The nationwide oil and gas boom has exposed a rift in the relationship between state and local governments seeking to regulate shale drilling and development. This tension has been playing out in several key shale states – for example, the Pennsylvania Supreme Court will soon issue its opinion in the Robinson Township case, which will determine whether local government zoning ordinances that restrict hydraulic fracturing are pre-empted by state oil and gas laws. See our coverage of developments in Pennsylvania and Colorado here, here, here, here, here, and here. This week we will begin exploring how different states seeing increased shale activity are approaching these issues.
Ohio courts recently entered this debate. Ohio’s Ninth District Court of Appeals recently found that state oil and gas statutes preempted several local ordinances attempting to regulate hydraulic fracturing. State ex rel. Morrison v. Beck Energy Corp., 2013-Ohio-356, at ¶ 76 (9th Dist. Feb. 6, 2013). In 2011, Beck Energy (Beck) applied for and received drilling permits from the Ohio Department of Natural Resources (ODNR) prior to drilling a well in Munroe Falls, but did not obtain drilling, zoning, and construction permits required by city ordinances. The city cried foul when Beck began drilling, and obtained an injunction from the Summit County Court of Common Pleas that barred Beck from continuing operations within Munroe Falls until it complied with 11 different ordinances cited by the city.
The Ninth District struck down the injunction and held that many of the city’s ordinances were preempted by Ohio’s oil and gas drilling statutes. The court’s analysis centered on Revised Code section 1509.02 (overhauled last year by Senate Bill 315), which reads in relevant part:
The regulation of oil and gas activities is a matter of general statewide interest that requires uniform statewide regulation, and this chapter…constitute[s] a comprehensive plan with respect to all aspects of the locating, drilling, well stimulation, completing, and operating of oil and gas wells within this state, including site construction and restoration, permitting related to those activities, and the disposal of wastes from those wells.
The city attempted to skirt section 1509.02 by arguing that the home-rule provision in Ohio’s Constitution reserved regulatory authority to the city. See Ohio Const. Art. XVIII, § 3. The court was unconvinced and held that the drilling and zoning ordinances cited by the city were preempted because they conflicted with state statute. The preempted ordinances included: 1) a mandatory drilling permit; 2) a conditional-zoning-certificate requirement; 3) a zoning-certificate requirement; 4) a mandatory public hearing prior to drilling; and 5) a mandatory $2,000 performance bond.
The court’s analysis with respect to the public hearing ordinance was a bit nuanced. The ordinance provided that a public hearing was a condition precedent to issuance of a drilling permit. The court held that the city could require a public hearing, but could not make the hearing a condition precedent to issuance of a drilling permit.
The Ninth District did, however, uphold the right-of-way ordinances cited by the city. Section 1509.02 specifically provides that local authorities may regulate the use of their streets and other rights-of-way, so long as they do not discriminate against or obstruct oil and gas activities. As a result, the Ninth District found that the following ordinances were not preempted: 1) a rights-of-way construction permit; 2) a street opening permit; 3) a prohibition on obstruction of the rights-of-way; and 4) a permit for excavating under the surface of a street.
The Beck Energy opinion attempts to strike a balance between state and local government interests. As the court observed, while “gas and oil drilling brings economic benefits to the entire state, … the burden of potential risk and harm … is borne by the local residents in the wells’ immediate surroundings.” This tension will surely continue to produce disputes and litigation among state governments, local governments, and parties seeking to extract shale resources. This blog will continue tracking this emerging issue and report on upcoming developments.