Fracking Ban Banned

Posted on June 24, 2015 by Jeff Civins

The State of Texas took swift action to block a municipality seeking to limit fracking.  In response to a 59 to 41% vote of its citizens, in November 2014, the City of Denton adopted an ordinance banning the well completion activity of hydraulic fracturing or fracking, which involves the high pressure injection of water, with proppants and small amounts of chemicals, into tight formations thousands of feet below surface to create and prop open fractures that facilitate the flow of oil and gas. 

Hours after the ordinance’s adoption, the Texas General Land Office and Texas Oil & Gas Association filed suit in Denton County district court, seeking to declare the ban invalid.  They argued that the ordinance intruded on powers granted by the legislature to the Railroad Commission of Texas and the Texas Commission on Environmental Quality and thus was preempted by state law.  On May 18, 2015, before the court could rule on the law suit, Texas Governor Greg Abbott signed into law House Bill 40, which removes the authority of Denton and all other Texas municipalities to regulate not only fracking, but also all other oil and gas operations.  On June 17, 2015, in recognition of House Bill 40, Denton’s City Council voted to amend its ordinance by repealing it in its entirety.  

In seeking to reconcile the interests of those concerned with state government intruding on local rule with the interests of mineral owners and their lessees concerned with intrusive governmental restrictions on the use of their property, House Bill 40’s approach arguably was solomonesque.  In just 3 pages, the bill allowed cities, under certain circumstances, to regulate above ground activities related to oil and gas operations, but barred them from regulating oil and gas operations per se, reserving that regulation to the state. 

House Bill 40 declares that oil and gas activities are subject to the exclusive jurisdiction of the state, but clarifies that municipalities may adopt an ordinance that regulates above ground activities related to oil and gas operations, including ordinances governing fire and emergency response, traffic, lights, or noise, or imposing reasonable setback requirements.  The statute requires, however, that such an ordinance be “commercially reasonable,” not effectively prohibit an “oil and gas operation” conducted by a reasonably prudent operator, and not otherwise be preempted by state or federal law.  The statute defines the quoted terms.  It also creates a presumption that an ordinance is considered prima facie to be commercially reasonable if it has been in effect for 5-years and has allowed oil and gas operations to continue during that period.  

The stated concerns of the Denton ordinance generally related not to fracking, but rather to the above ground impacts of the oil and gas activities it facilitated, that is, things like traffic, lights, noise, and safety concerns.  The Denton ordinance did express concern with the potential for contamination of drinking water aquifers, but studies, including EPA’s recently released draft assessment on fracking, generally have shown that concern to be related more to oil and gas activities generally than to the subsurface migration of contaminants associated with fracking per se.  

Even in fossil energy friendly Texas, fracking can be controversial.  The new state statute allows municipalities to address above ground effects related to oil and gas operations, subject to certain limits to be more fully fleshed out, but reserves to the state the power to regulate oil and gas operations per se.  This approach preserves local authority over things that arguably mattered most to the citizens of Denton, while preserving regulation of oil and gas development by the agencies that have historically regulated them.

Texas Railroad Commission on track to address quakes

Posted on August 28, 2014 by Jeff Civins

Over 30 earthquakes jolted the area in and around the City of Azle, Texas —20 miles north of Fort Worth—last November through January.  In response to citizen concerns, the Texas House Committee on Energy Resources created a Subcommittee on Seismic Activity, to investigate whether there was a link between earthquakes and increased oil and gas production and disposal wells.  In addition, the Railroad Commission of Texas—the agency with jurisdiction over oil and gas activities in Texas--hired a state seismologist and, on August 12, approved a draft of proposed rules that would require companies to do a seismic survey before obtaining permits for new oil and gas disposal wells—so-called Class II injection wells.  Representatives of both the Texas oil and gas industry and environmental groups are supportive of this proposal.

Texas, in particular, has been part of the tremendous increase in oil and gas exploration and production activity nationwide through hydraulic fracturing and horizontal drilling.  Although “fracking” per se does not appear to result in quakes, there is a concern that related disposal well injection might.  The Railroad Commission proposal is intended to address this concern.  Some have suggested the Texas proposal could be a model for other states.

The proposal would require applicants for oil and gas injection wells used for disposal to provide additional information, including logs, geologic cross-sections, and structure maps for injection well in an area where conditions exist that may increase the risk that fluids will not be confined to the injection interval.  Those conditions include, among other things, complex geology, proximity of the base rock to the injection interval, transmissive faults, and a history of seismic events in the area as demonstrated by information available from the USGS.  The proposal also would clarify that the Commission may modify, suspend, or terminate a permit if fluids are not confined to the injection interval, that is, if it poses a risk of seismic activity.  Presumably, the effect of the proposal, if promulgated, will be not only to regulate oil and gas disposal activities to address potential seismic effects, but also to generate data that may be useful in determining whether and to what extent further regulation is needed.

Temporary contamination – Ain’t that a non-compensable shame?

Posted on December 12, 2013 by Jeff Civins

A “stigma” is a mark of shame.  When applied to real estate, stigma refers to an unfavorable quality in a property that makes it less attractive.  Whether a landowner may recover stigma damages for temporary contamination that has been remediated in accordance with state law is an issue the Texas Supreme Court will consider when it hears oral argument in early December in the case of Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch

In that case, the lower appellate court had affirmed the decision of the trial court, following a jury trial, awarding the plaintiff almost $400,000 in damages attributable to an alleged diminution in value resulting from temporary contamination.  In arguing for reversal, Houston Unlimited has asserted that this decision recognizes a new cause of action in Texas – for stigma damages absent permanent physical injury.  Because of the ramifications of this holding, a number of Texas trade associations have filed amicus briefs in support of Houston Unlimited.1 

Houston Unlimited operated a metal-processing facility that had failed to comply with various regulatory requirements relating to the management of solid waste and storm water.  Its operations also had resulted in leaks to the adjoining Mel Acres Ranch.  The Texas Commission on Environmental Quality (“TCEQ”) cited Houston Unlimited for these violations and required it to investigate the contamination on the ranch.  

Houston Unlimited stopped the leaks and instituted steps to prevent future leaks. Its investigation showed that there was no ongoing contamination and that only one sample result – for copper in one pond – showed an excess of a TCEQ action level, which a month later had fallen below the action level. The ranch nonetheless sued for trespass, nuisance, and negligence, alleging that it had suffered permanent damage, measured by a loss in market value of the property.

The jury found that there had been no permanent nuisance or trespass, but nonetheless awarded the ranch stigma damages.  Houston Unlimited asserts that a majority of jurisdictions reject this theory of recovery and that the decision of the lower court disregards the TCEQ’s regulatory determination as well as prior case law.  The Court’s determination – whether temporary contamination ain’t a non-compensable shame – will have significant ramifications for other pollution damage cases in Texas and possibly elsewhere.  

The blogger’s firm, Haynes and Boone, represents one of those associations – The Texas Oil & Gas Association – in this matter.