House Bill 1496, if passed, could bring a new twist to the old workings of eminent domain.
Most operators have probably come across that one local municipality that is such a pain to deal with, due to regulations and restrictions imposed upon drilling activities, that the better option seems to be avoidance of such an area. Drilling activities are dictated to operators by the regulations, and non-compliance can be very costly, indeed. However, House Bill 1496, which is currently left pending in the Land and Resources Management Committee, looks to make things a little easier for operators trying to wade through these regulations. House Bill 1496 would, if passed, create a “taking” by local governments that impose or enforce “a limitation that has the effect of preventing or prohibiting the development of an oil or gas well that has been permitted by the Texas Railroad Commission under Chapter 91, Natural Resources Code.”
Governments, even local ones, have the power of “eminent domain.” What that means is that the state may seize private property for a public use without the owner’s consent. However, the Fifth Amendment to the U.S. Constitution requires that the owner receive “just compensation” for the taking. In other words, the government must pay the owner of the property for the property that was the subject of the taking.
House Bill 1496 attempts to label the prevention or prohibition of the development of a properly permitted well a taking. Under this House Bill, a taking includes reduction of the value of the property by more than twenty-five percent. Therefore, local governments may soon have to pay operators who have been thwarted from drilling (or even from the complete production of their reserves) if the regulations or ordinances cause such an issue.
Local governments are fearful that if House Bill 1496 is enacted, they will be deluged with litigation complaining of a taking. Local governments have complained that the House Bill would permit drilling activities near homes, schools, hospitals, public buildings, water wells, etc. In reality, there is an exception under the House Bill, which provides that the House Bill would not apply to a regulation, ordinance, etc, “that imposes or enforces a reasonable standard… relating to visual aesthetics; noise abatement; or hours of operation.”
If this House Bill makes it out of committee, it will be a major coup for developers in the industry. No longer will “unreasonable” (however that term will be defined) limitations stand in the way of production. There is an enormous outcry from municipalities and other local governments against the passage of this House Bill, as would be expected. In fact, it is such an outcry that the passage of this House Bill seems unlikely. However, it will be interesting to watch the arguments unfold, and silently cheer on the passage of some form of this House Bill, if only to keep local governments’ restrictions reasonable, support development of the mineral estate, and effect compliance with the long standing Texas rule that the mineral estate is the dominant estate.