As the mayor of Dallas predicted might happen, Fort Worth-based Trinity East Energy LLC is suing the city for millions of dollars after the city council voted last year to deny the company the permits it needed to drill on leases for which it had paid the city more than $19 million.
"Recognizing that the city had probably just breached a contract, committed fraud and taken Trinity's property without just compensation, City Mayor [Mike] Rawlings stated on the record that the city was subjecting itself to significant litigation risk," says Trinity's lawsuit, which was filed Tuesday in Dallas County District Court.
Last summer, the Dallas City Council voted to deny Trinity East three permits it needed to drill on the leased land (see Shale Daily, Aug. 30, 2013). Trinity East had asked the council to overturn previous rejections by the Dallas Plan Commission of special use permits (SUP) it needed to drill on leases in the eastern frontier of the Barnett Shale (see Shale Daily, March 25, 2013). The company needed at least 12 of the 15 council members, a super-majority, on its side to overturn the denials. In three separate votes, one for each of the SUPs, it got the approval of nine members.
Trinity maintains that the lease agreements it entered into with the city constitute written contracts and that it was given assurances by city representatives that it could expect to obtain the permits it would need to drill on the leased land. Had drilling and production ultimately come to fruition, the city stood to receive a royalty of 25%, either in cash or as in-kind production, according to the lawsuit.
The lawsuit says Trinity spent "a substantial amount of time and money on engineering, surveying and planning" in order to eventually proceed with drilling.
While Rawlings and some council members said the city would open itself up to a liability for denying the permits Trinity sought, the company said in its lawsuit that "the city has not attempted to compensate Trinity for the loss of value of the taken property or to pay Trinity the damages it suffered as a result of the city's actions."
The city released a statement in response to the lawsuit that says it is without merit and will be fought. It points out that during the period that Trinity held the leases, gas prices became "depressed" and apparently implying that the drilling planned by Trinity East would not have taken place anyway. During council deliberations last year, it was suggested by Rawlings that the city could just wait out the leases rather than deny the permits, thus avoiding a potential legal liability.
"During the five and one-half year term of the leases, Trinity East submitted only three applications for zoning permits to drill for oil and gas. Two of the sites were located in a city park and in the floodplain and the third site was close to the city's new soccer complex," the city said in its statement.
"After conducting public hearings, both the City Plan Commission and the City Council rejected Trinity East's applications, finding that the proposed locations were inappropriate for drilling and production operations. Trinity East never pursued any other zoning permits to drill within the leased property, nor did it apply for any zoning permits to drill near the leased property so that it could use horizontal drilling techniques to try to obtain oil and gas."