On Tuesday, November 4, 2014, 59 percent of voters elected to ban the practice of hydraulic fracturing (“fracing”) in the city of Denton, which sits on top of the hydrocarbon-rich Barnett Shale. Although the ban does not prevent conventional drilling operations, the ban essentially forbids fracing, effectively expelling the drilling industry from city limits. Other municipalities sitting on top of the Barnett Shale—such as Fort Worth, Dallas and Arlington—have grappled with urban drilling as well, but Denton’s complete prohibition marks the first of its kind in Texas.
Cities in other states have had varying success in their attempts to ban fracing. In the Marcellus region, Buffalo, Ithaca, Geneva, Pittsburgh and Cresson, among others, have instituted fracing bans. And on November 4, similar initiatives passed in California’s San Benito and Mendocino counties and in Athens, Ohio, but failed in Santa Barbra County, California and in the Ohio cities of Gates Mills, Kent and Youngstown.
Whether the Denton fracing ban will survive under judicial scrutiny is unclear. Because no controlling precedent exists, the judiciary will be forced to wade into an unsettled area or law, wrestling with issues of preemption and inverse condemnation, while considering Texas’s strong stated policy in favor of extraction.
The legality of a municipal fracing ban is in part dependent on the state’s regulatory structure. As such, preemption battles have differed between states. For example, in West Virginia, Morgantown’s attempt to ban fracing was preempted, whereas in New York, municipal bans have been upheld.
The regulatory framework governing Texas extraction policy is bifurcated: the Railroad Commission maintains jurisdiction over all pipelines and drilling operations, reserving the power to “adopt all necessary rules” in its regulation of the drilling industry; and municipalities are permitted to impose method and manner restrictions. Historically, the Railroad Commission has heavily regulated most drilling conditions—well integrity, pipeline safety, environmental impact, etc.—whereas cities have regulated noise levels and setback requirements.
Although no Texas cases have considered whether a complete municipal ban on fracing is permissible, Texas jurisprudence does suggest strong municipal power to regulate. In Klepak v. Humble Oil & Refining Co., the court upheld a municipal law governing well-spacing and density, commenting that the Legislature did not “intend to nor accomplish the repeal of the fundamental law . . . that municipalities in Texas have, under the police power, authority to regulate the drilling for and production of oil and gas within their corporate limits.” 1 The Klepak court noted that a municipal ordinance will stand so long as it is “neither unreasonable, arbitrary, nor discriminatory.”2 Subsequent decisions have echoed theKlepak holding, generally finding that the development of oil and gas within city limits is an area subject to regulation under the powers of a municipality.
Because Denton’s municipal ban strips mineral estates of their economic viability, landowners are likely to bring inverse condemnation challenges. So long as a governmental regulation does not strip “all” of the economic value from an estate, determining whether an inverse condemnation challenge will be successful “requires balancing the public’s interest against the private landowner.”3 Such a determination requires analyzing (1) the character of the government action, (2) the extent to which the regulation interferes with reasonable investment-backed expectations, and (3) the economic impact to the claimant.4
In 2012, a Texas Court of Appeals decision overturned a $17 million dollar inverse condemnation award after determining, on balance, that government restrictions on drilling near Lake Houston were justifiable. The court determined that (1) protecting a critical water supply “weigh[ed] heavily . . . against a finding of a compensable taking,” (2) because the ordinance restricting extraction had existed before most claimants inherited their property and money had not yet been spent in pursuit of drilling operations, the ordinance did not interfere with reasonable investment-backed expectations, but (3) property interests had been significantly diminished.5 An inverse condemnation challenge to Denton’s fracing ban may turn out differently however, in part because Denton’s ban did not arise until after many of those having an economic interest purchased their mineral estates.
Denton’s fracing ban is an example of NIMBYism (“not in my backyard”), a phenomenon that often plagues environmental decisionmaking. Although Texas’s economy has benefited greatly from the shale boom, many Texas communities are still troubled by fracing. Symptomatic of NIMBYism, some would prefer for fracing to continue in other areas across Texas, just not in their neighborhood. Because Texas is synonymous with its attachment to the oil and gas industry, Denton’s fracing ban may embolden other communities to seek further fracing bans, which could provoke more voter initiatives and a rippling effect nationwide.