3, 2017).  The FWS has been trying to turn over the management of the wolves in Wyoming to the state since 2008, but has faced several reversals at the hands of the courts.  This decision reverses a 2014 ruling of the U.S. District Court, District of Columbia that vacated the FWS 2012 rule delisting the gray wolf.

Although the D.C. District Court agreed with the FWS finding that the species had recovered and did not overturn FWS’ determination that the gray wolf is not endangered or threatened within a significant portion of its range, it found fault with the state plan to guarantee the required baseline wolf population.  The District Court denied the delisting of the gray wolf because FWS did not require Wyoming to meet a specific numeric buffer above the baseline population but instead relied upon representations in a “non-binding” Addendum to its wolf management plan.  On appeal the D.C. Circuit disagreed, and held that nothing in the ESA demands that level of certainty.  The Court stated that:

Continue reading
251 Hits


Employer Alert: Colorado Supreme Court Narrows Employer Liability in Negligence Cases

The Colorado Supreme Court recently issued a decision that significantly reduces an employer’s liability in cases where both the employer and the employee are sued for injuries caused by the employee while performing job duties.  

In Ferrer v. Okbamicael, 2017 CO 14, decided on February 27, 2017, a pedestrian sued a taxi cab company and the taxi cab driver who struck her while on the job, causing significant injuries.  The pedestrian asserted two types of claims against the taxi cab employer: one based upon the doctrine of respondeat superior, where an employer is indirectly liable for the acts of its employees, and additional direct claims for negligent hiring, entrustment, supervision and training.  The taxi cab employer admitted that the taxi cab driving was acting within the scope of his employment duties at the time of the accident, thereby conceding the respondeat superior claim, but argued that this concession meant that it could not also be held liable on the direct negligence claims.  The Colorado Supreme Court agreed, establishing new law that an employer can avoid direct claims of negligence in this context by conceding that the employee was acting within the scope of employment at the time of the injury.  

Continue reading
315 Hits


Update to February 11, 2016 Blog Post/Weed and Water - Can Water Be Used for Marijuana Cultivation in Colorado

Last Year, WSMT blogged about whether water could be lawfully appropriated for Marijuana cultivation.  2/11/16 blog post.  We provided three arguments why that would be allowed.

Almost exactly a year later, the Division  water referee agreed In Re High Valley Farms, LLC, 14CW3095 with two of the reasons we set forth in our blog from last year - namely that appropriation of water is controlled by state law, and that the word "lawfully" in the state law definition of beneficial use of water means that the appropriation, not the use of the water, must be lawful.  A copy of the February 17, 2017 order is available here.

288 Hits


Wyoming Legislature Rejects Attempts to Penalize Wind Energy Industry

In a state that has been described as having “world class wind,” a boast hard to ignore during a winter that featured days upon days of wind gusts reaching 80 mph at times, wind energy has struggled to find a secure toehold due to the vice-like grip traditional extractive mineral industries have on the energy sector in Wyoming.  That may be changing, however.

This year, bills were proposed in both the Wyoming House and Senate that sought to limit the ability of wind producers to market their product within the State.  Luckily (or not, depending on your point of view), each bill failed in committee before being introduced on the floor of either house.  House Bill 127 sought to increase the tax on wind energy from $1.00/megawatt hour to $5.00/megawatt hour.  This bill was defeated by a 7-2 vote by the House Revenue Committee on January 23, 2017.  In the Senate, Senate File 71 proposed that utility companies that use wind or solar power would incur a penalty of $10.00/kilowatt hour starting in 2019.  After widespread public opposition to this bill reached the desks of the Senate, it died in committee.  So, while Wyoming is the only state in the U.S. to tax wind1, and while wind producers still face a more difficult permitting process before the Industrial Siting Council than their traditional extractive mineral counterparts, the State legislature prevented two significant roadblocks to future development from being erected.

Continue reading
285 Hits


After Years of Planning, the Forest Service Approves Arapahoe Basin’s Ski Area Expansion (WAHOOOO!)

After Years of Planning, the Forest Service Approves Arapahoe Basin’s Ski Area Expansion  (WAHOOOO!)

On March 3rd, the attorneys of Welborn Sullivan Meck & Tooley will embark on our annual ski trip to Arapahoe Basin in the White River National Forest.  We look forward to the trip as a highlight of each winter season and, if we’re being honest with ourselves, a highlight of the year when all the hustle of firm life is exchanged for the exhilaration of a ski day in the Colorado mountains.  It is not too often that we lawyers get outside for an entire day to rip runs and bask in the sun.  

This year we will miss our fearless leader on the slopes and winter’s biggest fan, Chelsey Russell.

Continue reading
420 Hits


Nonconsenting Owner in a Colorado Oil and Gas Well Must First Pursue Claim for Payment of Proceeds of Production at COGCC – not District Court

A recent Colorado Court of Appeals decision involves two parts of the statutes regarding the Colorado Oil and Gas Conservation Commission (Commission):  the pooling statute and the statute regarding payment of proceeds of production.  In Grant Brothers Ranch, LLC v. Antero Resources Piceance Corporation, ___ P.3d __ (2016), 2016 COA 178, the court held that the nonconsenting owner was required to exhaust its administrative remedies by bringing its claim at the Commission, and that the nonconsenting owner’s claim brought in district court should have been dismissed without prejudice.

The Commission established two drilling and spacing units to produce oil and gas in Garfield County.  Antero Resources Piceance Corporation (Antero) offered to lease the mineral interest owned by Grant Brothers Ranch, LLC (Grant Brothers) in the units.  Grant Brothers did not lease its interest and also refused Antero’s offers for Grant Brothers to participate in the wells.  After Antero’s requests, the Commission entered orders pooling all nonconsenting interests in the units. 

Continue reading
360 Hits


Proposed Public Land Sale Falls to Public Opposition

On February 1, 2017, Representative Jason Chaffetz (UT-R) announced that he would pull a bill proposing to sell more than 3 million acres of public land.  It was easy to lose track of this sea-change proposal amidst the flurry of activity at the advent of the Trump administration, but the bill’s goal - as well as its failure - is noteworthy despite the fact that it is unlikely to become law.

Focusing first on the proposal, Mr. Chaffetz, a Republican Representative from Utah and chair of the House Oversight Committee, memorialized the argument held by some, especially in the West, that the federal government owns too much land, to the detriment of states.  In his home state of Utah, the legislature is seeking the “return” of federal lands to the state.  See http://publiclands.utah.gov/current-projects/transfer-of-public-lands-act.  Debate over federal property ownership has existed since the country’s inception, but recently the debate came to a head with Cliven Bundy and other groups claiming ownership over federally leased land.  States like Utah also challenged the extent and alleged burden of federal lands within their borders, while conservatives like Mr. Chaffetz aimed to turn that public sentiment into law.  House Republicans recently changed their internal rules to generally facilitate selling public land, and Mr. Chaffetz offered H.R. 621, which would sell 3.3 million acres of Bureau of Land Management lands spread across ten western states, and H.R. 622, which would transfer federal agencies’ policing power to local law enforcement. See http://chaffetz.house.gov/news/documentsingle.aspx?DocumentID=788.

Continue reading
366 Hits


What Happens After the Nomination? How a Nominee becomes a Supreme Court Justice

On January 31, 2017, President Trump nominated Judge Neil M. Gorsuch, a Coloradan and judge on the Tenth Circuit Court of Appeals (“Tenth Circuit”), to fill the open seat on the United States Supreme Court that has been empty since Justice Antonin Scalia died on February 13, 2016.i   Judge Gorsuch was nominated to the Tenth Circuit by President George W. Bush on May 10, 2006, and confirmed by the Senate on July 20, 2006.  Prior to serving on the Tenth Circuit, Judge Gorsuch earned degrees from Columbia University, Harvard Law School and Oxford University, and he also served as a law clerk for the only other Coloradan who has served on the Supreme Court, Associate Justice Byron R. White and the still-serving Associate Justice Anthony M. Kennedy.ii

While Judge Gorsuch’s legal and personal history are going to be widely discussed over the coming weeks and months, what else happens after the nomination?  How does a nominee become a United States Supreme Court Justice?iii

Continue reading
407 Hits


Hoping to Fish or Boat on Utah Waters? The Utah Supreme Court May Soon Clarify Your Access Rights.

After nearly a decade of uncertainty, Utahns and visitors alike are looking forward to certainty on two key issues: (1) public access to and (2) navigability of the Beehive State’s premier rivers.  

It all started with Conatser v. Johnson, where the Utah Supreme Court held that the scope of the public’s easement in state waters “provides the public the right to float, hunt, fish, and participate in all lawful activities that utilize the water” and that the public has the right to “touch privately owned beds of state waters in ways incidental to all recreational rights provided for in the easement, so long as they do so reasonably and cause no unnecessary injury to the landowner.”  In response, Utah lawmakers passed H.B. 141: Recreational Use of Public Water on Private Property in 2010, tightening public access to the state’s rivers and streams.  The law prohibits recreational water users (including anglers, kayakers, tubers, hunters and others) from walking on the private bed of a public waterbody.  According to the law, individuals fishing or recreating in public water that flows over closed private property may not walk on the land beneath the water without obtaining landowner permission. 

Continue reading
364 Hits


Colorado Supreme Court Limits How Transbasin Water May Be Used and Holds That Unjustified Non-Use of Water Rights Will Count Against Water Users When They Change Their Water Rights

The Colorado Supreme Court recently addressed two previously unsettled issues that will impact other water users in Grand Valley Water Users Ass’n v. Busk-Ivanhoe, Inc., 14SA303 (2016).  First, the Court held that imported transbasin water may not be stored in the basin of import prior to first use unless the decree expressly authorizes it.  The Court reasoned that “just as the right to store water is not an automatic incident of a direct flow right, the right to store water in the basin of import prior to use is not an automatic incident of trans mountain water rights.”  Id. ¶ 49 (citations omitted). Second, the Court held that undecreed uses of the decreed amount of water could count as zero use in historical beneficial use analyses rather than be omitted from the study period.  The Court reasoned that the use of water for an undecreed purpose could be treated as “unjustified non-use” and should not be ignored by excluding it from the study period.  Id. at ¶ 71.  

The Court was split on the first issue of storing transbasin water in the basin of import prior to first use.  The dissent argued that the specific decree at issue implicitly permitted such storage.  Id. ¶ 84. It also argued generally that once water is exported it is fully consumed with respect to the basin of export so no further injury can occur there, and no one in the basin of import has any right to the imported water and can therefore not be injured regardless of its use, so the importer can use the water however it sees fit without injuring anyone in either basin.  Id.  ¶ 85.  Thus, the dissent argued, no explicit decree language is needed for storage of imported water.  Id.  

Continue reading
359 Hits


Hardrock Mining Will Require Hard Cash

Hardrock Mining Will Require Hard Cash

On January 11, 2017, EPA published a proposed new rule that would require hardrock mining facilities to post security or prove their financial responsibility under Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund).  Owners and operators of such facilities can already be held strictly liable under CERCLA for cleanup of hazardous substances.  Soon they may also be required to demonstrate their financial strength as a condition of operating.  The total financial obligations imposed by the new rule could exceed $7 billion.

The new rule will apply to over 200 mines and processing facilities that produce gold, silver, copper, lead, iron ore, molybdenum, uranium and other hardrock minerals in over 30 states.  Four types of operations will, however, be exempt:  (1) placer mining; (2) exploration; (3) “[m]ines with less than five disturbed acres that are not located within one mile of another area of mine disturbance that occurred in the prior ten-year period, and that do not employ hazardous substances in their processes”; and (4) “[p]rocessors with less than five disturbed acres of waste pile and surface impoundment.”

Continue reading
391 Hits