Q&A with Trinity East Manager: Leases, Floodplains, and the Money Beneath Dallas
Four years have passed since Trinity East signed on as the largest gas lease-holder with the city of Dallas, and the company still doesn't know when it will be allowed to drill its first well -- if ever.
Trinity East holdings, click here for larger image.
As the company's name suggests, Trinity East wants to drill for natural gas along the east side of the Trinity River, but its plans have been been stymied while a city task force works to come up with recommendations for new rules on where gas drilling can take place in the city limits. The company's plans hit another hurdle last week, when the city released a map showing plans to drill in the river's floodplain, on city parkland -- a fact that doesn't sit well with anti-fracking groups, which fear potential pollution and loss of green space.
For Trinity East, another kind of green is at stake. The company has $19 million invested in mineral leases from the city in addition to other agreements with private landowners on a stretch of land snaking along the river from Royal Lane to west of downtown. The Dallas drilling task force had initially voted against allowing hydraulic fracturing on floodplains and parkland, but in a last-minute change, its members voted to recommend that the city's updated ordinance allow both if strict conditions are met. City Council has yet to vote on the revised ordinance.
That was good news for Trinity East, but other recommendations -- including set-back distances and land use restrictions -- would potentially prevent drilling at the company's planned sites. Further complicating Trinity East's plans, its Dallas leases lay at the center of a master plan that includes a system of pipelines and infrastructure linking to drill sites in Irving and Farmers Branch. What all this means is that the company's survival largely depends on its ability to drill and carry out hydraulic fracturing in Dallas, says Steve Fort, a manager and shareholder of the company.
Unfair Park discussed these issues and others with Fort to demystify the company's plans and learn how the city's updated ordinance may potentially affect not only gas exploration, but the company's very existence.
Tell me about the land Trinity East has leased along the Trinity.
I think we originally leased about 3,500 acres that the city owns [the acreage was reduced in an agreement to extend the lease]. There's a golf course, which is a floodplain and it floods periodically. There's a gun range, and frankly, the environmental impact of that is so much greater than ours it's really kind of funny if you think about it, and the rest of [the acreage] is not even being used. It's called parkland, but if you go down there, a lot of the areas, you wouldn't want to go down there at night by yourself. It's not very safe.
And underlying all of that is this massive -- at about a mile and a half deep -- is this massive rock formation. And it is solid rock, and it has miniscule pores in it that are full of natural gas, and that gas is worth billions of dollars, and the taxpayers and the citizens of Dallas own that, and they will receive a huge portion of the revenues from that if we're allowed to do what we were told we could do.
Where do you come up with the billion-dollar figure?
We do engineering reserve studies. That's how oil and gas companies determine where to drill and what the value of their reserves are.
This is kind of the farthest reach of the economic Barnett Shale going eastward. We spent the time and the money to explore it, and we now have the data to prove it up.
How many drilling pad sites would you plan on placing in Dallas when all is said and done -- how many pad sites would Trinity East have in Dallas?
I don't know, we currently have three pending, two of them are on city of Dallas-owned land. But for the park area up there, L.B. Houston area, we only have two sites on city of Dallas property planned. That's all we need.
How many pad sites would Trinity East place on that land in total, notwithstanding the ordinance changes?
We don't have an exact number planned. We planned these three, and then we submitted them and that's when all of this stuff [ordinance changes] started to happen, so we kind of put it on hold until we determine what the city of Dallas is going to do.
Can you give a rough estimate of how many pad sites people should expect, notwithstanding the ordinance changes?
On city of Dallas property? ... There won't be that many within the city of Dallas limits.
Can you give me a ballpark figure?
Five or six, maybe. Very few.
And that's on both private and city land?
And five or six would allow you to access all of the gas that you feel you can access.
Again, that's an estimation, but it's in that range, yes.
So when people worry that the flood plain will be dotted with drill sites, that's not how Trinity East intends to develop the land?
A pad site is three to four acres, and on that three to four acres can be 10-15 well heads. So there will be multiple wells but it will be on a limited number of pad sites.
How does Trinity East's Dallas land figure into the whole system you have planned with pipelines and drill sites in other cities?
It's a critical piece of our master plan. In fact, our master plan was built largely in reliance on the city of Dallas piece.
Would a preventative ordinance here affect your ability to transport gas from other cities where you're drilling? Can you explain that?
Yes, we have a master plan for pipelines and transportation of the gas. It all runs through this part of our project. It will have a negative, possibly a terminating impact on our entire project. So there's a lot more at stake than the 19 million dollars that we paid for these leases.
What is Dallas caught between? What won't be connected by this missing link if that ends up being the case?
Well, it will involve Farmers Branch and Irving.
Do you have wells in both those cities now?
We have a well in Irving; we don't have a well in Farmers Branch. We have SUPs that have been granted in both those cities.
Are you holding up drilling there until the Dallas drilling ordinance gets worked out?
And what aspects of the recommendations would need to be changed to allow drilling as planned?
I haven't reviewed the final version yet. I know their set-backs are a problem. I know their land uses are a problem. And then there are a myriad of other changes they're proposing that will make it either increase the cost dramatically or make it cost-prohibitive to develop these mineral resources.
Would I be able to see the master plan so I can kind of understand it better?
No, I don't think so. That's just confidential information for our company. It's not public.
The two sites on city property with pending zoning permits -- they're both in the floodplain, correct?
Yes. ... We worked with the parks board in developing those sites and they approved them. And then we also got approval from the Corps of Engineers.
The reality is there's hundreds and hundreds and hundreds of wells that are in and have been in the floodplain in and around Dallas for many, many, many years without incident. In addition, when you put a well in a floodplain, you put the kind of equipment on it that you'd put as if you were in shallow water.
I was unclear on whether a company could drill in a floodplain in Dallas after looking through the ordinance because drilling isn't currently listed as an approved use.
The way it works is, the existing Dallas ordinance does not prohibit drilling -- the statement in the blog [referencing our Buzz column] that the current ordinance prohibits drilling in the floodplain or parklands is totally inaccurate. [Side note from Patrick Williams, the guy who wrote that Buzz post: Right now, city ordinances don't specifically prohibit gas drilling in a floodplain, he says. True. They just don't allow drilling -- unless the rules are changed, that is. Okeedokee. I'll leave it to gas drillers, lawyers and Zen philosophers discuss the subtle differences between things that aren't allowed to happen and things that are prohibited from happening and simply point out this: If Buzz was totally inaccurate, then there's NO REASON for the City Council to accept the task force's OWN FREAKIN' recommendation and change the floodplain rules. Seems like that should be fine with drillers and anti-fracking folks. Win-win! Sheesh.]
The way it works is that all activities in the floodplain are controlled by its own section in the Dallas ordinance. And the way it works and has worked for 100 years is whenever somebody wants to do something in the floodplain that's never been done before, they approach the city, and the city amends it to allow that as an allowed use ... drilling is not on there because nobody's ever approached them before, but when we took the lease, we had that discussion with the city. It was made very clear that adding that as a permitted use would not be an issue. In fact, as late as a year ago, when we were dealing with the staff, they were prepared to put that forward to the City Council and add that as a permitted use.
So we've relied on that, and in fact, drilling on the floodplain is really the best place to use it because those are the areas that are farthest away from residential uses. And there's lots of heavy industrial uses in that area down there in the floodplain.
When you were making these plans and working with the parks board and working with others at the city, was there someone at the city who was spearheading this?
Yes, and we were told that the staff would make that initiation to make that code change, and it was not a big deal.That's what we were told.
Who was it?
I'm not gonna name names because I'd rather not do that.
Was any of this put in writing or in a contract, or was it a verbal understanding?
There was some documentation that I can't discuss.
Why can you not discuss that?
I'd just rather not. We're trying to work with the city. We don't want to get in a fight with the city. But we do expect to drill and access those properties that we've paid a lot of money for. And we believe that the citizens of Dallas deserve to get to reap the benefit of those minerals that they own.
Is there more land leased on private property that's not included on the map [above]?
And where is that?
It's all around it.
How much land is leased on private property on land that's not included on the map?
I really can't disclose that. That's kind of proprietary information, but it's a lot.
Why can't you disclose that?
I'd prefer not to. We're a privately held company. We don't disclose our internal business workings.
What do you see as the role of the city's ordinance? What should it aim to protect and what's reasonable?
Well, the problem is that most of the things that the ordinance addresses are already addressed by existing regulatory bodies that have been doing it for decades -- the Texas Railroad Commission, the TCEQ, and the EPA, to a certain extent. And there are a few issues that the city may want to address because it's an urban area, but we're not in a neighborhood. We have one site that's next to a gun range. We won't even be able to compete with the noise put out by the gun range.
Earlier you said by drilling in the floodplain, it often means that your farther away from homes and residential areas. Out of potential places where pad sites may be located, what would be the closest you would go to a home?
Well I can show you hundreds of wells in Fort Worth that are 300 feet from the nearest residential use, and they live in perfect harmony with their neighbors. During the drilling phase, there is some noise, it is a nuisance, and that lasts, like I said, three or four weeks. It's about one-tenth of the time it would take to build a commercial building.
So would some of the pad sites be 300 feet from residences?
No, we're nowhere near any residential uses on our pad sites?
What would be the closest?
At least half a mile.
Is that a policy of your company or ...
No, it just happens to be the sites that we chose; we thought they were best suited for this being in a remote area. And we worked with the parks board to do that.
There would be no drilling closer than a half mile, no matter what the ordinance says.
So, no drilling closer than a half mile, and in the ballpark of five to six drilling sites if Trinity East is able to carry out its plans.
Well, I'm talking about the current -- when I say a half-mile, there's no residential areas within a half a mile of the two SUPs that we have pending in the city of Dallas on the city of Dallas land. We don't have our other sites picked just yet. But the 300-foot setback that's in the current ordinance, we think that's more than adequate.
If you could make a recommendation to City Council, what would it be?
My recommendation is that they allow us to develop the property on the basis of the ordinance that was in place when they asked us to bid on their properties to lease them, and we did bid based on the ordinance that was in place at that time and the recommendations that were made by the city staff. You know, when you enter into a business deal, you want to be able to rely on certain things. We relied on the ordinance that was in place and the representations made by the city staff.
A vast majority of the recommendations the task force is making were taken from the cities of South Lake and Flower Mound. Those two cities have passed the strictest ordinances they can possibly pass, and they are in effect a de facto ban on drilling. The task force is using as its model, two cities that essentially don't allow any drilling in their city. That's disturbing.
When you were in the planning phase, I'm sure if the city had an ordinance like South Lake in place ...
We wouldn't have bid on it. We wouldn't be in this position, because you don't get involved in a business venture that once you get in you can't do anything with it.
Is there anything you think people should know or other things that you'd like to clear up that may have been misunderstood with all of this?
We think the part of this that's not been discussed is the part that the city of Dallas is facing huge huge shortfalls in its revenues based on its budget. And here you have a tremendous source of revenue is available, and it's not being accessed, and nobody's speaking up for that. Remember, the city of Dallas has a 25 percent royalty interest. That means 25 percent of the revenue from the gas that comes from underneath this land goes straight to the city of Dallas.
When you run the numbers, after we bear the cost of doing what has to be done, the landowners' royalty actually ends up making more money than the operating company makes because it's cost-free. So there's hundreds of millions of dollars available for the city of Dallas citizens, and nobody's speaking up for that.