American Oil and Gas Reporter - February 2015 - 119

ConventionSection: Texas Independent Producers & Royalty Owners

Fracturing Ban In Denton
Reverberates In Austin
By Danny Boyd
Special Correspondent
AUSTIN, TX.-Members of the Texas
Independent Producers & Royalty Owners
Association will gather in Austin this
year for their annual convention on March
2-3, prepared to take their case to the
state Capitol.
As of mid-January, several industryrelated bills had been filed, but more
were expected as the legislature gaveled
into session on Jan. 13. TIPRO has begun
the session with an emphasis on educating
a slate of new members about the association's stance on legislative issues relating
to transportation and other infrastructure,
water, and proposals affecting local control
over oil and gas drilling.
As lawmakers quickly turn to the state
budget, it remains to be seen what impact
lower oil prices will have on the state's
revenue and how a price slump will
impact Texas oil and gas companies, says
TIPRO President Ed Longanecker.
"We will see what impact this downturn
is going to have on the economy," he
says. "A lot of companies are cutting
back on capital expenditures-some by
50-70 percent-to stay in line with cash
flow and have some flexibility to adjust
activities up or down, based on commodity
prices. It will be a challenging year. We
had record growth in employment during
the last several years, adding more than
109,000 jobs between 2009 and 2014. In
that same time frame, the Texas oil and
gas industry paid more than $62 billion
in taxes and royalty payments to the state.
We certainly will see an impact on jobs
because of the decline in prices, as well
as taxes from an employment payroll
perspective and, obviously, severance tax
revenue."
On Jan., 12, Texas Comptroller Glenn
Hegar's office released a revenue estimate
of $113.0 billion, including $7.5 billion
in unspent funds, for the 2016-17 biennium. It predicts an average oil price of
$64.50 a barrel in fiscal 2015 and $69.25
for fiscal 2016.
During recent sessions, the state's tax
incentive for high-cost gas wells has

drawn fire from lawmakers seeking additional revenue, but no rumblings about
the incentive, or talk of raising severance
taxes, had been heard around the Capitol
as of mid-January, says Lindsey Skinner,
TIPRO's government relations manager.
"We always want to make sure we
can maintain the high-cost gas deduction,"
she says. "At this point in years past, we
have seen bills filed to eliminate it. To
date, we have not seen anything filed
about the high-cost gas provision, but
that does not mean we will not see something in the course of the next few months.
The decision to file legislation pertaining
to the high-cost deduction may be influenced partially by market fluctuations."
Local Ordinances
A major point of debate this session,
Skinner continues, will involve legislation
affecting local ordinances aimed at blocking oil and gas exploration and production
activities, following a November vote in
Denton, Tx., to ban hydraulic fracturing.
Immediately after the Denton vote,
the Texas Land Commission filed a lawsuit
in Travis County that sought a permanent
injunction, Longanecker recounts, with
the suit primarily defending the state's
mineral interests.
Since then, state Representative Phil
King, R-Weatherford, has filed two pieces
of legislation relating to the issue, including
HB 540, which seeks to require municipalities to submit ballot initiatives to the
state attorney general for review before
holding an election, Longanecker notes.
"If the legislature adopts this bill, the
attorney general will decide whether city
initiatives or referenda violate the federal
or state constitutions, break state law, or
take private property," Longanecker explains. "Cities will not be allowed to
hold the election if the AG finds a violation
of any of these conditions. I think that is
a logical step that is needed to clarify the
limits and scope of home-rule cities as it
relates to ordinances or regulations affecting industries that state agencies already regulate."
King also has introduced HB 539,
which would require cities to reimburse

the state for lost revenue related to taxes,
fees, royalties, or other lost income from
local drilling and production bans, Longanecker says.
Under the proposed law, municipalities
would be required to provide a fiscal
note detailing the economic impact of
oil and gas ordinances to local and state
governments, reporting the information
to the Legislative Budget Board, according
to a TIPRO summary.
The fiscal statement later would be
published for voters to review, TIPRO
describes, and the policy would apply
not only to potential hydraulic fracturing
bans, but all local oil and gas regulation.
"The money would be deposited into
the Texas General Revenue Fund and the
Permanent School Fund so the cities
would reimburse school districts and
other public entities that stood to lose
money by moratoria or bans," Longanecker
elaborates.
Arguments continue about whether
municipalities have the authority to enact
bans on oil and gas activities that are
regulated by state agencies such as the
Texas Railroad Commission and the Texas
Commission on Environmental Quality,
he indicates. "There is precedent dating
to the 1920s. The Texas Supreme Court
has stated that home-rule cities may enact
similar ordinances, but they also are required to compensate for lost revenue,
which in this case would be lost revenue
to mineral and royalty owners," Longanecker continues. "These two pieces of
legislation will clarify and offer another
hurdle for cities and municipalities seeking
to limit or ban oil and gas operations."
Inverse Condemnation
TIPRO maintains weekly participation
in a coalition of industry trade associations
and companies that are monitoring other
municipalities' attempts to stop oil and
gas development. In many cases, localities
are working to update their drilling ordinances, but others are responding to antidevelopment organizations' urgings to
follow Denton's example, Longanecker
says.
"Nothing really has risen to the same
FEBRUARY 2015 119
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