Oil and gas company sues city of Dallas over right to drill on leases

DALLAS (TIP): Trinity East Energy sued the city of Dallas on Thursday, February 14 to recoup its investment in oil and gas leases because the City Council never permitted the company to drill on the property. Trinity East Energy paid the city $19 million for the leases years before the council decided not to permit drilling.

The suit, which City Hall officials expected, was filed in Dallas County District Court. It alleges breach of contract, fraud and an unconstitutional taking, among other things. “This was a business transaction,” Trinity East president Steve Fort said in an interview on Thursday. “If the city had lived up to the deal that was made in our transaction, we wouldn’t be here today.”

The city denied the allegations. Mayor Mike Rawlings, who opposes drilling in the city, voted in favor of the drilling permits last August. At the time, he said voting them down “could cost the city of Dallas millions of dollars of legal and other expenses.” On Thursday, he said of the lawsuit, “my prediction has come true.” “We need to think carefully when we vote on actions to not put ourselves in the courthouse,” the mayor said.

“That being said, I feel great about our situation and our case.” Four months after the Trinity East permits were denied, in December, the City Council approved one of the nation’s most restrictive ordinances on natural gas drilling. It requires more than a quarter-mile between wells and protected uses such as homes. Industry executives, including Fort, insist it’s a virtual ban on drilling in Dallas. But years earlier, in 2008, Trinity East paid the city $19 million for the mineral rights to 3,600 acres in northwest Dallas, near the city’s Luna Vista Golf Course and the Elm Fork gun range.

“In selling this real property interest to Trinity, the city knew that Trinity could only benefit from this contract if Trinity was actually allowed to drill a number of wells to produce gas,” the lawsuit said. “The city also knew that for drilling and production to occur, the city would be required to issue certain permits and other authorizations. Despite representations and promises by the city, as well as the city’s contractual obligation, that Trinity would be allowed to drill and produce minerals, the city refused to grant Trinity the necessary approvals to conduct drilling and production operations.”

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The company says it spent more than $30 million based on the city’s promises and lost “hundreds of millions more” in profits. The suit maintains that when it signed its deals with the city on Aug. 15, 2008, it received a letter from then-Dallas City Manager Mary Suhm saying she was “reasonably confident” Trinity East would be able to drill on a 22- acre tract of parkland on the west side of Luna Vista. “That was one of several representations and assurances we got from the city staff,” Fort said on Thursday. Suhm told the company she would help it win the right to drill on parkland, even as she publicly assured the City Council that she would not support drilling on city parkland.

City spokesman Frank Librio said in a written statement that the lawsuit “lacks merit.” “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,” the statement said. “During the time Trinity East had the leases, gas prices became depressed and more became known about geological conditions in the area,” the statement said.

“Although the city granted several zoning permits for drilling to other companies who requested to drill at more appropriate sites, none of those companies have followed through with actual drilling and production.” “The city will vigorously defend its right to exercise its regulatory powers to protect public health and safety as well as the environment.” Rawlings said he isn’t worried about the lawsuit hurting the perception of how Dallas does business. “We’ll win in the court and we’ll move on,” the mayor said. For Fort, the experience means “we would not do business with the city ever again.”

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