In 2019, Boulder County sued Crestone Peak Resources stating that the oil and gas leases had expired due to a cease in production over four months. On Tuesday, the Colorado Supreme Court overturned the suit but clarified the laws around oil and gas leases.
When Boulder County took the lawsuit to the Appeals Court, it made a verdict that oil and gas leases were subject to the “commercial discovery rule.” This rule states that “oil and gas production occurs when the resources are discovered and a well is capable of producing them, regardless of whether anything is actually extracted,” according to a news release from Boulder County in January 2022.
This meant that although Crestone Peak Resources had two wells in Boulder County that had resources it was able to keep its lease with the county despite the lack of extraction.
The case was advanced to the Colorado Supreme Court which ruled that that rule does not apply and that all oil and gas leases should be interpreted based on its own terms with respect to its production.
It also ruled that Crestone’s lease with the county was not in violation and could not be terminated for not extracting oil.
“Today’s ruling by the Colorado Supreme Court takes a poor piece of law off the books,” said Senior Assistant County Attorney Kate Burke. “Although we didn’t get the full outcome we were hoping for, the rejection of the appeals court’s legal conclusion is a win for the county and other mineral owners going forward.
Burke said the county now has clarity on the law to be able to interpret other leases to determine if they have expired.
Some leases in the county have existed for decades, Burke said. During that time, things change. Now Boulder County can examine the leases as things change to determine if the leases have expired.
Burke said the county has too many leases to examine all of them but as events arise or if the county takes on new properties with oil and gas leases, it will have the clarity to examine the validity of the leases.
“It’s clear our efforts to enforce our lease rights can yield positive shifts in the law,” said Commissioner Claire Levy. “This ruling gives us more clarity when we are evaluating the status of the county’s leases. The county’s legal team will continue to push for clear and coherent law around oil and gas.”
