Board of County Commissioners of Boulder County v. Crestone Peak Resources Operating LLC.
2023 CO 58. No. 21SC477. Construction of Oil and Gas Lease—Cessation of Production—Commercial Discovery Rule.
November 20, 2023
In this case, the Supreme Court addressed whether a temporary shut-in necessitated by a third party’s pipeline maintenance triggered the termination of two oil and gas leases under their cessation-of-production clauses. In accordance with Colorado’s well-established tradition of interpreting each oil and gas lease on its own terms, the Court declined to adopt a universal definition for “production” in oil and gas leases. Therefore, the Court vacated the court of appeals’ opinion to the extent it broadly adopted the commercial discovery rule to define “production” in Colorado oil and gas leases as “capable of producing oil or gas in commercial quantities.”
Looking at the terms of the two leases before it, the Court determined that the cessation-of-production clauses are triggered only when there is a permanent cessation that could be resolved by reworking or drilling operations. Therefore, the Court concluded that the temporary shut-in, which could not have been resolved by reworking or drilling operations, did not trigger termination under the cessation-of-production clauses. Accordingly, the Court affirmed the judgment of the court of appeals, but under different reasoning.