Oil and Gas Regulation: H.B. 40 Updates

 

June 13, 2016

As reported last December, the first post-H.B. 40 lawsuit was filed against the City of Rockdale.  The lawsuit was so poorly-prepared that, on June 13, a federal district court threw it out completely.   Manuy of the claims in the case were based on laws that don’t even apply to cities, and the court’s opinion (posted under “Lawsuit Pleadings”) barely even discusses H.B. 40.    

 

December 23, 2015

The first post-H.B. 40 lawsuit has been filed against the City of Rockdale.  The lawsuit, filed in federal court on November 19, 2015, makes several claims against the city, including: (1) taking of his property under the Texas Constitution; (2) due process violation under the Texas and U.S. Constitutions; (3) permit vesting under Chapter 245 Local Government Code; and (4) prior continuous use under Section 43.002 Local Government Code.  His pleadings also try to invoke a state law known as the Texas private Real Property Rights Preservation Act.  That law doesn't apply to ordinances that apply within city's limits.

His claim is based on a 1997 ordinance that prohibited drilling within the city limits.  He asserts that he has been trying to develop oil operations since 2006.  The city, after the passage of H.B. 40 earlier this year, completely overhauled its ordinance to come into line with the current state of the law.  Oddly, this lawsuit is based on the regulations in place prior to the city's overhaul.  Thus, it might not even be considered an "H.B. 40 lawsuit."

 

September 17, 2015

The Denton city council recently repealed ban that was made moot by the enactment of H.B. 40.  As a result, both lawsuits against the city were dismissed by agreement.

 

July 17, 2015

The House version of the oil and gas drilling bill, H.B. 40 by Rep. Drew Darby, became law on May 18, 2015, when it was signed by Governor Abbott.  The final version of the bill represents a compromise between the Texas Municipal League and the Texas Oil and Gas Association. 

The final version of the bill improves on the original bill in four  significant ways.  Specifically, it:

  1. enshrines in statute a non-inclusive list of items cities can regulate, including fire and emergency response, traffic, lights, noise, notice, and reasonable setbacks.  (The inclusion of setbacks is a key component because the original version of the bill likely prevented them.) 
  2. permits cities to regulate aboveground activity that is “related” to oil and gas operations, as opposed to activities that are “incident” to operations, as in the original version of the bill.  The “incident to” language was prohibitively restrictive. 
  3. includes a much better definition of “commercially reasonable,” one of the tests an ordinance must meet to be valid under the bill.  The final version provides that commercially reasonable is based on an objective standard instead of the subjective assessment of a particular oil and gas operator.
  4. creates a “prima facie” presumption of commercial reasonableness for certain ordinances that have allowed activity for at least five years.  This “safe harbor” is a rolling five-year time period that permits recent or future ordinances to qualify so long as they haven’t prevented operations for a five-year period.  

Make no mistake:  The bill isn’t perfect.  Some areas of regulation, especially those related to subsurface activity, may be preempted. So would outright city-wide bans on oil and drilling or fracking.  But here’s the essential point: better than 80% of what most cities regulate under current ordinances is protected. 

City officials should be aware that adoption or amendment of any ordinance regulating oil and gas operations should be in conformity with H.B. 40.  Likewise, the League will closely monitor the industry to ensure that the various safe harbor provisions permitted by the bill are respected by operators and their representatives. To assist cities, the League has created an “Oil and Gas Regulation” webpage at www.tml.org (Go to the Legal tab and click on the Topics drop down menu). 

The page will include the pleadings in each lawsuit that has been filed, as well as additional information.  The page will not include “sample” or “model” ordinances.  That’s because each city’s needs and wants are unique, and also because the commercial reasonableness of various ordinance provisions will vary by geography and the level of drilling activity. 

Thankfully, all appears quiet on the litigation front thus far.  The only lawsuit pleadings on the page right now relates to the essentially moot challenge against the City of Denton’s now-defunct hydraulic fracturing ban.  Each city should consult with local legal counsel prior to adopting or amending any ordinance.  That is particularly true in this instance.

 

Lawsuit Proceedings