REGULATION:

In the oil patch, zoning is no stranger to drilling

MIDLAND, Texas -- Wes Perry, the CEO of a midsized drilling company in this oil and gas town, says city government has piled on so many regulations, it's pointless to drill a well inside the city limits.

"It doesn't make economic sense," said Perry, standing in the back of KD's Bar-B-Q, a local favorite. "It adds a few hundred thousand dollars for each well. That's 10 or 20 percent more."

But that doesn't mean he dislikes the rules. He wrote them, or at least helped write them, as part of his other job -- mayor of Midland.

"We want to protect the safety of our citizens," Perry explained to a group of journalists visiting Midland last month. "We say we try to force the landowner and the operator to get along."

Across the country, state officials are banding together with the oil and gas industry to head off the kind of local regulation that routinely happens in Texas with little fanfare.

The administration of Colorado Gov. John Hickenlooper (D) is suing the city of Longmont, a suburban community north of Denver, to overturn its ban on drilling in residential neighborhoods. In the election earlier this month, residents voted to add a citywide ban on hydraulic fracturing (EnergyWire, Nov. 7).

Earlier this year, Pennsylvania legislators and Gov. Tom Corbett (R) blocked towns from placing zoning restrictions on the oil and gas industry with the law commonly known as "Act 13" (EnergyWire, Oct. 18). Cities and townships are fighting the law in court, but Kathryn Klaber, head of the Marcellus Shale Coalition, a Pittsburgh-based industry group, says "lack of uniformity has long been an Achilles' heel" for drilling in Pennsylvania.

But lack of uniformity hasn't pinched development in Texas. The Lone Star State still accounts for the lion's share of drilling in the United States. The rig count in the Permian Basin that surrounds Midland has doubled since the beginning of 2010. Perry says about 10 companies drill within the city limits.

And in Oklahoma, where the fervor for drilling is no less intense, some cities flat-out ban drilling within their city limits. Among them is Tulsa, which once billed itself as the Oil Capital of the World.

Such "home rule" authority has been challenged. In recent years, state legislators sympathetic to industry have tried to restrict Texas cities' authority to place zoning restrictions on drilling, but they haven't been successful.

Midland has imposed a 500-foot setback from buildings and homes. The city requires fencing around reserve pits and can require landscaping around the well.

"It's when you have an oil well getting drilled that it's a problem. It's a disruption people don't want to deal with," Perry said. "Once it's drilled, people have less of a problem with a house next to the well."

Perry knows this well. He was unhappy to find recently that another oilman had acquired rights to oil and gas under his land, which meant a well drilled near his home. He negotiated with his fellow driller and came to what he described -- with a tight grin -- as a mutually satisfactory resolution.

Perry's company, EGL Resources Inc., has done about 400 wells in the Permian Basin of Texas and New Mexico. It also has an oil shale division with a 160-acre research and development lease in western Colorado.

Perry said the effort to put some restrictions on drilling began in 2009 when developers and others grew concerned that drilling and development were on a path to collide in the city.

A group of about 20 people representing various interests got together to start finding workable rules and brought them to the city council. The process took about 18 months.

They never tried to ban drilling in the area, he explained. They recognized that Texas law, as in most states, puts the property rights of the owners of underground oil and gas above the property rights of the "surface" landowner.

"So, if you start with the assumption that 'minerals' trump 'surface,' the question is how you find something compatible," said Perry, who has been mayor since 2008.

They also kept in mind that Midland is first and foremost an oil and gas town.

"For us not to be friendly would have been very hypocritical," Perry said. "People said, 'If Midland can't be fair, then nobody can.'"

And as a city official, he doesn't view oil wells as a bad thing. In contrast to, say, housing, the wells generate tax dollars with relatively little need for expensive services like trash collection.

Perry's view of orderly development is a far cry from Gardendale, an unincorporated area of small homes between Midland and Odessa. An independent driller is looking at drilling up to 300 wells in the community, which is a little more than 11 square miles in size.

"They're talking about a well every 600 feet and a pad every 300 feet," said Shane Leverett, who lives in Gardendale. "Do the math. There's not much room left over for us."

Leverett and some neighbors banded together to form the Gardendale Accountability Project. County governments in Texas don't zone. So they tried to get the area to incorporate last year into a city with zoning power. But residents voted it down, so drilling there is subject only to state rules.

But just because cities can restrict drilling doesn't mean they all do. The neighboring oil and gas town of Odessa, Perry noted, has taken a different path.

"They have very few restrictions," Perry said, "and I've never heard of any problems."

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