Oil Company Seeks Over $1 Billion In Takings Claim Against California County For Banning Fracking

398px-BarnettShaleDrilling-9323There is an interesting out of California where Citadel Exploration, an oil company, has sued the San Benito County for $1.2 billion for banning fracking and oil extraction on land within its jurisdiction. Citadel is arguing that the ban constitutes a regulatory taking and that it is entitled to the value lost, which it says amounts to 20-40 millions barrels of oil and a profit of $1.2 billion. It is a troubling case for environmentalists and land use advocates seeking to place limitations on certain industrial activities viewed as harmful.

At issue is Measure J, which bans all fracking and other high-intensity oil extraction.

For environmentalists, such cases could reignite the debate over constitutional takings: the need to compensate private owners like Seadrift of public easements.

In Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), the Court required compensation for regulatory takings. In that case. South Carolina’s Coastal Zone Management Act (1977) required owners of coast land in “critical areas” near beaches to obtain permits from South Carolina Coastal Council before committing the land to new uses. The Court found that the regulation deprives Lucas of value that had to be returned in the form of public compensation.

One exception is common law nuisance where a coastal authority can show that the regulation is designed to prevent a public nuisance such as run-off or erosion etc.

The burden — both legal and financial — in making such a claim can be high. The county would have to show that fracking causes such harms if it comes down to a Lucas fight — something companies vigorously deny. That could make this an important case and potentially damaging for environmentalists if the courts expand on the burden on states and municipalities in showing harm as an exception to takings compensation.

In the end, San Benito County Supervisor Jerry Muenzer indicated that the effort to get over a billion dollars from the county would be like . . . well … fracking water from a stone: “$1.2 billion. That’s like asking for the moon. The county will file for bankruptcy and reorganize. He’s not going to get anything.”

Source: KSBW

64 thoughts on “Oil Company Seeks Over $1 Billion In Takings Claim Against California County For Banning Fracking

  1. First make them pay for dumping their toxic fracking waste-water into clean drinking water aquifers, rendering billions of gallons of life sustaining potable water damaged beyond clean-up and to REPLACE IT. Then we’ll talk about further fracking operations.

    • Tom –

      First make them pay for dumping their toxic fracking waste-water into clean drinking water aquifers, rendering billions of gallons of life sustaining potable water damaged beyond clean-up and to REPLACE IT. Then we’ll talk about further fracking operations.

      Please cite your source for this.

  2. The Takings Clause addresses the situation where the government Takes your property without just compensation to you. Here the government did not Take the property. The government denied the owner the right to remove it from the ground and sell it. Maybe another tact would be to sue the government for “seizing” their property. The government has in essence built a fence. The government has seized it without warrant, without probable cause and without legal right.

  3. I forgot to mention that, where fracking occurs, there is a lot of HC, natural gas like methane, and other similar substances already in the ground. Such an area is not really suitable for drilling wells.

    Groundwater contamination is a serious concern, though. Many wells in my area are contaminated with arsenic from CA’s mining history. Luckily, mine is not.

    So I do see both sides of the issue.

  4. As for tracking, on the one hand, there’s this article, which explains that franking has been completed on over 2 million job sites over the past 60 years.

    http://www.forbes.com/sites/greatspeculations/2011/03/07/dont-be-swayed-by-faucets-on-fire-and-other-anti-fracking-propaganda/

    The man whose water was ignited in Gasland, had dug his well through FOUR different coal beds:

    http://en.wikipedia.org/wiki/Gasland

    On the other hand, I don’t think injecting chemicals into the ground is a good idea. I have concerns about contamination of our groundwater. However, as Forbes pointed out, we should have data from 2 million sites over 60 years to put the issue to rest, one way or the other.

    No matter what, if the government either takes away, or bans the development of, a landowners’ resources, that landowner should be compensated. Politics should not enter into it at all.

  5. wrxdave – civil forfeiture has gone far beyond what the law originally intended. I keep hearing more and more stories about people’s cash and property taken, without ever being arrested, let alone convicted, of a crime. It costs more to fight in court than the property is worth, so it keeps going on.

    They need to clean that practice up.

  6. The issue with fracking is the contamination of aquifers both with hydrocarbon liberated by the fracking process and the chemical additives in fracking fluid.

    An aquifer containing potable water is a valuable resource and if fracking makes one unusable for unknown time periods possibility going into the millions of years that is a big negative externality. The thing is that there is a fracking gold rush to frack every acre of every nation as quickly as possible. We really need a test case to prove that fracking does no harm. Somewhere in the world an aquifer has to be possibly sacrificed to find out whether the opponents to fracking have a valid point or whether it is scaremongering.

    Contamination of aquifers with methane is not a joke, I remember one article about a family in a fracking zone who can light the water coming out of their sink faucet.

    Another problem is the contribution of fracking to global warming. If all the methane can be captured and burnt then that contributes to solving global worming since the CO2 released in burning is much less than with other fossil fuels, but there are suspicions that significant amount of methane leak out into the air and methane is a greenhouse gas about 80 times as strong as CO2.

  7. All,

    I’m late to the party so I apologize for having not been introduced to the other guests….

    GO CITADEL EX!!

    Without scientific proof, but lots of scary anecdotal stories and lots of environmentalist money, several munis, including Denton, just north of me, have decided to forbid a form of commerce into which valid, legal companies have made significant investments OF IT’S INVESTORS AND OWNERS. If the government wants to forbid a form of business, then they better have incontrovertible proof of its harm to the citizenry, else they better be prepared to compensate those from whom they intend to confiscate property.

    For the liberals, lets bring this home. If the public can vote to confiscate property of others based solely their will, them I’m coming after your big houses, your land, and your cars. All I need is a conservative majority ….

  8. Jettexas:

    Nice try. Now tell that to Bob and Lisa Parr and their daughter Emma. And before you do, you might wish to consider reading some of the evidence in their case against Aruba Petroleum.

  9. Not every restriction on the use of one’s land is a “taking” within the meaning of the Constitution. The reason is that there is not, and never has been, a right to do anything one wishes with one’s own property. The traditional common law rule is that I may not use my land in a manner which constitutes a nuisance or which results in damages to the rights of adjoining landowners. There is certainly nothing radical or irrational with that principle.

    In this case, the issue, as the story notes, is whether fracking activities constitute a nuisance. The industry claims that fracking is perfectly safe and that the imposition of a ban requires that the local government must prove that it isn’t. That is a very expensive proposition.

    Earlier this year the town of Denton, Texas, hardly a socialist enclave, banned fracking within the city limits as a public nuisance. And in June of this year a Texas jury awarded a couple $3,000,000.00 in damages against Aruba Petroleum, concluding that toxic chemicals released in the fracking process had injured their health. The court has since denied motions to set aside the verdict and presumably an appeal is now pending.

    The point is that the consequences of fracking are not well-known, despite claims on both sides. The dangers of fracking are likely to vary geographically as well. But there have been a sufficient number of adverse impacts from fracking to discount industry assertions regarding its safety.

    If in fact fracking can be shown to create hazards to public health, Citadel cannot be heard to complain because it does not have a legal right to conduct any activity harmful to public health. And one is not permitted to recover for losses sustained due to an inability to do what one does not have a lawful right to do.

    If Citadel should lose its case against San Benito County, it still may have a remedy by way of rescission of the purchase. It could argue, for example, that the purchase was negotiated based upon a mutual mistake of material fact because both buyer and seller knew that the purpose of the acquisition was to extract oil. If the seller was smart, however, there would likely have been clauses in the contract permitting a period for the company to conduct inspections and testing and otherwise confirm that it could use the property for its intended purposes. In that event, Citadel would be stuck with the land and would have to devise alternate development plans to mitigate its losses,

  10. This were the Law and reality only have a hand-waving relation with each other. Reality: San Benito and Northern California can not spare that water for fracking. Not this year, not any year. The area is crawling out of a hyper drought with reserves parlously low. Some cities were bone dry before the rains came, they had to truck in water.

    Now the law would like to believe that somehow that water resides on specific piece of land, and a specific person has rights to that water. But again reality interferes. Underground water does not pay attention to arbitrary lines on a map and the water cycle is not owned by anyone. Since water is critical to human life the state has a compelling interest in managing that resource. Bottom line, the state’s interest trumps your interest.

    Water is a common resource, you do not own it. Pump too much of it out of the ground and you no longer have that resource, nor does any one else. The state has to intervene to insure that supplies are sustainable. The government is not stripping you of a right or a resource, it is insuring that resource continues to be available. This is especially critical in a state like California, where water is in short supply and will be getting even harder to get as global warming takes its tole.

    It is beyond reckless to use millions and millions of gallons of this resource just to liberate natural gas from the ground, thus rendering the water useless for agriculture or for human consumption. California can not support such profligacy.

    • James – I thought the water in CA was being used to build the Browndoggle Bullet Train to Nowhere.

  11. However, if they already owned the land, they should be compensated for the value of the land. Not the value of what is under it and cannot be harvested.

    No. If the bought the land with the express purpose of utilizing the asset or selling the asset, they have had that ability taken from them. They could have harvested it at some point. This was changed AFTER they purchased the asset. They should be compensated at some level for both….land devaluation due to taking of the income asset and loss of future income.

    For instance if you bought timber land in the 1960’s with the intention of logging the trees when they reached marketable age you have bought not just the land but also the trees as an income asset. Through no fault of your own, some government agency decides that you can’t fell your trees. You now not only have lost the potential income that you were counting on from these current tree and from other trees planted to replace them, you have also seen the value (possibly) of your land go down.

    Taking is taking, whether it is for a cause you like or not. It still is a taking away without compensation of a previously viable asset strictly due to government action.

    It would be different if the taking were due to natural causes. Earthquake shifts the substrata and the oil goes away. Wildfire burns up your trees. This is an arbitrary taking by government fiat.

  12. “Mike Appleton

    Why do we keep hearing the refrain that “liberals” somehow created the imperial presidency. Does no one read anymore?”

    _________________________________________________________

    Mike – I think it has to do with branding. Conservatives has done a great job of branding everything good with them…………..and everything bad with Obama, liberals, socialists, atheists, etc…… Most Americans support the minimum wage, healthcare, infrastructure, etc…… but yet they vote against it.

    Obama has been no more imperial then any other recent president. Others have done executive immigration, others have done signing statements essentially invalidating laws, etc…….. If a republican were president when the deficit was cut by a trillion, stock market soaring, steady job growth while lowering the federal payroll they’d be branded as a good president. Reagan was lauded for less.

    Give conservatives credit for their branding. They’ll likely shut down the government again and somehow be given a pass on election day as the “adult” party.

  13. I wonder if the action was reversed or withdrawn in favor of Citidel would the return of the oil rights + legal costs be sufficient to make Citidel whole?

  14. If the UN owned the property and sued I imagine there’d be all hell to pay on the blog about having another in control of our ability to protect Americans. Conservatives would be up in arms. But when it is a corporation could be dictating our actions its fascinating to see the difference. Not only acceptance but almost a sort of love.

    I wonder how long the company has owned the property. And if the property were purchased before fracking became viable what the ultimate economic impact could possibly be. Of course basing things on future profits muddies it all with the future price of oil, the future price of extraction, amount possibly extracted at differing costs, etc…….. Either way, the $1.2 billion for that possible amount of oil seems way high.

    Personally, I’d not like to see the health/safety related decision for a locality taken away. But I appear to be in the minority here.

  15. Mike, Any student of history knows there has been a list of both liberal and conservative imperial Presidents. But, Obama has gone all Chicago on the imperial nature of his presidency and that is very bad. He is a suave and eloquent old man Daley, frightening to me.

  16. Why do we keep hearing the refrain that “liberals” somehow created the imperial presidency. Does no one read anymore?

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