House Bill 40: The Texas Legislature's Response to Denton's Fracking Ban
First published in Texas Lawyer, July 29, 2015
By Mark C. Rodriguez and Brock Skelley
On November 5, 2014, the city of Denton made national headlines when it became the first city in Texas to pass an ordinance banning hydraulic fracturing. Although local fracking bans have become increasingly common throughout the United States, Denton's ban garnered
significant attention given Texas's prominent role in the oil and gas industry. Moreover, because Denton sits directly atop the Barnett Shale, the ban would have a real and significant impact on exploration and development.
after the ordinance passed, the Texas Oil & Gas Association, an industry
trade association that represents various facets of the Texas oil and gas
industry (including both small independents and major producers), sued the city
of Denton. Shortly thereafter, the Texas General Land Office, the state agency
charged with overseeing state-owned mineral interests, filed a similar lawsuit.
Both suits claimed that the Texas Legislature had granted the Texas Railroad
Commission exclusive authority to regulate oil and gas operations in Texas and
that Denton's ban directly undermined that authority and was therefore
preempted by Texas law. Many expected these lawsuits to trigger a long, drawn
out legal battle — one that was inevitably destined for the Texas Supreme Court.
The Texas Legislature, however, stepped into the fray and changed all of that.
March 16, House Representative Drew Darby introduced H.B. 40, which quickly
became known as the "Denton fracking bill." The bill expressly
preempts local regulation of oil and gas development, with limited exceptions
for "aboveground activity." Despite significant protest from
environmental groups and municipal leaders, H.B. 40 moved quickly through the
House and Senate. On May 18, Governor Greg Abbott signed an amended version of H.B.
40 into law.
most notable impact of H.B. 40 is its express prohibition of local fracking
bans. H.B. 40 amends Chapter 81 of the Texas Natural Resources Code by adding
§81.71, entitled "Exclusive Jurisdiction and Express Preemption." Subsection
(b) of §81.71 leaves little doubt that outright bans on fracking will not be
permitted: "Except as provided by Subsection (c), a municipality or other
political subdivision may not enact or enforce an ordinance or other measure,
or an amendment or revision of an ordinance or other measure, that bans,
limits, or otherwise regulates an oil and gas operation within the boundaries
or extraterritorial jurisdiction of the municipality or political
key impact of H.B. 40 is the restriction and burden it places on municipalities
that seek to regulate surface activities related to oil and gas operations.
Under subsection (c) of Section 81.71, a municipality may enforce an ordinance
or measure that: "(1) regulates only aboveground activity related to an
oil and gas operation that occurs at or above the surface of the ground,
including a regulation governing fire and emergency response, traffic, lights,
or noise, or imposing notice or reasonable setback requirements; (2) is
commercially reasonable; (3) does not effectively prohibit an oil and gas
operation conducted by a reasonably prudent operator; and (4) is not otherwise
preempted by state or federal law."
to H.B. 40's passage, cities relied on their constitutional
"home-rule" authority to regulate oil and gas operations within their
borders. Article XI, §5 of the Texas Constitution authorizes cities with
populations of 5,000 or more ("home-rule cities") to pass local ordinances
provided they do not contain "provision[s] inconsistent with the
Constitution of the State, or of the general laws enacted by the Legislature of
this State." Home-rule cities exercised authority to impose restrictions
such as setback requirements that prohibit operators from drilling within a
specified distance of homes, schools, and other non-industrial structures.
§92.007 of the Texas Natural Resources Code recognizes the "authority of a
home-rule city to regulate exploration and development of mineral interests within
40 and the new §81.71 afford municipalities less deference than they enjoyed in
the past. H.B. 40 defines "commercially reasonable" as "a
condition that would allow a reasonably prudent operator to fully, effectively,
and economically exploit, develop, produce, process, and transport oil and gas,
as determined based on the objective standard of a reasonably prudent operator
and not on an individualized assessment of an actual operator's capacity to
act." Municipalities that seek to impose setback or notice restrictions on
surface operations must now satisfy §81.71's "commercially
H.B. 40 provides that ordinances that have been in effect for at least five
years and that have permitted oil and gas operations to continue during that
period are "considered prima facie to be commercially reasonable,"
the new law clearly recognizes the ability to challenge existing ordinances.
For example, in 2013, the city of Dallas enacted an ordinance that imposes a
1,500-foot setback. Whether such a requirement, if challenged, can pass
§81.71's "commercially reasonable" standard remains to be seen.
addition, what is "commercially reasonable" may vary depending on the
facts and circumstances of a particular case. An ordinance that is commercially
reasonable in one city under one set of facts may not be in another city under
different facts. Moreover, given H.B. 40's reliance on Texas' "reasonably
prudent operator" standard, the process of determining what is and what is
not commercially reasonable will be highly fact intensive and may require
40 brought a quick end to Denton's fracking ban and dealt a blow to
municipalities' ability to limit, regulate, or prohibit oil and gas operations.
In light of this new law, one can expect producers and operators to respond
aggressively to municipalities' efforts to regulate oil and gas operations and
Reprinted with permission from the July 29, 2015 edition of Texas Lawyer. © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.