1. © 2015 Denton Fracing Ban Litigation and House Bill 40 Greg Mathews Bill Kroger Jason Newman November 11, 2015

2. The Emerging Patchwork of Regulations  Shale plays stretch across rural and urban areas in Texas  Texas towns, cities, and municipalities are facing pressure to respond to the effects of shale gas development  Often results in regulations, permits or fees imposed on oil and gas operators 2

3. Denton Litigation: Moratorium  May 16, 2014: City council passes moratorium on issuing gas-well drilling permits:  “A moratorium is hereby imposed on the acceptance, receipt, processing or approval of applications for gas well permits within the corporate limits of the City of Denton, any application for specific use permits, or gas well development site plans, of any nature or type, or amendments thereto, including expressly any amendments to prior approval or pending applications for gas well development plats within the corporate limits, and any applications for Fire Code operational permits, pursuant to the Denton Development Code (DDC)…” -City of Denton Ordinance No. 2014-137  Moratorium amended multiple times and extended until August 18, 2015 3

4. Denton Litigation: Frac Ban  May 7, 2014: Petition Submitted  July 15, 2014: Rejected by City Council  Initiative Ordinance placed on November ballot  November 4, 2014: Denton voters pass hydraulic fracturing ban, criminalizing standard industry practice:  “It shall be unlawful for any person to engage in hydraulic fracturing within the corporate limits of the City... The violation of or noncompliance with this article by any person, firm, association of persons, company, corporation, or their agents, servants, or employees shall be punishable as a misdemeanor and upon conviction, such person, firm, association, company, corporation or their agents, servants or employees shall be fined a sum not less than one dollar ($1.00) but shall not exceed two thousand dollars ($2,000.00), and each day any violation or noncompliance continues shall constitute a separate and distinct offense.” 4

5. Denton Litigation: TXOGA Lawsuit 5  November 5, 2014: TXOGA files suit in Denton County to challenge ban  Implied Preemption, not Express  Conflict Preemption: Ban conflicts with existing Railroad Commission and TCEQ regulations  Field Preemption: Railroad Commission and the TCEQ occupy the field of oil and gas resource development

6. House Bill 40, Section 81.0523(b): Preemption 6

7. House Bill 40, Section 81.0523(a)(2) 7

8. House Bill 40, Section 81.0523(c): Exemption - Four Part Test 8

9. House Bill 40, Section 81.0523(a)(1): Commercially Reasonable 9

10. House Bill 40, Section 81.0523(d): Provisions In Effect For Five Years 10

11. Impact of HB 40: Denton Litigation  June 15, 2015  TXOGA amends petition to include the moratorium  Files MSJ based on HB 40 Express Preemption  June 16, 2015  Denton repeals frac ban ordinance  June 24, 2015  Defendants-Intervenors nonsuit claims  August 18, 2015  Drilling moratorium expired  September 4, 2015  Agreed Order of Dismissal signed 11

12. Impact of HB 40: Other Cities  Andrews  League City  Flower Mound  Mansfield  Dallas  Denton 12

13. Impact of HB 40: Oklahoma  SB 809 signed into law on May 29, 2015, two weeks after HB 40 signed into law  "No municipal, county or other political subdivision ordinance, rule or regulation may prohibit or ban the drilling, completing, fracture stimulating, or operations of oil and gas wells, or produced water disposal wells related thereto …"  Carves out reasonable setbacks for surface operations 13

14. Conclusions  HB 40 preempts most bans or regulations of oil and gas operations  Certain reasonable aboveground regulations allowed:  Hours of operation?  Setbacks?  Noise, Smells, Lights?  Traffic?  HB 40 does not eliminate future tort claims. (Example: Cerny).  HB 40 likely to lead to future rule makings or legislation 14

15. Questions? 15