This report focuses on testimony for SB 1165. The committee met to hear testimony concerning the regulatory power of municipalities over oil and gas operations.
 
SB 1165 – Relating to the express preemption of regulation of oil and gas operations and the exclusive jurisdiction of those operations by the state.
 
Chair Troy Fraser

  • Charge from industry that recent municipal regulations create patchwork of inconsistent regulations leading to unsafe development conditions
  • Seeks to ensure consistent statewide regulation of oil and gas industry
  • Sen. Craig Estes – This is a riddle we have to solve this session

 
Todd Staples, Texas Oil and Gas Assoc., for SB 1165

  • Cooperative spirit between cities and oil and gas industries is being threatened, entities whose goal is to stop production are pushing extreme measures in local law
  • Local regulations should be reasonable and ensure property owners should have regulatory certainty that they will be able to access their minerals
  • Local control “does not mean out of control,” cities should not regulate activities clearly pre-empted by the state
  • Some cities have imposed extreme set-backs in the name of health and safety between homes and wells and permit new houses to be placed within those set-back zones
  • Fraser – Noticed this happen where the industry would obey a set-back regulation and drill a well and then cities would allow houses to be built within that area and homeowners owning those houses would find cause to litigate against the driller. Is that happening in some cases?
  • It’s happening all across the state, pictures and examples demonstrate how urban areas have “built up around existing homes”
  • Cities need flexibility, but if “health and safety” was the real reason for set-back regulations, why would cities permit homes to be built within set-back zones
  • Unlikely that SB 1165 would tip power in favor of oil and gas businesses, governmental entities control permitting process etc., only brings clarity so businesses can continue to track capital and have the right kind of balance
  • Sen. Kel Seliger – How does this affect the regulation of water use by ground water conservation districts?
    • Those districts do not regulate oil and gas and SB 1165 would not affect their powers

 
Shannon Ratliff, Texas Oil and Gas Assoc., for SB 1165

  • Problem is there is no clear delineation between state authority to develop natural resources and the right of cities to impose reasonable regulations
  • Despite criticism that bill terms “commercially reasonable” and “reasonable and prudent operator” are too vague, these are more concrete than general “rubric of health, safety, and welfare”
  • SB 1165 brings clarity, cities retain power to do set-backs, noise abatement, and light abatement, but these must be “commercially reasonable,” meaning a “reasonable and prudent operator” can afford to operate under these regulations
  • City action must also not “effectively prohibit” operations or contravene state or federal regulations
  • Fraser – I know you are using “reasonable and prudent operator” language to apply to oil and gas, but doesn’t that standard apply to all businesses? Every business within a city has the obligation to not operate out-of-line with regards to the public
    • No, this is why “reasonable and prudent operator” is a good term
  • Fraser – So this is a term of art that we are referencing as a matter of the bill, but every business operator has those same obligations, correct?
    • Yes, “reasonable and prudent” is a specific application of law that legislature is well-acquainted with
  • Fraser – So you did not invent that term?
    • We did not, it is a non-subjective term of art
  • Fraser – A prudent operator would thus try and work with the city, correct?
    • Yes
  • Burden of proof on operator to prove that city action is regulatory taking is very high, SB 1165 gives both parties chance to come together and work out issues
  • City mineral development requires very different processes than rural development, reasonably prudent operator will take this into account when developing municipal wells
  • Estes – Asks for a packet from Staples, asks for explanation of bar graph
  • Staples – Bar graph demonstrates population and value growth in Mansfield, Fort Worth, and Denton, introduced to show that oil and gas activity raises property values in municipalities

 
Bennett Sandlin, Texas Municipal League, against SB 1165

  • SB 1165 only deals with small portion of dense urban areas
  • TML “proud” of urban drilling that takes place
  • But drilling must be reasonable, including set-backs, disagrees that SB 1165 does not seem to protect set-backs and effectively pre-empt city ordinances
  • Points to provision that ordinances must not prevent oil and gas operations and, as set-backs do prevent operations, argues that SB 1165 prevents set-backs
  • Estes – What about the contention that set-backs have been followed and municipalities have built house in those set-backs?
    • Cities did not do this, provided for in state law; Local Government Code, Chapter 245 – cities are required to allow those homes to abut oil wells, if they do not allow them city may be sued for a taking of property
  • If bills can allow cities to regulate noise and set-backs etc., bill would work for TML, suggestions include to allow for reasonable set-backs and abatements and to recognize the good acts of municipalities like Fort Worth and recognize ordinances unchallenged for >10 years as prima facie valid
  • Fraser – Have you given language to that effect?
    • We have and are working with Rep. Darby and would be willing to work with Sen. Fraser
  • Fraser – Reiterates question, has he given language to the committee?
    • Not to this committee, but would be “glad to”
  • As written, city attorneys agree that SB 1165 would require municipalities to repeal set-back ordinances

 
Snapper Carr, Texas Coalition of Cities for Utility Issues, against SB 1165

  • SB 1165 is the beginning of a working solution, wants to find the right balance between industry and welfare of citizens
  • SB 1165 seems to make all existing ordinances unenforceable as they stand on the books
  • “Reasonably prudent operator” is a known standard, SB 1165 modifies and expands this standard, cites the language stating an operator is acting reasonably and prudently if they are able to “fully, effectively, and economically exploit” mineral resources, belief is that this language places power in oil and gas organization
  • Fraser – This language recognizes that business have an obligation to be prudent, but the cities have an obligation to the business to regulate reasonably, argues that some arguments Carr makes are a little “ridiculous”
    • Uses some examples to show that things that are reasonable in one circumstance may not be reasonable in another
  • Fraser – Is the word “exploit” not taken from current law?
    • Thinks this is all new law, the exploit language modifies the reasonable and prudent operator and makes it so broad that unreasonable conduct would be hard to determine
  • Fraser – Clarifies that drafters believe they took “exploit” from current law
    • Based on the definition, has a hard time understanding what would be deemed unreasonable if a operator can show evidence that conduct was necessary, for instance if it is economically prudent that an expensive piece of equipment be run 24 hours a day, but may not be the best thing for community
  • Fraser – In prior work, expensive equipment was run 24 hours a day and systems were in place to prevent harm to neighbors
    • Agrees that this issue is manageable to the extent that cities would retain right to enact local ordinances, but SB 1165 takes this away
  • Fraser – Where does it take this away?
    • Definition of oil and gas operators in SB 1165, defines operation as “activity associated with exploration, development, production, transportation of oil and gas, including drilling, hydraulic fracture stimulation…,” this definition is “very broad” and combines with provision “expressly” pre-empting authority of municipalities to govern operators with very narrow exceptions
    • Further modified by prohibiting enacting of enforcing ordinances that ban, limit, or otherwise regulates an “oil and gas operation,” thus all operations are sheltered from ordinance enforcement
  • Fraser – Emphasizes the provision allowing municipalities to regulate the surface
    • SB 1165 clarifies that an oil and gas operation is subject to the exclusive jurisdiction of the state, currently municipalities have concurrent jurisdiction for surface regulation
    • Back to point about allowing municipalities to regulate things that are incident to oil and gas activity on the surface, this exception would not allow municipalities to enforce existing ordinances, this power is based on police power and is widespread in Texas law
  • Fraser – Are you trying to fix this or would you rather kill it?
    • We would rather fix it, and SB 1165 is the start of a good canvas to fix issues
  • Fraser – This bill has been out for awhile and nothing has been offered to committee offices
    • Language has been submitted to Chairman Fraser and discussion have occurred with staff, some of these issues such as set-backs are central to the problems facing municipalities now
    • SB 1165 would render unenforceable many of the things that are currently working in municipalities and that would help industry and local government find a balance
  • Fraser – Would it make you feel better if the language specifying exceptions to municipality authority pre-emption are removed, if we do not address what the rights of municipalities are?
    • That would clearly make the bill worse
  • Fraser – “So they are throwing you a bone…,” disagrees with Carr’s opinion and thinks language should be stricken
    • Suggestion is adding broad categories on the powers of municipalities
  • Fraser – If I go set up a pallet plant in Fort Worth, are you going to recommend that they single me out and put all of those ramifications on my business even though I’m a prudent operator?
    • There are ordinances that would apply to that business
  • Fraser – Does not remember restrictive ordinances singling his business out
    • Then Chair Fraser complied with local ordinances that applied to all businesses, in this instance oil and gas is asking for a “carve-out” saying that they are exempt and that the state has exclusive jurisdiction to regulate them
  • Fraser – I don’t read it that way
    • The structure in place can be worked with for TML and city clients, talking about minimal modifications to get support for SB 1165
  • Fraser – Would urge you to get language quickly, intent is to move this along
    • Can have language today

 
Tommy Taylor, Fasken Oil and Ranch Limited, for SB 1165

  • Mineral estate operator and real estate developer
  • Looking to develop several properties over an existing oil field
  • Fraser – Citizens of midland have co-existed with oil wells for a long time
  • Many of these wells are fractured, and these are not “brand new,” ordinances attempting to ban fracturing or municipality placements are “unreasonable”
  • Fraser – As someone that is both an operator and mineral owner, if a city prevents you from drilling your property, how is this not a taking?
  • It would be a taking

 
Kirk Edwards, for SB 1165

  • Drilling in Odessa for 70 years, educated people make ordinances in Odessa, many towns do not have informed personnel informing ordinance-making
  • Hydraulic fracturing has never hurt a fresh water well in Texas
  • Fraser – Do you know about set-backs in your drilling areas
    • In Odessa everyone knows the established set-backs, in Midland there are established guidelines that oil companies work with
    • Taylor – Set-backs are 500 ft in those communities
  • Fraser – Would like to know set-back numbers in other communities to help pin down reasonable numbers
    • Reasonableness of set-backs are going to be different in different areas
  • Fraser – Set-back system should be flexible to allow for growing communities

 
Frank Macchiarola, America’s Natural Gas Alliance

  • Industry supports regulation at the “appropriate levels of government”
  • SB 1165 preserves this concept, affirms states as proper level of government
  • Sen. Judith Zaffirini – Have you looked at the proposed language?
    • We have not
  • Zaffirini – Do you have hope that problems could be worked out with cities?
    • We always have hope

 
Jim Allison, General Counsel County Judges and Commissioners Association of Texas, on SB 1165

  • Counties control use of county roads by overweight trucks and location of lines in the county right-of-way, SB 1165 does not seem intended to touch these rights, but affects regulatory power of all political subdivisions to enforce transportation of oil and gas
  • Fraser – Does not think SB 1165 intends to affect that power, intent is to recognize State power to permit drilling
    • Counties “big supporters” of the oil and gas industry

 
Clay Chandler, City of Mansfield, against SB 1165

  • Support the coexistence concept between oil and gas industry and municipalities
  • Fraser – We would like to fix the bill
    • Absolutely, certainly support subsurface estate rights and local authority of cities

 
Stephen Lindsey, City of Mansfield, on SB 1165

  • Language should be addressed, existing ordinances that have worked over the past decade should provide “bright line” for reasonable activity
  • If cities vote to approve to encroachment on oil wells, accountability is on city councilmen
  • Fraser – Clearly city of Mansfield has benefited from oil and gas production, coexistence is chief concern

 
Bren Meredith, City of Mansfield Attorney’s Office, on SB 1165

  • Many cities reached out and asked what bill means with regards to existing ordinances
  • Detailed language that serves the intent of the bill would serve better, litigation to determine some of the meaning of the bill is expensive for small communities
  • Fraser – A lot of these are terms of art that have been litigated, unfortunately sometimes these issues must be litigated, trying to figure out how all businesses may co-oexist
  • Zaffirini – Could you give us an example of an ordinance that would be unreasonable under SB 1165?
    • Struggling with this, given language relegating exclusive jurisdiction to states, unsure if other parts of the bill are relevant
    • Chandler – When you look at excessive set-backs of 1000 feet, clear that those are designed to prevent land use, if focus is just on set-backs SB 1165 does not address issue
  • Zaffirini – If SB 1165 were to pass could municipalities restrict operators from being located next to a school
    • Chandler – A reasonable and prudent operator in Mansfield would not locate there, standard is 600 ft, school district could grant waivers

 
Peter Phillis, City of Mansfield, against SB 1165

  • Asks that Senate allow Mansfield to retain existing ordinances
  • Fraser – Trying to clarify if municipalities have an obligation to recognize railroad commission regulations, want to protect municipality wishes, but also comply with state permits

 
Bill Lang, City of Mansfield, against SB 1165

  • In favor of a bill that would allow cities and industry to cooperate
  • Some safety concerns accompany allowing industry to locate drills in some areas, e.g. prisoner relocation
  • Estes – Do you think a city has the right to ban fracturing?
    • No
  • Chandler – No one from Mansfield thinks that

 
Ben Shepherd, Permian Basin Petroleum Association, for SB 1165

  • State has overseen production of oil and gas for “over 100 years” and a comprehensive set of laws,  industry currently being threatened
  • Municipalities do not necessarily have the expertise to oversee industry

 
Bill Stephens, Texas Alliance of Energy Producers, for SB 1165

  • Good bill, pre-emption language brings clarity to industry, state, and municipalities
  • Operator definition in bill describes inherent and necessary operations of the industry, city jurisdiction should extend only to the effect, but not the operation

 
Shelby Dugan, Commissioner of Torrance County, for SB 1165

  • Oil and gas industry are good friends of Texas counties, good bill

 
Kent Sullivan, Texas Royalty Council, for SB 1165

  • Failure could lead to overlapping and conflicting jurisdiction
  • If passed, SB 1165 would provide important incentives and a proper balance of powers between municipalities and industry, core municipality police powers preserved
  • Fraser – Concern with the bill is royalty interest, does the bill addresses this right and interest?
    • Yes

 
Cyrus Reed, Lone Star Chapter of the Sierra Club, against SB 1165

  • TCEQ and Railroad Commission do not regulate oil and gas industry appropriately, municipalities will address unique public health concerns appropriately
  • SB 1165 reacts to Denton situation and is overbroad when applied elsewhere
  • Fraser – Does not affect water rights, do you want to kill the bill or fix it?
    • Would rather kill it, if it moves would discuss
  • Estes – Should cities be able to ban hydraulic fracturing?
    • That is a question for the courts, industry and cities can exist

 
Sarah Fullenwider, City Attorney for Fort Worth, against SB 1165

  • Author of Fort Worth drilling ordinance
  • Fraser – Fort Worth has done a good job of co-existing
  • Shares concerns with Carr, that municipalities will not be able to write ordinances, that testing for issues could be considered commercially unreasonable, that railroad commission and municipalities could conflict
  • Fraser – Do cities not have an appeal to the railroad commission?
    • No, have always used Fort Worth’s local set-back regulation
  • Estes – Do you think cities have right to ban hydraulic fracturing?
    • No

 
Jungus Jordan, Fort Worth, against SB 1165

  • Fort Worth approach has been to work with all parties to find access to all mineral rights
  • Minor fixes could fix bill

 
Luke Metzger, Director of Environment Texas, against SB 1165

  • Ordinances are about health and safety, opinion that they are not is “contemptuous” of city councils
  • Cannot trust Railroad Commission to enforce adequately
  • Cities should maintain full right to regulate hydraulic fracturing in communities

 
Gilbert Horton, Devon Energy Corporation, for SB 1165

  • Ordinances vary widely in North Texas
  • SB 1165 provides much needed regulation on gray areas between municipalities and industry
  • Estes – Devon has always responded to constituent concerns

 
Don Tymrak, Former Mayor, City of Carnes City, for SB 1165

  • Support the bill – not threatened by bill if adopted or changed
  • ‘Effectively prohibit’ language should be changed to ‘unduly prohibit’ to leave room for compromise and discussion
  • ‘Commercially reasonable’ definition should take out the word ‘fully’

 
Ed Smith, Mayor, City of Marshall, for SB 1165

  • Support the bill
  • State municipalities should balance public safety of citizens and industry regulatory needs
  • Sen. Seliger addressed Paragraph B of the bill and asked if cities have the assets to address items not on the surface (e.g. testing and regulation)
    • Cities will not usually have the expertise or the ability to make those kinds of determinations – responsibility of Railroad Commission and TCEQ

 
Josiah Neeley, R Street Institute

  • Support the bill
  • There are false claims associated with hydraulic fracturing – it is true that fracking has never contaminated groundwater
  • Local entities do not have total control over energy in Texas

 
Cliff Todd, C & J Energy Services, for SB 1165

  • Support the bill
  • Employees at energy company are safe and have hundreds of years of experience – will stop work if there are any safety concerns regarding water contamination 

 
James Parajon, Deputy City Manager, City of Arlington, against SB 1165

  • Oppose the bill
  • Clarification in language necessary – intent of committee is in the right direction
  • Many areas of safety concerns would arise if bill were adopted
  • 300+ wells located over 99 square miles in Arlington – effective oversight is most meaningful at the local level
  • Arlington’s gas well permitting process involves a public notification process – Arlington community has expressed concerned with effect the bill will place on their neighborhoods

 
Don Crowson, Fire Chief, City of Arlington, against SB 1165

  • Oppose the bill
  • Bill eliminates the city’s ability to enforce the fire code despite the economic development gas wells would bring to the Arlington community – support safe gas wells
  • Fire code protects the community regarding surface level activities – current language of bill prevents fire department from keeping pad sites safe for the local community and fire fighter responders in emergencies
  • Local fire codes of each city should be protected
  • Vice-Chairman Estes asked why the bill handicaps fire fighters from conducting their duties
    • Local ordinance applies to the mechanical systems of gas well pad sites
    • Vice-Chairman Estes and Chairman Fraser do not want to threaten the work of fire fighters – this is the first time they had heard of such a conflict

 
Chris Watts, Mayor, City of Denton, against SB 1165

  • Oppose the bill – want to make a compromise instead of kill bill
  • Fracturing ban was initiated pursuant to city charter in a petition-initiated referendum; they collected the appropriate number of signatures
  • Intent should be to not take away anything from the cities but to allow them to regulate what they are already regulating
  • Vice-Chairman Estes noted the City of Denton was tied into its decision by voters – 60% in favor of the city ordinance in November election

 
Anita Burgess, City Attorney, City of Denton, against SB 1165

  • Oppose the bill
  • Concern oil and gas operations are too scattered amongst residential areas and creating negative impacts in the community
  • Legislation affects zoning, police power, and subdivision ordinances – creates a sweeping preemption and gives back limited authority to cities
  • Vice-Chairman Estes noted the committee is waiting to hear more specific language for the bill
  • Vice-Chairman Estes asked if cities should be allowed to ban hydraulic fracturing
    • City Council did not move forward to ban hydraulic fracturing – not in the position to answer this questions; currently in a law suit
  • Senator Zaffirini asked how the bill should be changed to garner more support
  • Cities are working together to identify concerns – agree with Snapper Carr