Co-author Isreal Miller

Local taxing authorities frequently look to out-of-towners to bear what the locals consider the outsiders’ fair share of the burdens of increased oil and gas activity. The counties are often small and rural. (See the Dimmit County road tax).You can’t blame them, but  Reeves County (county seat: Pecos, 2010 pop. 13,783), Loving (county seat: Mentone, 2010 pop. 1,340), and Ward (county seat: Monahans, 2010 pop. 10,658) have been reminded by the big guys and gals in Austin that these efforts are not likely to succeed. It didn’t work for Huey Long and it isn’t working well now.

The Texas Supreme Court issued four opinions addressing the taxation of compressors used to deliver natural gas into pipelines: All four were consolidated for briefing with another case, EXLP Leasing, LLC v. Galveston Central Appraisal District. EXLP v. Galveston addressed most, if not all, of the issues raised in each of the four cases at hand. Specifically, the court upheld Texas Tax Code § 23.1241(b), which values the compressors based on the lease revenue they generated during the previous tax year divided by twelve. EXLP v. Galveston also determined that the taxable situs for the compressors was the county in which EXLP Leasing maintained a business address and storage yard (Washington County) and not in the various counties in which the equipment might otherwise be physically located or leased (e.g., Galveston County). Continue Reading Local Taxation of Oil and Gas Activities Fails Again

In Frederick v. Allegheny Township Zoning Hearing Board, et al, the Pennsylvania Commonwealth Court affirmed a local zoning ordinance allowing oil and gas operations in all zoning districts in the Township as long as they satisfied enumerated standards that were designed to protect the public health, safety and welfare of the citizenry.

Facts and Findings

CNX received a permit to drill a well. The ordinance imposes a 1,000 foot setback and prescribes notice requirements and operational limitations. Citizens owning neighboring tracts complained that the well was not compatible with agricultural and residential use, complaining about noise from pad site preparation and drilling activities.

The objectors did not challenge the Zoning Board’s fact findings. That was either a tactical mistake or a lost cause. One can’t tell from the opinion. The court noted these findings, among others:

  • This is an area that has historically had gas production. There are 242 conventional gas wells in the Township, some of which employ hydraulic fracturing.
  • One farm already has three gas wells plainly visible to persons driving by the property.
  • Nothing will be visible to the neighbors after the well has been drilled and completed.
  • The Zoning Board rejected as not credible the testimony of several experts sponsored by the objectors.

Continue Reading Man Bites Dog – Local Zoning Board Okays Drilling-Friendly Ordinance

st. tammanyCo-author Brooke Sizer

The state laws of Louisiana regulating oil and gas exploration and production will trump local regulations. See St. Tammany Parish Government v. State of Louisiana, Office of Conservation. (Forgive us for that word that should be avoided in a civil society.) 

The conflict

St. Tammany is a home-rule charter parish that adopted a Unified Development Code. The Louisiana Commissioner of Conservation later issued an order adopting a drilling and production unit and issued a permit to Helis Oil & Gas Company for a well that would be located in an area zoned as residential.

St. Tammany Parish sued to declare the drilling permit illegal because their zoning designation trumped prevailed over the right of the Commission to issue the permit.

The State prevails

The trial court and court of appeal ruled for the State. The appellate court first looked at “the extensive body of law that addresses every phase of the oil and gas exploration process … .”  The court focused on La. R.S. 30:28F:

The issuance of the permit by the [C]ommissioner … shall be sufficient authorization … to enter upon the property … and to drill in search of minerals thereon. No other agency or political subdivision of the [S]tate shall have the authority, and they are hereby expressly forbidden, to prohibit or in any way interfere with the drilling of a well or test well in search of minerals by the holder of such a permit. [Our emphasis.]

The court acknowledged that local power to regulate land use and zoning within its boundaries is not preempted unless it is the clear and manifest purpose of the legislature to do so.  However, St. Tammany’s zoning ordinances must yield to state law based on La. R.S. 30:28F.  “… [H]ereby expressly forbidden…” clearly and manifestly evinces the legislative intent to preempt that area of the law.

The pervasiveness of the legislation, which addresses every aspect of oil and gas exploration as well as the need for uniformity and the danger of conflicts between the enforcement of local laws, demonstrates the legislative intent to impliedly preempt that area of the law.  Therefore, local zoning ordinances are preempted by state law insofar as they affect the State’s regulation of oil and gas activity.

The court cited Art VI, §9(B) of the Constitution, “Notwithstanding any provision of this Article, the police power of the [S]tate shall never be abridged.”  The Commissioner’s power is an exercise of the State’s police powers.  The grant of zoning powers to local governments was not as important.

The court rejected the contention that the Constitution gives concurrent power to the State and the local governments to protect health, safety, and welfare, citing Article IX § 1 of the Constitution.

Finally, the court applied the ordinary meaning of “consider” and held that the Commissioner did “consider the master plan” as required by statute.

Musical interlude, presidential edition

Today we honor every voter who promises to emigrate if (insert name of candidate) is elected president.  The first tune is Reggae-inflected, Caribbean-by-white-guys; the second is real Reggae.

million dollar quartetThe Texas legislature has been busy on energy.

House Bill 40, similar to House Bills 539 and 540, steamrolled through the House of Representatives last week by a vote of 122 to 18. Reminds us of A L pitchers not rookies and the Rangers’ betting order.

The bill would preempt local control of oil and gas operations. If the bill becomes law political subdivisions could not enact or enforce ordinances that ban, limit or otherwise regulate an oil and gas operation within its boundaries.

Exceptions would be:

  • Above ground activity that governs fire and emergency response traffic, lights, or noise, or “reasonable” setback requirements;
  • That is commercially reasonable;
  • Does not effectively prohibit an oil and gas operation conducted by a reasonably prudent operator (hello Dallas and Denton); and
  • Is not otherwise preempted by state or federal law.

A regulation is prima facie commercially reasonable if it has been in place for at least five years and has allowed oil and gas operations to continue during that period.

See the House Research Organization’s analysis of who’s for and who’s against. You won’t be surprised at the lineups.

What Supporters Say:

  • To satisfy concerns that Railroad Commission surface regulations are insufficient and not enforced, the Legislature should fully fund the Railroad Commission and focus on improving state policies and regulations instead of off-loading that task to municipalities (good luck on the “fully fund” part);
  • The law would affirm the preemptive nature of state oil and gas regulations and reduce litigation (a cause dear to the heart of our legislature, regardless of the side effects);
  • Municipal regulations that effectively ban attempts to exploit natural resources deprive mineral rights owners of their property.
  • The law would affirm the dominance of the mineral estate (as has been the law of Texas since minerals were discovered).
  • The impact of operations are only temporary and can be mitigated by above-ground regulations such as setbacks, fencing, etc.
  • Establishes regulatory certainty.

What Opponents Say:

  • Even basic ordinances intended to insure public health and safety would be prohibited;
  • Effects of operations are felt most acutely at the local level, and municipalities are better equipped than state agencies to understand the effects of operations in their communities.
  • State agencies may not have the political will to enforce regulations to protect public health and the environment.
  • Gaps in state subsurface rules and regulations are filled by local ordinances, which would be preempted.
  • State regulations on oil and gas operations are notoriously weak.
  • Municipalities might have statutory obligations that cannot be performed without limiting subsurface activity.
  • Current law is sufficient to protect property rights. Regulatory takings are not inherently bad; property owners are compensated for a regulatory taking facilitated by municipal regulation.
  • Erosion of property rights is worthwhile if local regulations are necessary to protect neighborhoods from environmental degradation and public health consequences.
  • Oil and gas operations infringe on property rights of surface owners.

What Sam Phillips Did For You Yesterday

After watching Rhodes Baseball take three out of three from Millsaps, we had a holy experience Sunday in Memphis. The 8:00 a.m. Rite I service at Calvary Episcopal Church downtown was one, but I’m really talking about Sun Studio – “The birthplace of Rock and Roll”. Today’s musical interludes are the first studio recordings ever by these artists. What’s so new and different? Nothing, until you consider the best-selling tune of 1952 for perspective. Imagine the world before Rock and Roll and then listen:

Howling Wolf 1952 (not R&R of course, but it set the stage).

Elvis 1953

The Killer 1956

Three more next time, including two gents in the picture.

Suppose I own a large tract of land in the region of the Barnett Shale, the exclusive right to allow (or prevent) drilling on the aforesaid land, and a desparate need for funds. You have $19 million and the desire to exploit the minerals. I take your $19 million, and when you ask for permission to drill I refuse, and I don’t even offer to return your $19 million. What would you do?

As expected, we learned what Trinity East Energy, LLC would do. They’ve sued the City of Dallas for breach of contract (the lease), inverse condemnation (for taking their leasehold interest without compensation), and fraud (for representing that special use permits would come, knowing they wouldn’t) in connection with a 2008 oil and gas lease over 3,600 acres of City of Dallas land. After collecting the $19 million bonus, the city prevented Trinity from developing the lease by denying special use permits necessary to drill wells, both on the property and on land near enough to the property to exploit the minerals. The damages sought are far greater than the $19 milliion bonus.

Someone who expected this result was Mayor Rawlings, who warned the council of potential litigation in the meeting at which Trinity’s permits were denied. So would anybody who believes that, upon paying $19 million for something and then being denied the right to do anything with it by the party who took the money in the first place, most self-respecting businesses would demand to be made whole.

When trying to understand this situation, the notion of sowing and reaping comes immediately to mind. You have the sowers – the City Council and the City Plan Commission members who denied the special use permits. Then you have the reapers – that would be the same as the sowers. Often overlooked in these discussions are the unwilling reapers, otherwise known as the losers, the collateral damage if you will. As in all cases of governmental chicanery, that would be the citizens of Dallas, who can expect a large legal bill and then, potentially, a large judgment or settlement, not to mention lost revenues from production, should the wells have been successful.

Who’s responsible for this statutory, contractual, constitutional and moral failure? Here are the votes by council and plan commission members. Ask them why they voted against. Note: The council measure didn’t “pass”. A three fourth’s vote was required because it failed at the CPC.

In the name of good government, hope it didn’t happen this way: Intimidated by the few but animated anti-fracking troglodytes (mentioned previously in this blog and other places) the commission and council members followed the politically expedient course: Deny the permits, thereby escaping the proximate wrath of the anti’s.  When the repercussions come home to roost, hope the fallout will be dispersed and the voters won’t notice. 

Here, revealed to me by insiders at city hall, is the trial strategy of the City and its lawyers.

Author: Martin P. Averill

In Robinson Township v. Commonwealth of Pennsylvania, the Pennsylvania Supreme Court dealt a major blow to the energy industry. By a 4-2 decision the Court struck down a 2012 law (commonly known as “Act 13”) aimed at preventing municipal interference with oil and gas exploration.

Three different approaches

Interestingly, the precise rationale for the court’s decision was not agreed upon by a majority. Three justices concluded in a 162-page opinion that Act 13 violates a 1971 Environmental Rights Amendment to the Pennsylvania Constitution, which guarantees the right of citizens to “clean air and pure water, and to the preservation of natural, scenic, historic and esthetic values of the environment.”

Another justice concurred in the result but opined that Act 13 is unconstitutional because it violates substantive “due process of law” by preventing municipalities from protecting the rights of individual landowners within their jurisdiction from undue interference by neighboring landowners (here, from alleged harms caused by oil and gas exploration).

Two justices dissented on the basis that Act 13’s uniform standards for the oil and gas industry — including setback requirements, water protection measures and other limitations—were not an unconstitutional exercise of the state’s general police power to regulate the health, safety and welfare of its citizens. Of primary concern to the dissenters was the majority’s failure to accord the proper deference to the decisions of the state’s legislative branch—in other words, the age-old “judicial legislation” criticism—and the broader implications of the majority’s stance that local governments may lodge constitutional challenges against statewide legislation on behalf of individual citizens.

What’s next?

In the aftermath of Robinson Township, Pennsylvania’s prior law regarding oil and gas development will be in force. Pennsylvania jurisprudence prior to Act 13 memorialized a “how/where” distinction regarding local authority to govern the industry. Localities may regulate the “where” of development through their zoning powers, but may not regulate the “how” of development because the manner of conducting oil and gas exploration is expressly governed by the Pennsylvania Oil and Gas Act and regulations promulgated thereunder. This doctrine was most recently set forth in twin decisions of the Pennsylvania Supreme Court in 2009: Huntley & Huntley, Inc. v. Borough Council of Oakmont and Range Resources – Appalachia LLC v. Salem Township.

It was a triumph of hysteria over common sense, a thrashing of science at the hand of ignorance, capitulation to a small but loud minority of NIMBY protestors. The City of Dallas has passed one of the strictest drilling ordinances in the country. 

The ordinance amounts to a defacto ban on future drilling because of the requirement that no well can be closer than five football fields from a home, school or other “protected use”.  For perspective, walk off 1,500 feet down the street in front of your house and ponder whether such a distance is necessary if the real goal is to balance the interests of homeowners with those of mineral owners and the taxpayers.  

Other essentially sound provisions are rendered meaningless by the 1,500 foot setback:

  • Requirements for base line sampling and testing of air, soil, ambient noise levels, water wells and surface water and an initial gas analysis or raw gas produced.
  • Limitations on noise levels and requirements for noise mitigation.
  • Limitations on hours of operation of different phases of drilling.
  • Requirements on inventory of hazardous materials and chemicals.
  • Required tagging of fracturing fluid to enable tracing of the fluid to a specific pad site.
  • Incident-reporting requirements.
  • Site maintenance requirements.
  • Requirements for reduced emission completion techniques.
  • Required emissions compliance plan if a site receives two or more air quality violations in any 12-month period.
  • Provisions for seismic survey permitting.
  • Regulation of pipelines.

One need only to look at our neighbor to the west, Fort Worth, with its 6oo-foot setback, for evidence of an ordinance that allows safe and profitable drilling operations.  In Dallas, the council even ignored the recommendation of their own task force comprised of citizens from both sides of the debate for a 1,000 foot setback.

The winners and losers

The losers aren’t oil and gas operators. I was asked, What will the drillers do now? That’s easy: Take their sizable job-producing and tax revenue enhancing investments elsewhere.

The losers are Dallas taxpayers, whose leaders have left potentially large tax revenues and royalty income in the ground, and mineral owners, whose once-valuable assets will not be developed.

The winners are no-nothing environmental protestors. Their arguments have either been debunked or were not science-based in the first place. 

The cynic in me wonders if the Council tried to create another loser: Trinity East Energy, the producer who paid the city $19 million in lease bonus, to be told that no drilling permits would be issued.  One wonders if a “strict” regulation, rather than an outright ban, is calculated to give the City a leg up if Trinity East were to sue for the return of their bonus.     

My own council member Jennifer Staubach Gates and my friend Sandy Greyson, whose other decisions have been sound, voted in favor. I hope they will be stronger and smarter in the future.

It’s like we’re in California, but without the ocean views.

UPDATE: I found the song that perfectly reflects the council’s love for the environmental reactionaries and NIMBYs:


In a victory for local control of oil and gas activity, or for environmentalists hoping to ban gas drilling altogether, or both, a Pennsylvania court struck down two major provisions of that state’s new oil and gas statute as unconstitutional.

Act 13 of the Pennsylvania legislature, signed into law in February 2012, significantly amended the Pennsylvania Oil and Gas Act. The new act generally preempts local regulation of oil and gas operations, with certain limited exceptions. Among other features, the act limits the ability of local governments to regulate oil and gas operations, superceding local ordinances designed to regulate development of oil and gas operations.

Robinson Township v Commonwealth of Pennsylvania was brought by seven townships to challenge the constitutionality of Act 13.

Section 3304 of the act says: “[a local ordinance] may not impose conditions, requirements or limitations on the construction of oil and gas operations that are more stringent than conditions, requirements or limitations imposed on construction activities for other industrial uses.” In other words – if the ordinance does not apply to construction of a manufacturing plant, then it may not only apply to oil and gas operations.

The act goes on: “[a local ordinance] shall authorize oil and gas operations, other than activities at impoundment areas, compressor stations and processing plants, as a permitted use in all zoning districts.” (my emphasis).

Section 3304 also requires that oil and gas operations be allowed in all zoning districts in the state. The plaintiffs argued that to allow this would go against the very logic of zoning regulations, i.e. the weighing of protecting public interests over an individual’s property right.

The court ruled that as a matter of law, Section 3304 violates due process because it allows incompatible uses in zoning districts and does not protect the interests of neighboring property owners from harm, alters the character of the neighborhood, and makes irrational classifications.”

Sec. 3215(b) establishes the minimum setback requirements for any well drilled in proximity to a “solid blue lined stream, spring or body of water.” Sec. 3215(b)(4) provides: “The [DEP] shall waive the distance restrictions upon submission of a plan identifying additional measures, facilities or practices to be employed during well site construction, drilling and operations necessary to protect the waters of this Commonwealth.”

The court ruled that Section 3215 violates the non-delegation doctrine of the state’s constitution because it empowers the DEP to waive setback requirements without providing standards that will direct the DEP when such waivers may be granted.

According to the court, the statute unconstitutionally authorized the DEP to grant waivers without clear directions from the General Assembly as to when a waiver would be proper, and that this vaguely worded statute was a delegation of legislative authority to the state agency.

The Commonwealth is seeking an expedited review by the Pennsylvania Supreme Court.  In the meantime, they can heat their homes and schools and factories with coal and foreign oil and power their cars with algae.

John Maynard Keynes is no favorite of fiscal conservatives (There is more to like from Friedrich Hayek), but Mr. Keynes did have it right when he said, “The avoidance of taxes is the only intellectual pursuit that carries any reward”.

In two separate Texas suits, oil and gas producers are attempting to live out Mr. Keynes’ maxim. In TXOGA and TIPRO v. City of Arlington, two industry trade groups sued the city over an annual assessment on gas well operators. The rationale is denial of the operators’ constitutional right to equal protection of the laws and a taking of their vested rights in permitted wells – in short, they claim the city is taxing one industry to address risks posed by a wide range of other businesses and industries. The city’s stated rationale for the assessment is the need for more funds for firefighting, in particular for hazardous materials response teams to fight gas well fires and accidents.

In Southwest Royalties v. Combs a district court in Austin, Texas, ruled that the scope of an exemption from the Texas sales and use tax on equipment used in oil and gas extraction does not apply to downhole equipment such as casing and tubing. The trial court agreed with Southwest that oil and gas change their physical characteristics when they are produced, but did not agree that the downhole equipment causes those changes. Both of those factors must be present for the exemption to apply.

Bonus – Good News for PR Graduates

The Onion, by its own admission, “America’s Finest News Source”, had this encouraging article on PR grads and the gas industry. Serously, while the tongue-in-cheek “news”  is funny, the comparison of the gas business to big tobacco and the gun lobby isn’t exactly good for the industry’s image among people – most of Americans – who don’t pay enough attention to the industry to understand what fracking is all about.

The Dallas Gas Drilling Task Force has issued recommendations for regulation of hydraulic fracturing.  The task force focused on zoning requirements, permitting requirements, air quality issues, and water-related issues.  A few highlights:

  • Locations will be more difficult to find. Wells must be 1,000 feet from residences, churches, schools and other community buildings.  Setbacks of 500 feet would be permitted by majority vote of the City Council.
  • Vacant park land might not be the answer.  Drilling would be permitted on park department land if it is not currently used for a park, is adjacent to an industrial use area, and is not in an environmentally sensitive area.
  • There are no water conservation restrictions; however, the Dallas Water Utilities is urged to consider water use by drilling operations in his drought contingency plans.
  • Drilling costs are likely to be increased.  Salt water disposal wells are prohibited. Operators will be required to pay for water monitoring and must test for a number of specified chemical compounds that could be connected to drilling activities.  The operator must test the soil before, during, and after drilling and comply with remediation laws.
  • There are noise abatement requirements.  Fracking may not exceed 10 decibels above ambient noise levels; other operations cannot be more than five decibels above ambient noise in the daytime and three decibels above at nighttime.
  • The EPA could be more involved in the future.  The recommendations in several places require compliance with standards consistent with TCEQ or EPA regulations.

Go to to see the recommendations and other deliberations of the task force.