Insurance Journal - The 2014 Texas Issue

JUNE 2, 2014 | VOL. 92, NO. 11

TEXAS

TEXAS COVERAGE

News & Markets Oil & Gas in Overdrive!

Insurance Capacity Is Plentiful but Watch Out for Contract Wording

By Stephanie K. Jones

T

exas is well accustomed to the cycle of boom and bust in the oil and gas industry, and the state’s deep reserve of longterm expertise in the energy sector gives it a distinct advantage to make the most of the current market expansion.

As of April 17, Texas alone claimed 50 percent of all active land rigs in the nation, according to the Texas Railroad Commission, which regulates the industry in the state. The TRC reported that the average rig count in Texas was 882. In the previous 12 months, total reported production in the state was 744 million barrels of oil and 7.8 trillion cubic feet of natural gas.

In February 2014, crude oil production in Texas averaged 2,002,070 barrels per day, compared with the 1,560,453 barrels daily average in February 2013.

A lot of the increase in production in Texas and elsewhere is largely technology driven, experts say.

“The energy industry has undergone a major transformation and it’s exciting times for agents, underwriters and risk managers,” said Anthony Carroll, executive vice president for marine, energy and construction at Aspen Specialty Insurance. “There are some serious challenges but the transformation is mostly driven by advances in technology over the past 10 years with shale gas bringing different opportunities to different facets of the energy market.”

Participating in a webinar on the energy market sponsored by Advisen and Aspen Specialty, Carroll said the expectation for 2014 is “another banner year for U.S. domestic energy production where … oil output could hit in the range of 8-and-a-half to 9 million barrels per day versus 7.8 million barrels last year.”

To put that amount into perspective, domestic production just five years ago was around 5 million barrels per day. The increase in production capability all comes SC2 | INSURANCE JOURNAL-TEXAS June 2, 2014

from additional drilling techniques, he said.

Nationally, domestic gas production this year is expected to increase by 20 percent over five years ago, exceeding 25 trillion cubic feet, according to Carroll. Gas production in 2013 was at a record level and 2014 will be another record Source: Texas Department of Transportation year, he said.

“This is all in the context of an expand$6 billion in what we call technical capacing energy market and considerable expectity,” said Tentinger, who also participated ed investment not only now but in the next in the Advisen/Aspen Specialty energy 25 years — to build out the energy capabiliwebinar. That’s “the amount of capacity that ties in the U.S. and then expanding outside everybody added together could bring to the U.S. as shale technology expands,” a given risk. In deployable capacity we see Carroll said. that number as closer to $3.1 to $4 billion.”

This increased activity in the energy All-risk deployable capacity on the consector is bringing rash of opportunities for struction side is in the $6 billion range, the risk management community, including Tentinger said. That figure doesn’t include underwriters and brokers, he said. natural catastrophe risks. For instance, “We’ve got to get the gas out of the there are constraints on capacity in the case ground, we’ve got to move the gas, with of Atlantic named windstorm exposure, he new pipelines and transmission and storage said. facilities,” Carroll said.

Business interruption and contingent Terminals that previously were used business interruption are also areas in for importing oil and gas are now being which there may be limits on capacity, transformed into export terminals. And the Tentinger said. Capacity for those risks new supply of gas is creating demand for available to a given insured would be expopetrochemical facilities with an expected sure driven. $700 billion in projects being brought to While during the past 10 years the majorithe market, he said. ty of capacity has come from the same traditional markets, new sources of capital now No Shortage of Insurance Capacity are contributing to the increase in available The insurance business seems to have amounts. plenty of capacity to handle the increased “We’ve seen this number continue to rise activity, according to Kurt Tentinger, manwith new entrants coming into the market,” aging director of Aon Energy in Houston.

Tentinger said. Capacity now is coming “On the operational side [there’s] roughly continued on page 4 www.insurancejournal.com

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News & Markets continued from page 2 and downstream businesses, underwriters from a number of different sources, includdon’t expect capacity to go away any time ing reinsurance and other sources, such as soon. Tentinger said he recently met with cat bonds. an underwriter who told him “it would “Non-traditional reinsurance in the form probably take a meteorite to make things of pension funds has had a dramatic impact move. I don’t think I would go quite that over the last year or so. We also see capacextreme. … But from a macro perspective it ity coming into the market via captives, would take a large event … insureds’ captives ‘The shale gas boom has an earthquake, a financial and … self-insured retention really caught the attention crisis or something to that extent. There are some to name a few,” of a lot of folks.’ people that would say even Tentinger said. an earthquake wouldn’t do it just based On a corporate level, underwriters in on recent experience. But I’m not so sure I the energy sector made a profit last year, would agree with that either.”

Tentinger said. The upstream or explora “There is definitely a lot of capital and tion and production sector performed well, capacity,” Thomas Blanquez, an energy but both the midstream business — the risk specialist with San Antonio-based pipelines and transportation — and the insurance wholesaler Quirk & Co., told downstream business have suffered since Insurance Journal. “The shale gas boom has 2011 from consistent attritional losses and a really caught the attention of a lot of folks. few large losses, he said.

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ment book isn’t performing well, so on and so forth, you have new players coming in saying, ‘let’s go write oil and gas business — that seems to be a steady flow of business.’”

But excess capacity may not always be a good thing, according to Blanquez. He said that at the end of 2013 and even into the beginning of 2014, “every carrier had marching orders to get renewal increases, get rate increases, and we were selling it.

“But I’d say over the last couple of months the rates have started to go back down to early 2012, late 2011 levels. The rates are depressed, obviously, and you have folks with capacity that are kind of throwing that around.”

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TEXAS COVERAGE

News & Markets continued from page 4 know what is in the insurance contract and what it is trying to achieve, said Costantino Suriano, a partner with the law firm Mound Cotton Wollan & Greengrass.

“I get involved when there’s a problem or in trying to avoid a problem. ... We don’t get into pricing or anything like that but we do convey to our clients that words do matter. And the courts sometimes come up with views of what the words mean that is totally outside of what anybody expected,” said Suriano, another participant in the Advisen webinar.

“Things happen that cause major disruptions. Therefore there’s an analysis after the event of — ‘Wow did I buy the right thing?

Do I have enough cover? Do I have too much cover?’ The courts are not the best place to get these things resolved,” he said.

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Suriano said he thinks courts often don’t understand the consequences of their decisions. But, he added, “on the other hand if we can’t agree to what words mean the resulting litigation has no consequences.”

Suriano’s advice to risk managers and brokers and insurers? “Try to understand what’s going on in the policy that you’re procuring.”

Quirk & Co.’s Blanquez said he often sees problems in policy language for both pollution risks and additional insureds, especially regarding sole negligence.

With “pollution, you have to be careful because everybody has a different coverage trigger — is completed ops included, is it not included? Do you have first party/third party coverages included in that? There are some critical issues there,” Blanquez said.

When it comes to “risk transfer and the additional insured status, I think many insureds don’t understand that within the standard ISO forms, unless there is a company promulgated form where they’ve agreed to accept sole negligence, then you could find yourself in a bit of a pickle if your carrier is asked to provide a defense or indemnification for an act that you are not responsible in whole or in part for. …

There is a gap,” he said.

Other areas to look at carefully, according to Suriano, include sublimits and their application, stacking, and business interruption and contingent business interruption.

For example, when it comes to physical damage to a supplier or a supplier of a supplier, “these provisions should be looked at real hard by underwriters and risk managers to see if the business model matches what is being proposed in the wording,” Suriano said.

5/19/14 10:23 AM

www.insurancejournal.com

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TEXAS COVERAGE

News & Markets Opting Out of Texas Workers’ Comp Doesn’t Have to Mean Going Bare Employers Often Choose Nonsubscription for Greater Control

By Stephanie K. Jones

W

hile Oklahoma recently adopted legislation under which employers may choose an alternative to the statutory workers’ compensation system in certain circumstances, Texas still the only state in which participation in the workers’ compensation system is truly voluntary. As such, many employers in Texas choose to “nonsubscribe” to workers’ comp but that doesn’t mean they necessarily go bare when it comes to looking out for their injured workers.

The bifurcated system of protecting the interests of injured workers in Texas is not a 50-50 proposition with half of Texas employers opting in to the workers’ comp system and the other half opting out.

Though the numbers fluctuate, the Texas Association of Responsible Nonsubscribers (TXANS) reports recent estimates show that approximately 114,000 employers operate as nonsubscribers in Texas.

About one-third of employers are considered nonsubscribers, said Roy Powell, director of nonsubscription for Austin-based Tejas American General Agency (TAGA).

“When you opt out of the workers’ comp system in Texas you automatically become a ‘nonsubscriber’.”

At 33 percent, the number of nonsubscribers has increased slightly from 32 percent in 2010, according the Texas Department of Insurance - Division of Workers’ Compensation. Not all of those nonsubscribing businesses carry insurance to cover worker injuries, however.

Powell said that up to 10 years ago nonsubscription probably held around 40 percent of the market, but increased competition in Texas has contributed to the decline in the number of nonsubscribers.

However, Powell said, even though nonsubscription has dropped to 33 percent of the market, “it’s remained pretty consistent SC8 | INSURANCE JOURNAL-TEXAS June 2, 2014

over the last four or five years.”

The Nonsubscribers “The types of business that generally go from workers’ comp into nonsubscription are those employers that have made the determination to be in more control of their claims and generally take better care of their employees through better medical management and better physician outcomes,” said Blake Stock, CEO of Dallasbased Combined Group.

With nonsubscription, employers tend to be more “engaged in the administration of their program, which puts them much closer to their employees and allows them to be more involved with the claim and the outcome,” Stock said.

Employers have some control over whether medical providers are approved or not approved to provide services and “you tend to get much more specialization and better doctors in nonsubscription,” he said.

On the other hand, many companies that choose to nonsubscribe may do so because they find the cost of statutory workers’ comp too high.

“The cost with nonsubscription can be significantly less than workers’ comp, depending on the SIR [self-insured retention] and the benefits,” TAGA’s Powell said.

When a company finds the cost of workers’ comp to be too expensive, they will usually do one of two things, he said.

“They’ll either drop comp and go totally bare and have no insurance or they’ll look to nonsubscription. What keeps them there is they have a lot more control over the claims process than they do as a subscriber.”

With nonsubscription, Powell said, the employer can talk to the medical providers, can get second opinions and even suspend benefits if injured employee doesn’t follow the requirements of the program.

“You have a lot more control, which is what the employers like about it,” he said.

The industry sectors with the highest percentages of nonsubscribing employers, according to TXANS are: • Arts/Entertainment/Accommodation/ Food Services — 52 percent • Manufacturing — 37 percent • Finance/Real Estate/Professional Services — 33 percent • Health Care/Educational Services — 44 percent • Wholesale Trade/Retail Trade/ Transportation — 37 percent • Agriculture/Forestry/Fishing/Hunting — 25 percent • Other Services Except Public Administration — 42 percent • Mining/Utilities/Construction — 21 percent Businesses that contract with local, state and federal governments or are governmental entities themselves are required to participate in the workers’ comp system and cannot operate as nonsubscribers in Texas.

A report issued by the TDI-DWC showed that 60 percent of subscribers to the workers’ comp system saw either decreases or no changes in their premium in 2012, compared to 74 percent in 2010.

The report, based on a survey of more than 2,500 Texas employers conducted July 2012 through August 2012 by the Public continued on page 10 www.insurancejournal.com

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TEXAS COVERAGE

News & Markets continued from page 8 Policy Research Institute (PPRI), showed that 30 percent of subscribing employers saw premium increases in 2012, compared to 26 percent in 2010 and less than 25 percent in 2008.

According to TDI-DWC, the top three reasons employers cited for not subscribing to the comp system were “the perception that they had too few employees, they had few on-the-job injuries, and that they were not required to have workers’ compensation insurance by law.”

Alternatively, the survey found that Texas employers chose to participate in the workers’ comp system primarily because “they were concerned with lawsuits (21 percent) and because the employer was able to participate in a health care network (20 percent).”

The ERISA Plan The federal Employee Retirement Income Security Act of 1974, or ERISA, is the key to

nonsubscription, Powell said.

“Whenever you have a voluntary benefit program in place you have to have an ERISA document. The ERISA document spells out the coverages in the policy,” he said. “Each employee gets a copy of the summary plan description. It lays out the rules. Tells them what to do in the event they’re hurt on the job, tells them what the benefits would be, tells them if they have a dispute with their employer how it will be settled.”

The insurance programs and services provided under the nonsubscription plan may be self-administered by a very large company, but often they are managed by the insurance carriers or a third party administrator.

For instance, Powell said, Great American Insurance Co. has “a program in Texas that’s administered by a general agency ... they provide the services. They provide the claims services, they provide the ERISA documents, they provide assis-

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tance in rolling out the ERISA, which I also participate in.”

While nonsubscribing companies may be large or small in size, smaller entities tends to need more assistance. “Generally the smaller employers need a lot of help with the services proposition,” Stock said.

His company, Combined Group, has a large staff dedicated to helping employers with their plans.

Insurance coverages are not necessarily cookie cutter, Stock said. Some employers might have a standardized plan but others would expand on the standardized plan.

“It gets back to the part of the employer being able to design a program that’s appropriate for their workforce as opposed to a one size fits all,” Stock said.

Becoming an NCCI State

I

n late March 2014, Texas Insurance Commissioner Julia Rathegeber approved a staff petition to adopt the National Council on Compensation Insurance (NCCI) Basic Manual, with Texas exceptions, and the national and Texas-specific endorsements and forms in the NCCI Forms Manual. The petition allows NCCI to take over certain workers’ comp system administrative functions in Texas that TDI is not statutorily required to perform.

The effective date of adoption of the NCCI manual as proposed in the staff petition filed Dec. 30, 2013, was June 1, 2014.

Most comments received by TDI regarding the adoption of the NCCI Texas-specific manual requested an effective date of Oct, 1, 2014, however, rather than a June 1 effective date, according to the commissioner’s order. In response, the order sets a permissive effective date of June 1, 2014, and a mandatory effective date of Oct. 1, 2014.

“The delayed implementation date will allow workers’ compensation insurers to have adequate time to change their underwriting systems so that they can be in compliance with the new rate and forms manuals on October 1, 2014,” said Steve Nichols, manager of workers’ compensation services for the Insurance Council of Texas. www.insurancejournal.com

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TEXAS COVERAGE

News & Markets Top Loss Leaders in the Oil Patch?

Commercial Auto, Workers’ Comp

By Stephanie K. Jones

Source: Texas Department of Transportation

liability in the oil patch is having issues not “This is just on Texas highways.” because of insurance pricing, but because of Problems derive not only from the the mode of travel. onslaught of 18-wheelers and heavy equip “It’s where these guys travel, it’s how they ment on farm and country roads in shale travel, it’s the loads that they’re hauling. production regions that are not equipped to Most of them or a lot of them are running handle them but also from the simple fact on private property, unimproved roads. that people who live in these rural areas are They’re riding at night. It’s a whole litany of unaccustomed to the increased traffic flow. different things,” he said.

“You have that and you have driver fatigue Thomas and you have all sorts of ‘The auto related fatalities issues that are mixed in Blanquez, an energy special- and the auto related injuries there,” Blanquez said. “But ist with San the auto related fatalities are through the roof.’

Antonio-based and the auto related injuwholesaler Quirk & Co., said that Texas, ries are through the roof.” particularly, is struggling with increased The Texas Department of Transportation, auto claims, especially in the areas that have which has initiated a media campaign to seen an influx of activity as a result of the increase awareness of the problem, reported more efficient production techniques. a rise fatal and serious injury crashes in 2013 “We’ve had an insane amount of deaths in both the Eagle Ford Shale energy secthat have occurred,” Blanquez said. tor, a 26-county region that stretches from Over the past 10 years there have been Laredo to Madisonville, and in the Permian 1,000 more auto related deaths, he said.

Basin, a 59-county region covering 75,000 square miles.

TXDOT data shows 3,430 fatal and serious injury crashes and 236 traffic fatalities in the Eagle Ford Shale region in 2013.

That’s a 7 percent increase in fatal and serious injury crashes over the previous year for the region.

In the Permian Basin in 2013 there were 4,371 traffic crashes that resulted in serious injuries or fatalities, according to TXDOT. The 358 auto-related fatalities last year in the Permian Basin represent an increase of 13 percent over 2012.

Richard Gergasko, CEO of Texas Mutual Insurance Co., said his company certainly is seeing an increase in motor vehicle incidents coming from oil and gas operations.

“What we’re really finding is that there are probably three or four main elements driving some of these motor vehicles incidents. The first one is fatigue driving. These work crews, they’ll put in long hours and continued on page 14

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www.insurancejournal.com

T

here’s no doubt that new advancements in the practice of hydraulic fracturing, or fracking, are driving the current production boom in the oil patch. The technique, which is used to retrieve oil and gas reservoirs that previously were inaccessible via traditional vertical drilling methods, has been around for more than 50 years. But technological improvements have propelled oil and gas production into overdrive in recent years.

The increase in domestic energy production obviously has many benefits — national energy independence among them — but it does come with certain costs.

For the insurance industry, an increase in commercial auto losses and an uptick in workers’ compensation claims are unfortunate side effects of the oil boom.

According to Jim Bolz, chief underwriting officer at speciality insurer, Energi, auto

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News & Markets continued from page 12 then they’ll have to get in their vehicle and drive back to either the company location or the hotel they might be staying at. …

They’re pretty tired,” he said.

Gergasko said distracted driving — talking on the cellphone, texting, etc. — is also a problem.

But “the biggest piece,” he said, “is seat belt usage. We still find a lot of individuals refuse to wear their seat belts. Typically, in the motor vehicles incidents we see, if there’s a fatality involved, [in] 60 percent of the fatalities the individual was not wearing a seat belt.”

Carrier Concerns Both primary insurance carriers and excess carriers are increasingly concerned about the auto claims, Blanquez said, partly due to the fact that trial attorneys “are going after the oil companies because they know they have deep pockets. … The jury rulings

and punitive damages are outrageous.”

He said the auto losses “touch all policies in a way. You have the third party damage that is going to be paid out through the auto carrier and any excess limits. …

You have the physical damage, work comp for the driver.

Blanquez said he’s also seen action-over claims being tied to the general liability policy for wrongful death.

“Because the work comp is going to be statutory, it’s going to be limited in the amount of the scope of recovery that you can get,” he said. “The attorneys have figured out that, ‘well, if I can somehow tie this to a negligent act or a wrongful death suit, I can go over to the GL and then I can seek my wrongful damages there.’ That’s another avenue, another tower of limits for

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them to access.”

Workers’ comp and auto claims can also be tied to a shortage of qualified workers in the oil patch.

“There are so many hands that are needed and so few good hands, safe drivers that can pass drug tests, show up to work on time, things of that nature,” Blanquez said. “It’s forced the criteria for drivers and employees to be lowered because there’s so much money at stake. It’s the whole warm body approach and unfortunately that’s lending itself to poor performance on the loss history side.”

The new technologies that allow close concentration of wells at a single site also complicate the problem of workplace safety. Up to a dozen separate wells may be located at one well pad and “involve scores of moving parts, processes and people in an intensely busy industrial operation,” said Michael Diggin, a vice president and claims expert with Swiss Re. Participating in a webinar on hydraulic fracturing sponsored by Advisen and Swiss Re, Diggin said at each drilling well, in addition to the drilling contractor, 20 to 100 subcontractors may be involved in “exploration, construction, oil field equipment, fracking fluid, chemicals, sand, tank cleanout, transportation and production.”

And those activities often take place nearly around the clock at a crowded well pad, Diggin said.

“As with any major industrial operation it is inevitable that the occasional accident may happen at some of the hundreds of thousands of fracked wells,” he said.

Gergasko said Texas Mutual insures a variety of oil and gas operations, as well as companies that support the oil and gas industry, for workers’ comp.

“We’ll see the typical injuries that you would see from that operation — the drilling rigs — people getting their arms, extremities caught in equipment, falling objects and the like,” he said. www.insurancejournal.com

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News & Markets New TWIA Rules Establish Method for Issuing Bonds

N

ew rules posted by Texas insurance regulators on May 23 implement a process by which bonds may be issued on behalf of the state’s wind insurer of last resort for properties along the Texas coast.

The Texas Department of Insurance (TDI) issued final rules to update existing loss funding and premium surcharge rules for the Texas Windstorm Insurance Association (TWIA). The rules establish a mechanism for the Texas Public Finance Authority to issue bonds for TWIA in the event a catastrophic storm depletes the association’s available funds.

“The purpose of these rules is to implement the legislation that created an orderly process for issuing bonds and paying back those bonds,” Commissioner of Insurance Julia Rathgeber said in the announcement released by TDI. “This process is critical after a storm or event. Lenders need the certainty that these rules will provide, and coastal residents need the certainty that in the event of a storm, there will be adequate funds to pay insurance claims.”

TDI previously adopted loss funding and premium surcharge rules to implement HB 4409, 81st Legislature (2009), which established TWIA’s current funding structure.

Since 2009, the insurance code has required TWIA to issue bonds to provide money to pay claims if revenues from premiums and other sources plus the catastrophe reserve trust fund are insufficient.

As of March 31, the balance in the TWIA catastrophe reserve trust fund was $187.49 million, according to TDI’s Texas Windstorm Insurance Association Overview published on April 28.

HB 3 in 2011 amended TWIA’s loss funding by authorizing the issuance of pre-event class 1 bonds and establishing an alternative to issue post-event class 2 and 3 bonds if the fully authorized amount of class 1 bonds cannot be issued. It also specifies the lines of insurance that are subject to a premium surcharge used to pay back class 2 bonds.

Surcharges would only apply in the event that class 2 bonds are needed to pay claims.

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TWIA Maximum Limits of Liability Effective Date Dwellings Jan. 1, 2014

Contents of an Apartment, Condominium or Townhouse

Commercial Risks

Public Risks

$374,000

$4,424,000

$4,424,000

$1,773,000

Source: TDI

TWIA Exposures, Policies and Premium Written

Total Direct Liability in Force

Dwelling Mobile Home Non-Dwelling Total

As of 3/31/13 $61,634,765,323 $42,251,258 $12,861,486,144 $74,538,502,725

As of 3/31/14 $64,690,766,911 $46,732,495 $12,436,155,487 $77,163,654,893

Total Indirect Liability in Force

Dwelling (Add’l living expense) Non-Dwelling (Bus. Inc. Total) Total

$6,952,440,528 $394,835,360 $7,347,275,888

$7,366,269,951 $362,226,430 $7,728,496,381

Total Policies in Force

Dwelling Mobile Home Non-Dwelling Total

252,020 897 13,133 266,050

256,538 954 13,011 270,503

Premiums Written on Policies in Force, YTD

Dwelling Mobile Home Non-Dwelling Total

$68,878,970 $176,579 $23,791,849 $92,847,398

$74,367,509 $191,583 $21,209,814 $95,768,906

TDI; Quarter Liability in Force as of 03/31/13 and 03/31/14 from TWIA.

TWIA 2010-2012 Residential Wind Market Share by County (As measured by insured exposures for dwelling and contents) County Aransas Brazoria Calhoun Cameron Chambers Galveston Harris (catastrophe areas only) Jefferson Kenedy Kleberg Matagora Nueces Refugio San Patricio Willacy Total Catastrophe Area

2010

2011

2012

81% 61% 75% 32% 56% 79% 51% 47% 14% 29% 51% 66% 27% 65% 29% 61%

81% 63% 75% 31% 59% 77% 52% 55% 19% 27% 58% 65% 27% 65% 28% 62%

80% 63% 75% 32% 62% 77% 57% 60% 26% 27% 61% 65% 27% 65% 28% 63%

Source: TDI

TDI’s goal was to establish a formal process for issuing bonds in time for the start of the 2014 hurricane season on June 1. On Oct. 14, 2013, TDI published informal draft rules for public comment on its website.

Around 340 written and oral comments were received from stakeholders . The final rules, to be submitted to the Texas Register for publication on June 6, are effective June 12. www.insurancejournal.com

Insurance Solutions at the Highest Level

Commercial Property Program Classifications: Commercial property including habitational, shopping centers, mercantile, hotel/motel, office buildings and other commercial classes.

Property:

• Full Limits up to $11.5MM per location • Primary Limits up to $5MM for locations up to $15MM • No TIV Limitation on schedules (subject to a $15MM limitation per location)

Deductibles: • Varies by Territory • AOP from $2, 500 • Wind/Hail from $10,000

Optional Coverage’s Available: • Flood (excluding A, V and Shaded X zones) • Earthquake (excluding New Madrid) • Ordinance or Law • Property Enhancement Endorsement

Additional Information:

• All construction classes • No age restrictions Coverage is provided on a non-admitted basis by a company rated AXV by AM Best.

Territory: AL, AR, CO, IL, IN, IA, KS, LA (excl wind in Tiers 1&2), MN, MO, ND, OH, OK, SD, TX (excl wind in Tiers 1&2) and WI.

Contact Us For More Information

Robin Stough rstough@level1st.com 214.702.9389

TEXAS COVERAGE

News & Markets Denton Could Be First City in Texas to Ban Fracking, Permanently

By Emily Schmall

A

North Texas city that sits on top of the Barnett Shale, believed to hold one of the largest natural gas reserves in the United States, could become the first area in the state to permanently ban hydraulic fracturing.

A recently adopted temporary ban is in place until September, but fracking opponents want to make that permanent through an ordinance that would prohibit the practice in Denton.

Operators would be allowed to continue extracting energy from the 275 wells in Denton that have already undergone fracking, but not reinitiate the process on old wells.

The city council will have 60 days to hold a public hearing and to vote on a

measure that was submitted in early May. “There’s industrial activity right in the midst of a residential area diminishing people’s property values and exposing them to toxins,” said Adam Briggle of the Denton Drilling Awareness Group, the nonprofit that organized a petition to introduce the measure.

The fracking process involves blasting a mix of water, sand and chemicals into deep underground rock formations to free

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oil and gas.

The process has led to major economic benefits but also to fears that the chemicals could spread to water supplies and worsen air quality.

Under Texas law, land ownership is split between the surface and the minerals below, and in Denton, most of the mineral rights are held by estates and trusts outside Texas. Fracking in the city has created a divide between owners of mineral rights and residents who have to live with the consequences.

At the intersection of Vintage Ave. and S. Bonnie Brae in Denton, newly built homes face gas wells located about 200 feet away.

Industry proponents argue that fracking can be done safely and is cleaner than other forms of energy extraction. Of the 19 oil and gas companies operating in Denton, EagleRidge Energy is among the biggest.

“There is no question that wells can be drilled and fracked safely,” said EagleRidge Chief Operating Office Mark Grawe.

EagleRidge would consider a ban on fracking a violation of property rights that would likely lead to a claim against the city, Grawe said.

Copyright 2014 Associated Press. All rights reserved. www.insurancejournal.com

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