Trinity East Energy, an oil and gas producer, has filed a lawsuit against the city of Dallas for denying the company drilling rights to 3,600 acres it leased from the city.
In the lawsuit filed in Dallas County District Court, Trinity East claims that the city leased two tracts of land to the company and kept millions in bonus payments, but refused to issue zoning permits that would allow the company to drill on the land. The lawsuit claims that the denial of drilling rights is “arbitrary and capricious” and amounts to taking property with no “just compensation.”
The office of the Dallas city attorney had no immediate comment and said it was still reviewing the lawsuit. Advocates for more restrictive drilling rules in Dallas said that Trinity East was attempting to undermine the civic process and that the lawsuit had no merit.
The lawsuit stems from the August 2008 lease of mineral interests to Trinity East, which brought the city $19 million in bonus payments. On the same day the lease was signed, Mary Suhm, the city manager of Dallas, wrote in a letter that the city was “reasonably confident” that drilling rights would be granted for a tract of parkland, and that the city would use “reasonable efforts” to bring the matter to the city council, which would make the decision on permits.
According to Trinity East, the company would not have entered into the lease without the assurances made in the city manager’s letter. However, the letter did state that drilling rights were not guaranteed and were not legally binding as part of the lease.
The drilling permits were finally denied by the city council in March 2013, after years of debate over the city’s drilling regulations and the company’s drilling rights. Five months later, the decision was affirmed after the company appealed.
Two other companies had also leased land from the city for drilling purposes, but they dropped out after the city began to consider stricter drilling regulations.
Dallas modified its drilling regulations in December 2013, requiring a 1,500-foot setback between new rigs, compressor stations and “protected use” areas such as businesses, homes and churches. This is five times larger than the previous setback requirement, and it is one of the strictest in Texas.
Trinity East claims in the lawsuit that inability to drill on the land is likely to cost the company hundreds of millions of dollars over the lifetime of the wells.