Production Water From Oil and Gas Exploration Subject to State Water Laws

he Colorado Supreme Court recently announced its decision that groundwater produced during coalbed methane (CBM) production constitutes an appropriation for a "beneficial use," and that State Engineers cannot allow out-of-priority diversions of CBM water without a well permit and a decree adjudicating an augmentation plan. This decision has significant ramifications for potentially all oil and gas exploration in Colorado.

Plaintiffs were ranchers seeking a judicial determination of the obligations of State water regulators regarding groundwater diverted for coalbed methane production. They argued that the water was diverted for a beneficial use, and thus, required well permits and augmentation plans. Defendants and interveners argued that water used during coalbed methane production was merely "produced water," and thus, subject only to regulation by the Colorado Oil and Gas Conservation Commission.

In affirming a judgment for the plaintiffs, the Court based its decision on the statutory definition of "beneficial use." It reasoned that coalbed methane production uses water from a well to accomplish a particular purpose and is therefore subject to Colorado's water laws. The fact that the water becomes a nuisance after its extraction does not affect the finding that it was first put to a beneficial use. See Vance v. Wolfe, 07SA293.

Exploration companies pumping groundwater in the process of extracting oil and gas in Colorado must now apply for well permits, and may need approval of augmentation plans if the water is tributary to a natural stream.

Should you have any questions about the application of this new decision, contact our experienced team of Environmental & Water Law, and Natural Resource Development Practice Groups.