Texas Oil and Gas Attorney Blog
As of November 4, 2014 Denton, Texas was the first Texas city to ban fracing inside city limits with a ballot initiative that passed with almost 59 percent of the vote. The next day, the state’s energy lobby, Texas Oil and Gas Association, filed an injunction in response. The Texas General Land Office also separately filed suit to prevent Denton from enacting the ordinance. Arguments in both suits were based on the fact that well completion techniques, which include fracing and disposal, are preempted by the state regulation and that the ban cannot be enforced by a city. Opponents of the ban have also argued that the ban constitutes an unlawful taking of mineral rights. It is unclear if the courts would find the fracing ban to be an unconstitutional taking of property in violation of the Texas Constitution because it is not a ban on gas well drilling, only a ban on one type of gas recovery technique used during production. More recently, the Texas legislature has prepared legislation that would actually ban all local regulation of oil and gas drilling, and not just fracing.
Implied Preemption in Texas
In Texas there is no doctrine of implied preemption under state law. This means that in order for a city or municipal regulation to be preempted by state law the Texas State Legislature must “with unmistakable clarity” dictate that state law controls. In January 2014, the state of Texas adopted new rules in the Texas Administrative Code relating to hydraulic fracturing in Texas. The new rules do not specifically preempt municipalities from adopting additional regulations.
State Representative Drew Darby, R-San Angelo, recently introduced House Bill 40 (HB40) that provides that cities can regulate surface activity for oil and gas operations if the regulations are “commercially reasonable” and do not prohibit operations. The bill defines “commercially reasonable” as “a condition that would allow a reasonably prudent operator to fully, effectively, and economically exploit, develop, produce, process, and transport oil and gas”. The bill’s definition of “oil and gas operation” includes activity associated with hydraulic fracture stimulation and disposal operations.
The exceptions to state preemption provided in HB40 relate only to above ground activity relating to fire and emergency response, traffic, lights, noise, and reasonable setback requirements. Jason Modglin, Darby’s chief of staff, has stated that the proposed bill would not overturn the Denton frac ban because it is not retroactive. However, if passed, the bill would prevent other Texas cities and municipalities from enacting similar bans on not just hydraulic fracing and disposal, but any other operation such as drilling.
Two other bills of note that would make it difficult for cities to ban fracing have also been introduced in the Texas legislature. House Bill 539 would require cities to determine how much a frac ban would cost in lost royalties and make the city liable for payment if the bill passes. House Bill 540 would require all referendum and initiative petitions be reviewed by the Texas Attorney General for a determination of whether the proposed action would result in a government taking of mineral rights without compensation, prior to being placed on a city ballot.
Frankly, I have a major problem with these proposed bills, other than the fact that they are clearly being introduced at the behest of the Texas oil and gas industry without regard to the rights of individual homeowners. First, keep in mind that many people sign leases for their mineral rights in which they prohibit surface use of their property. In other words, their minerals are pooled with the minerals from other properties on which the surface can be used. Since most oil and gas wells require some type of pooling unit, sometimes several hundred acres in size, a prohibition of surface use does not automatically mean that a mineral owner can’t realize a return on their mineral interest. Secondly, many folks have bought property and built homes in reliance on a local prohibition against surface or drilling activity found in a municipal or county ordinance or in subdivision regulations. The value of their homes is in part derived from this protection. If drilling activity is allowed anyway, the value of their home and their property can decrease dramatically because of the noise. the smell, the traffic and invasion of privacy that nearby oil and gas operations would involve. This is a form of inverse condemnation, for which compensation should be paid by the oil companies and the mineral owners.
Local governments are in the best position to determine what their citizens want and need. Let’s not add a statewide “one-size-fits-all” solution. And let’s especially not undermine individual homeowners who have bought land and built homes in reliance on a local ordinance! This bill was sent to the Governor for signature on May 6, 2015. Let’s hope he does not sign it.