Looks Like Frack is Back, Governor Abbott Signs House Bill 40

Jackson Walker

Yesterday, Governor Gregg Abbott signed into law House Bill 40, also known as the Denton Fracking Bill, which leaves municipalities with minimal power to regulate the oil and gas industry.1 The bill takes effect immediately and comes in response to Denton's anti-fracking ordinance which prohibited hydraulic fracturing within city limits.2 Litigation is still pending against the Denton ordinance, and it is anticipated that the bill will effectively make the Denton ordinance unenforceable. While environmental advocates criticize the bill for granting the State nearly complete control of the oil and gas industry, Senator Troy Fraser, the bill's sponsor, calls the bill a "carefully crafted compromise" between the interests of energy and cities.3

Summary of House Bill 40

The text of the Denton Fracking Bill expressly provides that oil and gas operations are subject to the exclusive jurisdiction of the State and only allows municipalities like Denton to regulate surface level activities. Such activities might include things like noise and traffic. The bill restrains municipalities from enacting measures that prohibit oil and gas operations. Ordinances must be "commercially reasonable," which the bill defines to mean "a condition that permits a reasonably prudent operator to fully, effectively, and economically exploit, develop, produce, process and transport oil and gas." This portion of the bill will likely trigger a multitude of litigation over what satisfies the "commercially reasonable" standard.4

Other Texas Bills to Follow

House Bill 40 may not be the last piece of Texas legislation promulgated for the purpose of protecting oil and gas operations. House Bill 2595, which passed the House on May 8, prohibits cities from validating citizen petitions that would restrict a person's use or access to private property for economic gain. The effect of this legislation would be to prevent citizen petitions for frack bans, like the one in Denton, from ever reaching city ballots because the petition would interfere with mineral interest owner rights.

Texas is not Alone

Texas is not the only state legislature to pass measures that effectively prohibit frack bans. States like Oklahoma have passed similar laws that prohibit ordinances regulating below-surface energy activities. Specifically, Oklahoma's bill allows municipalities to enact "reasonable" ordinances related to "road use, traffic, noise and odor;" but, the bill does not allow outright bans by municipalities on below-surface activities.5 Additionally, somewhat akin to House Bill 2595, a separate Oklahoma bill would cause any interference with oil and gas production to be considered a "taking" of property, meaning royalty owners could seek compensation.6

The battle between states and municipalities over who controls oil and gas regulation continues, with the State of Texas celebrating a victory in House Bill 40, with others potentially to come. For now, it appears that frack is back, but only time will tell if it is here to stay.

1H.B. 40, available here (last visited May 7, 2015).
2Melissa Barnett, "Bill to limit Texas cities' rules on fracking heads to governor," Dallas Morning News (May 4, 2015), available here.
4Jackson Walker L.L.P. has a wealth of experience representing clients in matters involving both express and implied preemption and ordinance interpretation.
5S.B. 809, available here.
6S.B. 468, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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