Texas Frack Anywhere Bill HB 40 Commercially Reasonable Test

Under the proposed bill, the oil and gas operator can challenge any municipal land use
ordinance based on its commercial viability. Meaning, if the operator finds that
compliance is commercially unreasonable, it can be contested, and the Railroad
Commission will adjudicate the matter.
Although there is no legal precedence for commercial viability to supersede or impinge
on the basis of land use laws the police power of the state to protect the health, safety
and welfare of the residents, the basis for determining what is commercially reasonable
are the wells themselves, particularly the spacing units.
The bills sponsors have challenged pad site setback requirements of over 1,000 feet, yet
that is considerably less than the setback in most shale wells, whose laterals run up to a
mile (5,280) feet or more. They pointed out that the Dallas setback of 1,500 feet would
create a radius of over 160 acres, which they deemed excessive when the average
spacing unit size in the Barnett Shale well is more than 160 acres, and the average lateral
is more than 1,500 feet.
If the average spacing unit for an Eagle Ford well is a section, 640 acres, and the well pad
is located in the center of a square, the distance to the nearest side of the square would be
a half mile, 2,640 feet; which is the setback from the property boundary, assuming no
split estate. If the average Eagle Ford well is commercially viable with a 2,640 foot
setback to the spacing unit line, then a land use setback requirement of 2,640 feet could
not be construed to be un-commercial simply because it was imposed by as a public
safety requirement by a municipality.
Spacing units are set by the Railroad Commission, they have the data on the
average spacing unit size in every oil or gas field. And they know what the
average distance is on those spacing units from the well pad to the perimeter of
the spacing unit. That average distance is the benchmark for commercial
viability. Anything less than that distance would be suspect as to commercial
viability.
HB 40s sponsors thought that a 500 foot setback in Midland sounded about right. But
that would equate to a rather short 500 foot lateral, which would probably be
commercially unreasonable in most Permian Basin shale fields. In order to meet the
proposed commercially reasonable test, Midland would have to increase their setback,
to say 1,500 feet or more - based on the average commercially viable horizontal shale
well spacing in that field.
James Northrup
Dallas