Since the early 1940s, Texas courts have recognized that municipalities in Texas have, under the police power, authority to regulate the drilling for and production of oil and gas within their corporate limits when acting for the protection of their citizens and the property within their limits. “Police power” generally gives cities the ability to enact ordinances to safeguard health, comfort and general welfare of their residents. But, with a turn of the pen in 2015, House Bill 40 has eliminated decades of permitted municipal police power.
House Bill 40 – widely known as the “Denton fracking bill” – was filed to curb a municipality’s power to regulate drilling. The bill expressly provides that oil and gas operations are subject to the exclusive control of the State and restrains any city from prohibiting drilling within its city limits. The bill “expressly pre-empts regulation of oil and gas operations by municipalities and other political subdivisions.” The bill states that a municipality is authorized to enforce an ordinance that regulates “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.”
When Governor Greg Abbott signed the bill into law May 18, he commented that Texas needs to avoid a “patchwork of local regulations” that threatened oil and gas production.
Yet, House Bill 40 is notably vague in parts.
There is no mention in House Bill 40 of the terms “safety” or “protection” in the very short list of permissible municipal regulations on oil and gas operation. A municipality is only permitted to regulate oil and gas “surface activity” in a “commercially reasonable” way. A municipality must defer to the State on any oil and gas activities that occur under the surface and the definition of “commercially reasonable” does not include safety considerations.
Questions also arise as to setback rules — how close can a well be to a home, a school, or a business? There is no state law addressing setbacks or other surface-use regulations so municipalities are left to determine for themselves what is “commercially reasonable” insofar as municipal regulation of oil and gas surface activity. In addition, could a city’s permitting fee be considered to “effectively prohibit an oil and gas operation” if it impacts the financial feasibility of that operation?
Inevitably, the courts will have to interpret what is “commercially reasonable.” And Denton’s role in this debate is not likely over. Despite the repeal of Denton’s fracking ban, the two lawsuits filed against Denton, Patterson v. City of Denton and Texas Oil & Gas Assn. v. City of Denton, are moving forward, as the Plaintiffs are still seeking to invalidate a moratorium Denton put on new drilling permits.
Other Texas cities, especially those in North Texas, will likely have to revisit their ordinances relating to oil and gas operations as a result of House Bill 40.
Mary Barkley is a partner in Cantey Hanger LLP’s Property Rights and Appellate Sections. She represents landowners, cities, and condemning authorities in various types of property rights cases, including inverse condemnation, statutory condemnation, and other property rights disputes. Christopher Brown is an associate in Cantey Hanger’s Property Rights and Commercial Litigation Sections. Before obtaining his law license, he served on the city council in Bedford for six years. Reach them at mbarkley@canteyhanger.com and/or cbrown@canteyhanger.com.