Colorado Coal Bed Methane Water Wells Subject to Regulation

In Colorado, the right to divert the unappropriated waters of any natural stream for a beneficial use is a constitutional right and the water of every natural stream is the property of the public, subject to appropriation and actual beneficial use.[4] An ‘appropriation’ of water is the application of a specified portion of the waters of the state to a beneficial use.[5] Once an appropriation occurs, it gives rise to a vested water right with priority over later appropriations and subjecting it to permitting and adjudication under the Colorado Ground Water Management Act, C.R.S. §§ 37-90-101 through 143 (2008) (“Ground Water Act”) and the Colorado Water Right Determination and Administration Act of 1969, C.R.S. §§ 37-92-101 through 602 (2008) (the “1969 Act”).[6]

Under Colorado’s Ground Water Act, the state division of engineers is responsible for the administration, distribution and regulation of state waters.[7] The central issue in the case, therefore, was whether the ‘appropriation’ of groundwater during CBM production constituted a beneficial use, requiring that water produced along with CBM extraction be subject to permitting requirements of the state division of engineers under the Ground Water Act and 1969 Act.[8] A beneficial use is defined broadly under Colorado law 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.”[9]

The ranchers contended that the extracted groundwater constituted a beneficial use because its removal acts to release the methane trapped within the coal bed. Methane is naturally produced during the formation of coal and the hydrostatic pressure of surrounding groundwater will hold the methane in place, preventing it from escaping. To successfully gather the natural stores of methane, the groundwater must first be removed through extraction wells. Without the groundwater holding the methane in place, the methane begins to migrate out of the coal bed and can be collected and transported for commercial use. The ranchers argued that this ‘beneficial use’ subjects CBM groundwater extraction to the administration and permitting requirements of the Ground Water Act and 1969 Act.10 

The Water Engineers and intervenor BP America Production Company (“BP”) opposed plaintiffs’ action.[11] They contended that the CBM wells are not subject to the Ground Water Act because the CBM wells do not put the extracted water to any beneficial use. They argued that the extraction of groundwater is done only to facilitate the extraction of the methane and that the extracted water itself is not then put to any use, beneficial or otherwise.[12] They argued that because the water is not used for any purpose, the extraction wells were exempt from the prior appropriation doctrine and subject to the exclusive jurisdiction of the COGCC.[13] 

The Water Court ruled in favor of the ranchers and the Colorado Supreme Court affirmed the Water Court’s decision holding that the “Engineer cannot allow out-of-priority diversions of water for CBM production without a well permit and, where necessary, a decree adjudicating an augmentation plan.”[14] The Court noted that “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.”[15] The Court reasoned that “the presence and extraction of water are integral components to the entire CBM process.”[16]  It is the very same water that makes CBM production possible inasmuch as the water holds the methane in place until the water is removed in order to capture the escaping methane.[17] Essentially, the Court held that the extraction itself was the beneficial use. As a result, the Court held that groundwater extraction wells drilled prior to CBM production are necessarily subject to the prior appropriation doctrine, submitting such wells to the permitting process of the Water Engineers.