7:22am

Tue June 17, 2014
Oil and Gas

How Property Law Could Affect The Colorado Frack Ban Debate

As Colorado Gov. John Hickenlooper weighs whether to call a special legislative session to deal with oil and gas issues, the issue of property rights is on his mind.

The governor has equated some of the recently passed bans and moratoriums on hydraulic fracturing to "…snatching the property of a citizen. Just taking it without due compensation."

While in some cases the courts could interpret fracking bans as taking away private property, getting to the point where a ban is ruled a taking of private property would be time consuming and costly, experts say.

First, The Constitution

The Fifth Amendment to the Constitution says private property shall not "be taken for public use, without just compensation." That language sounds clear, but its interpretation quickly gets complicated. For example, it's obvious that the government is taking private property when it condemns part of a front yard for the purpose of widening a highway, a practice known as eminent domain.

But if a government passes a regulation that prevents development on a property, it can also be considered to be "taking" private property – a well-known 1992 case in South Carolina proved this point.

Mark Squillace, professor of law at the University of Colorado Law School, said that the fracking bans passed in some Front Range cities could potentially fall into this category.

"It's a situation where the government hasn't actually appropriated your land, but issued some restriction on how you can use your property. And that restriction affects your property in some way," Squillace said.

To the non-expert, it may seem that a fracking ban, which prevents a mineral rights owner from developing that property, is a taking, and therefore illegal. But Squillace explained, it's a little more complicated than that.

Split Between Surface And Underground

Mineral rights are separate from the land under which they lie, a concept known as split estate. So while a property owner can own surface land and the minerals underneath of it, it's also possible that different people or companies own the surface land and the minerals underneath.

If the same person owns both the surface land and the minerals beneath, it is unlikely that a fracking ban would be considered a regulatory taking, said Squillace.

"The fact that you could not develop those minerals doesn't mean that it is a taking because you could still use your land for some purpose."

Bruce Kramer, the Thomson Visiting Professor of Law at the University of Colorado Law School, agreed. It's unlikely that the courts would consider fracking bans a taking unless the property owner only owns the mineral rights and not the surface land.

"If you own just the mineral estate, that's all that you own, and the government says that you can't do anything with that, at least there is a better chance or a better argument that there is taking," Kramer said.

A recent report by the National Association of Royalty Owners said Boulder County governments could owe royalty owners $1 billion as compensation for "takings" of petroleum reserves, but that compensation would have to be gained via a successful claim against the governments.

Yet proving that a regulation is a taking, and therefore illegal, can be an uphill battle.

"These are long, and arduous, and very expensive from a legal standpoint, claims to make," said Kramer. Proceedings can last for more than a decade, with the accompanying pileup of legal fees.

Current Challenges Avoid "Takings" Approach

Current court challenges to fracking bans are mostly going a different route. The lawsuit filed by the Colorado Oil and Gas Association (and later joined by the state) against the city of Longmont, which in 2012 was the first Colorado city to ban fracking, challenges the regulation from the standpoint that it preempts state law – ignoring the issue of takings, at least for now.

COGA also filed lawsuits against the cities of Fort Collins, which passed a five-year fracking moratorium and Lafayette, which banned the practice, on similar grounds. The cities of Broomfield and Boulder have also passed fracking moratoriums, but have not been sued.

The city of Loveland is also considering a two-year fracking moratorium, which will be decided in a special election in late June. Two additional ballot initiatives seeking to amend the Colorado constitution to limit oil and gas drilling were just approved for signatures by the Colorado Supreme Court; they are among 11 seeking to get on the November ballot.

Governor Hickenlooper has said he hopes legislators can rally in a special session to pass legislation that would offer a compromise for some local control of oil and gas regulations, obviating the need for the ballot measures.