Proposed Drilling Ordinance in Denton Could Undermine Texas State Law
A series of proposed changes to the natural gas drilling ordinance inside the city limits of Denton could undermine long-standing Texas state law, based upon a review of the amendments posted on the city’s website.
The amendments, which were released to the public last Friday afternoon, will be discussed publicly at a city council hearing this evening. The new ordinance would expand the city’s authority significantly, with particular emphasis on trying to undermine an important Texas law establishing what are known as “vested rights.”
According to Texas’ local government code, permitted activities – including oil and natural gas development – are governed by the rules in place at the time that the permits were lawfully secured. The law helps to provide regulatory certainty, especially for major investments such as building construction and energy development.
For example, an energy company that applies for and receives permits to drill for natural gas could spend millions of dollars to secure a drilling rig and prepare a site for development. But if a city changed the local permitting requirements in the middle of the project, and the company was forced to comply with different rules, the cost of the project could increase significantly. If those rules had been in place at the time the project began, the company may have decided not to make the investment. Yet, it would have sunk a portion of its capital budget on a project that is no longer viable.
Specifically, the Texas statute outlines in Sec. 245.002 (b):
“If a series of permits is required for a project, the orders, regulations, ordinances, rules, expiration dates, or other properly adopted requirements in effect at the time the original application for the first permit in that series is filed shall be the sole basis for consideration of all subsequent permits required for the completion of the project.”
In the absence of such a law, Texas companies have no way of knowing what the total cost of a project will be because the rules could change at any time, which would ward off investment and, ultimately, destroy jobs.
Moving the goalposts
The City of Denton, however, is proposing changes to its local drilling ordinance that would alter or even remove these rights from certain companies that have already invested in the city.
In the current ordinance, if an approved application for drilling a natural gas well expires according to its terms, a new application must be submitted, which “shall be subject to all DDC standards and procedures then in effect.” But under the proposed changes, the existing standards and procedures language is removed. Upon expiration of any individual permit, the entire project would be subject to the city’s new regulations.
The proposed changes also dictate that Specific Use Permits that were “approved under prior gas well regulations” will expire according to their terms. At that point, the company would have to submit a new application under the new ordinance, not necessarily the rules in place when the company began its investment.
Denton City Councilman Kevin Roden – who has been one of the most vocal supporters of a fracking ban – blogged last week that the city was trying to “fix” vested rights through a “decidedly more aggressive role.” Roden added that the city would in fact be trying to take away vested rights from one industry: “[T]here is a need to legislatively ‘fix’ this issue on the side of not including oil and gas development under this chapter of the code.”
Roden admitted that the changes to the city’s gas drilling ordinance are actually meant to influence state policymakers in Austin, whom they will by lobbying to remove oil and gas production from the state’s vested rights law:
“Instead of waiting for some legislator to introduce such legislation, the council has directed our staff and legislative consultants to proactively draft legislation that fixes these problems. We then intend to shop the legislation around to supportive lawmakers to find a sponsor to introduce such a bill.”
With respect to the City’s proposed changes to vested rights, Roden also told the Denton Record-Chronicle last week that “we are discovering incredibly creative ways at tackling these very difficult issues.”
Earlier this year, Roden told Al Jazeera that “drilling for natural gas is incompatible with neighborhoods.”
Extra territorial jurisdiction
The changes proposed by the Denton City Council also extend beyond the official city limits into what’s known as the city’s “extra territorial jurisdiction,” or ETJ. Voters located in the ETJ were not allowed to vote on the fracking ban in November.
The ordinance currently in place requires that a Watershed Protection Permit be approved before any gas wells are developed inside the city limits. The proposed changes, however, adjusted the language to apply to any sites “within the corporate limits or ETJ of the city,” effectively looping gas wells in the ETJ into the city’s new prohibitively complex rules.
That also means wells in the ETJ would fall into the city’s new requirements for consolidation. Under the “Purpose” category of the new ordinance, the City makes the following declaration:
“[I]t is necessary for the City to regulate the location of gas well locations relative to other surface uses within the City and to consolidate sites for development of gas wells consistent with the rights of mineral owners to reasonably access subsurface resources.” (emphasis added)
With that justification, the City is proposing a new “Consolidation Permit” requirement, which effectively would allow the city – rather than the property owner and developer – to dictate where natural gas development can take place. According to the amendments:
“Through approval of a Consolidation Permit, existing and future gas well development may be authorized on the best situated existing drilling and production site, while future gas well development may be restricted on other existing drilling and production sites.”
With the amendments to Denton’s gas drilling ordinance, the City Council is potentially setting itself up for another costly lawsuit from the state. A recent analysis estimated that Denton’s fracking ban could cost the city’s taxpayers more than $8 million, owing to the possibility of a lawsuit from mineral owners whose property can no longer be developed. Earlier this year, a group of mineral owners filed a $1 million lawsuit against the city, saying that Denton’s existing rules on drilling “function as a complete drilling and completion ban.”
The day after the city’s fracking ban was approved in November, the Texas General Land Office – which owns minerals in Denton, the royalties from which flow into the Texas Permanent School Fund – also filed a lawsuit against the city. GLO Commissioner Jerry Patterson said such a ban “will completely destroy the value of the school kids’ minerals,” adding that a fracking ban is “unlawful” and “invalid” because it “is inconsistent with the general laws of this State.”
Given how the proposed changes to the city’s drilling ordinance seek to alter or even undermine the state’s local government code, it’s possible that, if the amendments are approved next month, the city will face yet another expensive round of litigation.