Oil and Gas Lawyer Blog
Struggles over fracking bans have been in the news for some time in Pennsylvania, Colorado, Ohio, New Mexico and other states. The State of New York has had a moratorium on fracking for several years. But until recently, cities and oil and gas companies in Texas had been able to get along. Until, that is, the City of Denton, Texas passed a referendum banning fracking with in its city limits. Since then, as we say in Texas, all hell has broken loose.
The day after Denton’s referendum passed, two suits were filed challenging its ordinance, one by the Texas General Land Office and one by the Texas Oil and Gas Association. In the Legislature, several bills were filed to limit municipal authority to regulate drilling. One bill would require cities to reimburse the state for lost revenue from any drilling ban. Another would require cities to get approval from the Attorney General before putting any referendum on the ballot.
The two bills that appear to have the most legs are HB 2855, introduced by Drew Darby, and SB 1165, introduced by Troy Fraser. SB 1165 has been favorably reported out of the Senate Natural Resources Committee. HB 2855 remains pending in the House Energy Resources Committee after a lengthy hearing at which representatives of the industry and municipalities testified late into the night.
HB 2855 would prohibit a city from enacting an ordinance that “prohibits or has the effect of prohibiting an operation under the jurisdiction of the” Texas Railroad Commission. And it delegates to the RRC “exclusive jurisdiction to determine whether the adoption or enforcement of an … ordinance … prohibits or has the effect of prohibiting an operation under the jurisdiction of” the RRC.
SB 1165 prohibits ordinances that “ban, limit or otherwise regulate an oil or gas operation” except for ordinances that “regulate only surface activity that is incident to an oil and gas operation, is commercially reasonable, does not effectively prohibit an oil and gas operation, and is not otherwise preempted by state or federal law.”
Cities claim that both bills would effectively eliminate the ordinances that they have carefully crafted, with input from industry, to regulate drilling within their municipal limits.
In 2011, the Texas Supreme Court decided Railroad Commission of Texas and Pioneer Exploration, Ltd. v. Texas Citizens for a Safe Future and Clean Water and James G. Popp, No. 08-0497. It held that the RRC’s authority to issue permits for injection wells, which requires the RRC to find that the permit will be “in the public interest,” does not give the RRC authority to consider traffic safety in deciding whether to grant the permit. The RRC strenuously argued that it had no jurisdiction to consider public safety issues in granting injection well permits. I was reminded of this case in relation to the debate over municipal authority, because, like injection wells, the RRC never considers public safety issues in deciding whether to grant drilling permits. Indeed, I suspect that the RRC would say, as it did in Popp, that it has no jurisdiction to consider such issues when granting a drilling permit. In municipal jurisdictions, issues of public safety are principally delegated to the municipality. City drilling ordinances address those issues – traffic, noise, emissions, etc. The City of Fort Worth’s drilling ordinance, considered a model for other cities, addresses those issues in great detail.
The proposed bills will leave a lot of open questions. When does a municipal ordinance “have the effect of prohibiting an operation”? When is a municipal ordinance “commercially reasonable”? Senate bill 1165 defines “commercially reasonable” as “a condition that permits a reasonably prudent operator to fully, effectively, and economically exploit, develop, produce, process and transport oil and gas.” It appears to me that these bills are licenses for operators to litigate with cities over their ordinances, in expensive litigation that some cities will be unable or unwilling to fight.
These bills were filed in response to Denton’s drilling ban. It seems to me that the most reasonable response, if any is needed, is simply to prohibit cities from enacting a drilling ban. The industry appears to be using the drilling ban as an opportunity to try to severely limit municipal authority over drilling.