By Nushin Huq
Oct. 15 — The residents of Denton, Texas, will vote on a ballot measure Nov. 4 that would ban hydraulic fracturing within the city limits, but the debate on the oil and gas drilling practice probably won't end on election night.
Opponents of the ban say they will file lawsuits if the referendum passes.
A complete ban on fracking in the city, located atop the Barnett Shale formation, would infringe on mineral rights, opponents of the ban contend. Supporters say hydraulic fracturing near their homes poses a health risk and will drive down property values.
Opponents of the referendum, including holders of the mineral rights and industry have threatened lawsuits against the city if the ban passes. There is also a push to have a bill passed in the Texas Legislature that would prohibit cities from banning hydraulic fracturing, Cathy McMullen, president of the Denton Awareness Group, told Bloomberg BNA Oct. 10.
Hydraulic fracturing, or fracking, involves the high-pressure injection of water, sand, and chemical additives into geologic formations to break up the shale and release oil and gas for recovery. Opponents fear the practice can contaminate groundwater.
Denton, which sits about 30 miles northwest of Dallas, is in a unique situation because no other city in Texas has banned hydraulic fracturing, Bennett Sandlin, executive director of the Texas Municipal League, told Bloomberg BNA Oct. 14. The league advocates for municipalities in Texas.
“The citizens of Denton were pushed to do this because one producer would not respect the distance limitations. We have a history of over 100 years of good relations with the oil and gas industry,” Sandlin said.
Industry experts agree that the city initially had a unique permitting process that may have led to the current problem.
In 2000, when energy companies first began requesting drilling permits, they were issued by the local fire department for an entire pad of land and had no expiration date, Ed Ireland, executive director of the Barnett Shale Education Council, told Bloomberg BNA Oct. 9.
“That's unusual. Most permits are for one well, not an entire three-to-four acre pad of land,” Ireland said.
Most of those pads were located in undeveloped areas far from the city center. In recent years, however, the city has grown, and housing developments have been built near those pad sites. Even though the permitting process has changed, the old permits are still valid and houses can be built within 250 feet of those pads, Ireland said. New permits require wells to have a 1,200 foot setback.
There are currently no similar ballot measures in communities located on the Barnett Shale formation. Whether or not other cities will consider such approaches depends not only on the result of the November vote, but also on the lawsuits that are likely to follow, Ireland said.
There certainly will be lawsuits if the ban passes, but how the courts will rule is not as clear, said Jeffrey Gaba, law professor at Southern Methodist University's Dedman School of Law. The city can argue that the ban is needed to protect public health and that they are only banning drilling and not surface development. As a home-rule city, Denton has more legal authority to regulate development and drilling than other cities in the state.
“There has been plenty of case law going back to the 1940s that says municipalities can regulate oil and gas companies,” Gaba told Bloomberg BNA on Oct. 10. “Cities have turned down individual permits for drilling and the courts have generally upheld that, but the oil and gas companies can argue that differs from a 100 percent ban.”
Holders of the mineral rights might file a lawsuit that states the ban is essentially a taking of land by the government and seek compensation from the city.
“The Supreme Court's ruling on takings laws is quite ambiguous,” Gaba said. Gaba and other attorneys who spoke to Bloomberg BNA all agreed that legal questions surrounding takings is one of the murkiest areas of law, and how the courts will rule is unpredictable.
“I don't think it's a frivolous issue,” said Gaba. “Takings is one of the trickiest areas of the law.”
Takings lawsuits involve a three-part analysis, Marcilynn Burke, associate professor of law at the University of Houston law school, told Bloomberg BNA Oct. 10. A court will examine what is the nature of the taking, the degree of the expectations linked to the investment and the economic impact.
“Is the value of the land totally wiped out? Can you use conventional techniques besides hydraulic fracturing?” Burke said.
On the other hand, Gaba and Burke said that the municipality has a case as well. Municipalities have the right to regulate land for the health and wellbeing of its citizens. Whether or not that regulation has gone too far is something the courts will have to decide, Burke said.
Opponents of the ban have said that the referendum would violate the Texas Constitution, and they presented two arguments to support that contention.
First, because the Texas Railroad Commission is in charge of permitting for drilling under state law, a municipality does not have the authority to regulate it, Gaba said. The state's authority preempts the city.
“On a case-by-case basis, the courts have generally ruled that is not true,” Gaba said. “Cities have a role in the permitting process.”
On the other hand, a ban on all hydraulic fracturing and not just a case-by-case review of each permit might be considered a preemption of the state's authority, Gaba said.
“They're suggesting that a fracking ban would be unconstitutionally inconsistent with state legislation about fracking,” Zachary Bray, assistant professor of law at the University of Houston, told Bloomberg BNA. “It's an argument that will certainly be made, and it might be successful, but I think more likely not. I think the takings claims are likely to be more important.”
The second argument is that the ban is a regulatory taking that violates the Fifth Amendment of the U.S. Constitution. Sometimes, people invoke the state constitution in takings cases out of state pride, Bray explained. But in a recent takings case, the Texas Supreme Court said it was guided by U.S. Supreme Court construction and application of the Fifth Amendment in the U.S. Constitution.
The supporters of the hydraulic fracking ban are expecting lawsuits to be filed immediately if the referendum passes, although they believe potential lawsuits to be baseless.
“The referendum only bans hydraulic fracturing, not other conventional means of taking minerals out of the ground,“ McMullen said. “That's why the ban can't be considered a regulatory taking.”
If the ban passes, McMullen expects opponents to immediately ask the court for an injunction to prevent the ban from going into effect until litigation is resolved.
“Even though we think they don't have a case, they could keep this tied up in the courts for a long time,” McMullen said.
The Texas Legislature could step in and prohibit municipalities from banning hydraulic fracturing, which would preempt the city ordinance, Gaba said.
For opponents of the ban, a more economic approach would be to lobby the state Legislature to pass a law prohibit municipalities from banning hydraulic fracturing, Burke agreed.
Such a move by the Legislature would be controversial as well.
“I don't think it's a good idea,” the University of Houston's Bray said. “Municipalities have a right to make regulations to protect the health and wellbeing of its citizens. It's not a good idea to take that power away from them, regardless of whether or not one supports the ban.”
As an advocate for cities, the Texas Municipal League would be against any bill that would limit a city's ability to regulate for the health and wellbeing of its residents, Sandlin told Bloomberg BNA.
The situation in Denton is unique because one producer refused to respect distance limitations and is trying to build wells close to houses, he said.
“The city didn't want to pass this bill,” Sandlin said. “But the citizens of Denton were pushed to do this. This is an isolated incident and we hope it sorts itself out before May [when the Texas Legislature is back in session.]”
To contact the reporter on this story: Nushin Huq in Houston at nhuq@bna.com
To contact the editor on this story: Larry Pearl at lpearl@bna.com
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