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HB 40 hopes to clarify limits of local control on oil and gas operations, preventing frac bans

Texas Governor Greg Abbott signed legislation today designed to pre-empt local regulations on drilling activities in the state. The bill, House Bill 40, will avoid a “patchwork of local regulations” that might hamper oil and gas production, according to Gov. Abbot.

According to the bill’s text, “It is in the state’s interest to explicitly confirm the authority for regulation of oil and gas activities within the state. The legislature intends that this Act expressly preempts regulation of oil and gas operations by municipalities and other political subdivisions that is already impliedly preempted by state law.”

HB 40 is just one of several bills that were brought before the Texas legislature following a ban in the city of Denton, Texas, in December of last year. The Denton frac ban sparked controversy across the state, with industry groups like The Texas Oil and Gas Association (TXOGA) saying that the city went too far.

“While home-rule cities like Denton may certainly regulate some aspects of exploration and drilling, TXOGA does not believe that they may enact ordinances that outlaw conduct, like hydraulic fracturing, that has been approved and regulated by state agencies,” said Tom Phillips, a former chief justice of the Texas Supreme Court, and one of TXOGA’s representatives.

Critics of the bill worry that it strips power away from local governments to regulate activities that affect their constituents. The Texas Municipal League, which counts 1,145 Texas cities among its members, initially said the new bill would invalidate local drilling ordinances across the state, but softened its message once some of the bill’s language was changed.

The altered language lists areas cities can still regulate, including fire and emergency response, traffic, lights and noise – but only if such rules are “commercially reasonable.” The added language also allows for setbacks between drilling sites and certain buildings.

Despite the altered language in the bill, many remain unhappy with the new legislation. In a recent letter to the bill’s backers, 15 local elected officials called the proposal a “fundamentally flawed” effort that would jeopardize public health and safety in drilling communities, reports the Texas Tribune.

Citing the negotiations that led to the changed text, Gov. Abbott said the law “strikes a meaningful balance” between private property and local control. “This bill is so incredible important,” Abbott said at a state Capital ceremony. House Bill 40 does a “profound job of protecting private property rights.”

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.