Denton's fracking ban: Is it a reasonable prohibition or the taking of mineral rights?

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Jake Dean

Denton homes that back up to producing wells.

Nicholas Sakelaris

Staff Writer- Dallas Business Journal

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If Denton voters adopt the fracking ban on Nov. 4, should the city expect a stack of lawsuits on the steps of City Hall on Nov. 5?

If you ask opponents of the ban, they promise years of costly court battles challenging the city's authority and asking for millions of dollars in compensation for unrecoverable minerals.

This would be the first time a Texas city has voted to ban fracking, so other cities in Texas and around the country will be paying close attention.

"There's some unique issues here that no court has decided in Texas," said Terry Welch, a municipal law attorney with Brown & Hofmeister, LLP. "It really boils down to an issue of property rights versus public health, safety and welfare."

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Hydraulic fracturing, or fracking as it's more commonly called, is the process of injecting millions of gallons of water and chemicals into a well bore to break open the shale rock, releasing oil and gas. The controversial process combined with horizontal drilling is used throughout the Barnett Shale and across the country for oil and gas development.

Tom Phillips, a former Texas Supreme Court Justice, said the fracking ban is unconstitutional and will lead to years of costly litigation for the city of Denton and its taxpayers.

Now a partner with Baker Botts, Phillips was hired to speak on behalf of the Texas Oil and Gas Association over the summer.

"I believe the proposed ordinance to ban hydraulic fracturing is unconstitutional because state regulation of oil and gas exploration and production has displaced the city's ability to ban all economically viable drilling within its borders," Phillips said in remarks to the Denton City Council in July.

He said TXOGA members, which include 5,000 independent major oil and gas producers, would "undoubtedly" sue the city.

But Welch argues that the fracking ban is not preempted under Texas law. For the Texas Legislature to preempt a city's home rule authority, it must be stated with "unmistakable clarity." There is concern among cities that lawmakers in Austin could take steps to prohibit cities from banning fracking in 2015, Welch said.

Then there's the matter of an unconstitutional taking, where mineral owners argue that their rights to develop oil and gas on their properties have been taken away.

"Even if the ordinance is constitutional, it amounts to a government taking of private property to many mineral interest owners and operators," Phillips said.

Denton would have to compensate property owners for the minerals that can't be recovered as a result of the fracking ban, Phillips said.

"It's a taking issue. Bottom line. It's an infringement on Texas property rights," said Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association. "It's denying royalty owners their rights to revenue for oil and, in this case, natural gas, reserves."

He called the ban "another ploy by environmentalists to stop oil and gas production in the U.S."

It's not that simple, Welch argues.

"Fracking is a stimulation technique after the well is drilled," Welch said. "While a fracking ban would certainly result in you not being able to recover as much gas from a well, clearly, I'm not sure it's an absolute taking of property. The picture they paint is that if we can't frack then you've taken my property and now you owe me millions or hundreds of millions of dollars. I think that's a wrong characterization of the issue."

If land is seized without compensation for a road, the property owner can file a takings lawsuit seeking monetary damages for the land and loss of property value. At the end of the day, the road is still there and will be used by the public, Welch explained.

For mineral owners, they will have to prove the value of the oil and gas under their properties and the fact that it can't be accessed by other drilling means. Unlike the road, the minerals will still be there and could be accessed if the ban were ever lifted.

Bobby Jones, the treasurer of Denton Taxpayers for a Strong Economy, the political action committee that opposes the ban, said fracking is critical to produce Barnett Shale gas.

"You can drill, but you have to have fracking," said Jones, whose family owns about 100 mineral acres in west Denton. "That's part of the process of a shale well. If they put us out of business, then that's a government taking."

But Sharon Wilson, an Earthworks activist who moved out of Denton to escape the drilling, said Denton has hundreds of conventional wells that produce oil and gas without fracking.

The problem was when companies like Eagle Ridge Energy, based in Dallas, redrilled existing wells that were about 200 feet from a suburban neighborhood in South Denton. The city's own 1,200-foot buffer was powerless to stop the drilling and fracking because the initial vertical wells existed before the homes.

"We understand what responsible drilling will look like but the industry refuses to articulate that because they don't want to be held to any rules at all because they don't have any intention of following them," she said. "They can't really do this kind of development without polluting the air and venting."

When asked what he thinks is responsible drilling, Jones said Eagle Ridge just followed the rules that were in place, which allowed it to redrill the wells. The fault lies with the city of Denton for approving housing developments near abandoned wells.

"I guess I don't see where it falls on the oil companies," said Jones, who has a pad site within 300 feet of his home. "They haven't done anything wrong. Those same rules are on effect on my place. It shouldn't be any mineral owners fault that they bought a home and they didn't do their homework."

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Nicholas covers the energy, manufacturing, aviation and transportation beats for the Dallas Business Journal. Subscribe the Energy Inc. newsletter