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Legally Speaking

 

Issue: October, 2009
Author: Dennis Stickley & Lawrence J. MacDonnell

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Wyoming’s Legal Framework for Management of Water Produced in Conjunction with Coal Bed Methane

The rapid development of unconventional energy sources has presented several dilemmas for Wyoming’s legal system. Case in-point: coal-bed methane (CBM). Once regarded as a dangerous by-product of the coal mining process, the recovery of CBM has resulted in a dramatic increase in natural gas production in Wyoming and several other states, as well as such countries as Canada to China.

Controversy regarding the development of CBM has come before the Wyoming Supreme Court on several occasions. The uncertainty concerning the ownership of CBM became the initial focus of judicial inquiry. In the case of Newman v. RAG Wyoming Land Co., 53 P.3d 540 (WY. 2002), the Wyoming Supreme Court reasoned that CBM was within the scope of reservations of “oil and gas” interests and not coal. While other jurisdictions have come to the opposite conclusion, the Wyoming decision was consistent with the ruling made by the U.S. Supreme Court, at least in terms of federal reservations, in the case of Amoco Production Co. v. Southern Ute Indian Tribe 526 U.S. 865, 119 S. Ct. 1719, 144 Led. 2d 22 (1999). While recent administrative decisions from the Interior Board of Land Appeals indicate that title to CBM from federal mineral leases may need further judicial review before the law in this area is well-settled, Wyoming landowners and their legal advisers have the benefit of greater certainty where rights to CBM are granted by private and state leases.

Concerns about the management of CBM, particularly the quality and quantity of water related to CBM production have raised another dilemma for the state’s legal system. The disposal of produced water is an integral part of operations regardless of the formation where the oil and gas is located. The ratio of water to gas, as well as the amount and chemical composition of coproduced water varies widely among basins with CBM production. The cost of handling water that is coproduced with CBM also varies substantially and can add significantly to the cost of production to the point that it is prohibitive to develop the resource.

This makes the legal dilemma two-fold. First, CBM coproduced water must meet the requirements for discharge, whether to surface water or by underground injection, and disposal under federal regulations, including the Clean Water Act, the Safe Drinking Water Act and Resource Conservation Recovery Act. In Wyoming, these programs are administered by the Water Quality Division of the Department of Environmental Quality (WDEQ). Discharges of CBM coproduced water into surface water sources are regulated by the WDEQ pursuant to Water Quality Rules, Chapter 2. Appendix H contains additional provisions specific to produced water discharges from oil and gas production, including a section addressing CBM water discharges. Special attention is given to potential effects on livestock and wildlife. Underground injection of wastewater from oil and gas production is regulated by the Wyoming Oil and Gas Conservation Commission (WOGCC) as Class II wells. Wells injecting CBM coproduced water generally are regarded as Class V wells and are regulated by WDEQ.

The chemical composition of the coproduced water discharged into surface streams is of primary concern. Previously, permits were granted by WDEQ under a narrative rule that prohibited discharges so long as it did not cause a “. . . measureable decrease in crop or livestock production.” Wyoming Surface Water Quality Standards, Section 20. Both the DEQ and USGS have been actively monitoring the quality of CBM coproduced water in order to determine whether it is in compliance with more specific numerical standards adopted under the Safe Drinking Water Act.

The other part of the dilemma is the amount of water utilized in CBM production. Substantial volumes of water can be associated with CBM production. This is either due to the need to de-water the coal seam or pumping groundwater into the formation as a means of stimulating CBM production. Issues related to the recovery and use of groundwater associated with CBM operations are dealt with by the State Engineer’s Office.

In 1997 the State Engineer determined the water removed from coal beds to enable CBM production constituted a beneficial use. The effect was to require that a permit be obtained in accordance with W. S. §41-3-930. Thus, prior to drilling a well for the purpose of removing water associated with CBM, a Form U.W.5 must be filed with the State Engineer. If an additional beneficial use is intended to be made of the water, this information must be included in the application. In those cases where the water will be discharged without further use, no other permitting is required from the State Engineer. If the applicant intends to impound the water without additional use in an off-channel location, management is under the jurisdiction of the WOGCC. If the impoundment is located within a channel, an additional permit from the State Engineer is required pursuant to W. S. §41-3-301. The impoundment may not capture water from natural runoff. The State Engineer treats such storage as an additional beneficial use of the produced water. A good summary of this information is contained in the State Engineer’s “Revised Interim Policy Memo,” issued April 26, 2004.

The Wyoming Supreme Court has grappled with the management and regulation of coproduced water on two occasions. In the case of Rocky Mountain Oil & Gas Ass’n v. State 645 P.2d 1163 (WY. 1982), a majority of the court determined that administrative action regarding the WDEQ’s scope of authority in promulgating of permitting regulations for coproduced water could be challenged by declaratory judgment. More recently, in William F. West Ranch, LLC v. Tyrrell, 206 P.3d 722 (WY. 2009) the Wyoming Supreme Court rejected a challenge under the Uniform Declaratory Judgments Act to the regulatory scheme for CBM water adopted by the State Engineer and the Board of Control. Plaintiffs challenged the lack of notice and hearing in the State Engineer permitting process, failure to consider the public interest in issuing permits, and failure to establish specific water quality rules for CBM discharges. The Court declined the invitation to address these policy matters, deferring to the legislative and administrative branches. The Environmental Quality Council, which is the rule-making body for the WDEQ, will adopt new regulations for CBM coproduced water, as the public comment period closed on September 30, 2009.

Dennis Stickley is a Distinguished Visiting Professor at the University of Wyoming College of Law. Lawrence J. MacDonnell is a Professor at the University of Wyoming College of Law.

Copyright © 2009 – Wyoming State Bar

     

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