Airport Land Wins Appeal in Royalty Suit Against Antero Resources

In Antero Resources Corp. v. Airport Land Partners, Ltd., the Colorado Supreme Court held that the Colorado Oil and Gas Conservation Commission (COGCC) did not have jurisdiction to resolve disputes about royalty deductions where the parties disagreed in good faith about the meaning of lease terms. The Court affirmed the judgment of the court of appeals, emphasizing that section 34-60-118.5 of the Oil and Gas Conservation Act prevents COGCC from interpreting private agreements.

Background of the Royalty Payment Dispute

The case arose from claims filed by several mineral interest owners (referred to collectively as Royalty Owners) against Antero Resources. The claims focused on whether Antero could deduct post-production costs when calculating royalties. The parties had entered into different leases with varying language on the permissibility of such deductions.

Some leases were silent on deductions, others prohibited most deductions but contained exceptions, and some included provisions with definitions of "market price" or "value." Each group of Royalty Owners contended that Antero underpaid royalties, while Antero maintained that the deductions were permitted under the lease language.

Jurisdictional Proceedings Before the COGCC

Initially, Royalty Owners filed their claims in district court. Antero argued the cases should first be heard by COGCC, and the court agreed. After referral to the agency, COGCC determined that it lacked jurisdiction under section 34-60-118.5(5), which excludes cases involving a "bona fide dispute over the interpretation of a contract."

Antero then sought judicial review of COGCC's refusal to hear the cases. The district court reversed COGCC and reinstated jurisdiction, reasoning that the lease terms were unambiguous. The court of appeals disagreed, holding that the disputes involved genuine questions of contract meaning and thus could not be resolved by COGCC.

Supreme Court's Ruling

The Colorado Supreme Court agreed with the court of appeals. It found that once a non-frivolous disagreement arises over what a contract means or how it applies, the dispute must be resolved by a court, not COGCC. Even where one side's interpretation is ultimately deemed correct, the existence of a good faith disagreement bars the agency from asserting jurisdiction.

The Court further explained that even determining whether a contract is ambiguous requires interpretation. Thus, COGCC cannot determine that an agreement is unambiguous as a means of retaining jurisdiction.

The decision addressed three sets of leases: one silent on deductions, one with conflicting definitions of market price, and another with value-based royalty language. In all three, the Court concluded that interpretation was necessary, making the disputes unsuitable for agency resolution.

Legal Support for Contractual Disputes in Regulated Industries

When payment obligations arise under private agreements that intersect with regulatory frameworks, disputes over meaning must often be resolved in court. Our attorneys at Whitcomb, Selinsky, PC assist clients with resolving contractual disagreements and addressing jurisdictional questions where private contracts and regulatory authority overlap.