trinity east gas lease memo and briefing feb 2013

7/29/2019 Trinity East Gas Lease memo and briefing Feb 2013

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Trinity East Gas Lease

Dallas City Council

February 27, 2013


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Purpose of Briefing

Provide a chronology of Citys leasing of mineralrights

Explanatory Notes (shaded slides) within thechronology

Review identified issues: Radio Tower site (22 acres) as part of Trinity East lease

Trinity East letter (August 2008) acknowledged by CityManager

City Managers Authority

Surface/subsurface activities in parkland 90-day period to conduct title work

Appendix

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OverviewDates Actions

Fall 2006 Direction to explore leasing of mineral rights

Fall 2006 Fall 2007 Revenue Strategy- Lease Mineral Rights

Jan Sept 2007 07/08 Budget Process

May/July 2007 Development of lease form

July 20, 2007 Issuance of RFP

September 12, 2007 Adoption of Drilling Ordinance

November 2007 January 2008 Selection of Proposers

February 27, 2008 Council authorization to execute

August 15, 2008 Execution of Lease

Refinements of attachments

March 17, 2011 SUP application

June 22, 2011 Lease extension

August 10, 2011 Chapter 26 Hearing deferred 3


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Timeline Beginning in 2000, numerous cities/counties

throughout the Metroplex (also DFW Airport)were leasing mineral rights receiving significant

payments

Barnett Shale was being drilled for natural gas Approximately 11,000 gas wells in Dallas, Denton,

and Tarrant counties currently

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Timeline As 2007-08 budget was being developed:

projected costs to meet the Councils Key Focus Areagoals growing: $40M increase in Public Safety(including adding 200 officers)

other anticipated costs included:

Increases for Public Safety compensation and equipment

Debt service increase for 2003/2006 Bond programs

2006 Bond program implementation commencing

Community prosecutors

Full year funding for new Animal Shelter Plus numerous program and service enhancements

initial projected gap approximately $90M

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Timeline

City staff was charged to aggressively develop new

sources of revenue--

all ideas from council members to be evaluated less traditional revenue sources pursued:

Pouring Rights/Beverage Service Contract

Advertising Kiosks DFW tax sharing revenue

Leasing of mineral rights on City property

September 5, 2006: Eco Dev & Housing Committee

discussed available property for drilling operations

and attracting exploration companies to the City

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Timeline

September 12, 2007, Council adopted (11- 1, 3 Absent) agas drilling ordinance (amending the Development Code)that required SUPs and other controls specifically for

drilling New ordinance included the latest in requirements and

controls

Removed prohibition of drilling on parkland

Still in effect today From June 2007 to June 2010, Council approved five

SUPs for gas drilling and production on private property(Attachment B)

September 26, 2007, Council approved (14-1) 07- 08General Fund Budget, including projected revenues of$20M from gas drilling leases

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Timeline

Fall 2007, in order to achieve budgetedrevenues from gas leases, staff:

identified City properties located over theBarnett Shale for possible mineral rightsleasing

Bundled into packages (Attachment C) Included parkland

One package was called the Dallas North Propertieswhich surrounded a site called the Radio Tower Tract

(Attachment D) hired an attorney experienced in mineral

rights leasing throughout the Metroplex

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Explanatory Notes

Radio Tower Tract is a 22.4 acre tract originallydonated to the City in 1963, subject to a 30-year

lease and purchase option to a third party for aradio tower

City and lessee disputed terms of agreements,

Lawsuit was filed, but settled (in 1970) by Cityconveying fee title to the tower lessee, subject to areverter back to the City, if tract not used for radiotower

From the time of the settlement to 2007, theproperty was not owned by the City

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Explanatory Notes

In April 2007, reverter was triggered and the tract

was conveyed back to the City by quit claim deed In May and June 2007, staff compiled lists of city-

owned property to be included in the Gas Lease

RFP,

Included was a general area referred to as the

Dallas North Properties which included:

approximately 2,100 acres,

parkland and non-parkland (Attachment D)

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Explanatory Notes

Because there is typically a lag in updating real

estate data bases and inventory lists, the Radio

Tower tract was not on the City inventory list nor

on the accompanying map generated at the time

by Citys mapping staff for the Gas Lease RFP

But for the lag in a data base update, this

property would have been included in the RFP

property list and agenda information sheetattachment

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Timeline

July 2007 issued a Gas Lease RFP

Included was the form lease containing all terms requiredby the City

Final acreage was to be finalized after title research Final Title search is a cumbersome, difficult and expensive process

Industry standard process is that Lessees will not complete this processuntil they have a deal

Feb 6, 2008, Council was briefed on the results ofthe Gas Lease RFP

Staff recommended/stated several times the intent not to

drill in parkland, but mention steps required, if Councilwished to do so

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Timeline

Feb 27, 2008, Council discussed and authorized (12- 2,1 Absent) execution of 36-month leases with XTO Energy for Hensley Field and nearby properties

Trinity East for Dallas North/Trinity River properties All material lease provisions were agreed upon and did

not change before/at execution

At this point, the title research was initiated to confirm: property descriptions and ownership ownership of mineral rights

Because the Trinity East leases included parkland, CityCouncil was required by state law (Chapter 26) to holda public hearing regarding subsurface mineral rights onthe parkland.

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Timeline

On June 25, 2008 City Council : unanimously (14-0, 1 Absent) supported authorizing

the Chapter 26 public hearing

was informed by staff that: Trinity East had completed their title work and identified a

site (Radio Tower Tract) owned by the City, omitted fromthe Dallas North Property List group (for which the Councilhad authorized execution of the lease)

surface use would not in any way impact the park systemor the park use (Parks Director)

If application was made to drill on this site or otherparkland, staff stated another Chapter 26 hearing by CityCouncil would be required (Attachment E)

Audio clip and transcript provided (Attachment F)

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Explanatory Notes

City properties within the Barnett Shale (including DallasNorth Properties) were attached to the Gas Lease RFP withthe caveats:

Property was identified as needing ownership verification City made no warranty of title or boundaries,

proposers had responsibility to confirm title, etc.

February 27, 2008 council agenda item to authorize

execution of contracts, which contained the same propertylists as in Gas Lease RFP, was still not updated to include theRadio Tower tract, which had now reverted to the City

City gave Trinity East a 90-day period to conduct its titlework, locking in the mineral rights price, in return for a$1.75M deposit that would be forfeited if Trinity East didnot complete the lease other than due to title defects

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Explanatory Notes

As required, Trinity East completed its

comprehensive title work by June 2008 andnotified the City of its ownership of the Radio

Tower tract, which was located within the

Dallas North Properties

After the Radio Tower tract (22 acres) was

confirmed to be owned by the City, the tractwas included in the lease as part of the Dallas

North Properties

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Explanatory Notes

City Attorneys Office has concluded the City Managerwas authorized to finalize and execute the lease:

RFP described property inventory list as subject to deedand title work

City Council authorized lease of Dallas North Properties

After City Council authorization, requisite comprehensive

title work was conducted Radio Tower Site (22 acre) is within Dallas North Properties

On June 25, 2008, City Council and staff discussedidentification and inclusion of the Radio Tower tract

Therefore, City Manager had authorization to executethe lease August 15, 2008

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Timeline

On August 15, 2008 leases were executed with Trinity EastEnergy for approximately 3,500 acres of city-ownedminerals

A total of $19 million was received 25% royalty in any gas commercially developed

5% override interest in any gas from others mineral rightscollected via City drill sites

City only listed four tracts, approximately 250 out of 3,500

acres, where surface use might be possible Three tracts are included as Proposed Drill Sites

One tract was included as Drill Site

Concurrently, CMO signed the Trinity East letter memorializing

staffs assurances of assistance in moving the process forward On August 20, 2008, Council held a Chapter 26 hearing and

approved (10-1, 4 Absent) non-park use of the subsurfaceof parkland included in the leases

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Explanatory Notes Trinity East understood, in order to drill on any

city-owned property, it would need to obtainseveral different approvals

Chapter 26 hearing and Council approval, if site is onparkland

Amendment to the Citys floodplain ordinance or fillpermit, if site is in floodplain

SUP as to any surface drilling activity

Drilling permit for any drilling activity Appropriate approvals from other agencies like

TCEQ, Railroad Commission, etc.

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Explanatory Notes Before Trinity East would sign the lease and

make its initial $19 million payment, it soughtassurance that the City staff would assist it in

obtaining necessary approvals

Requests for assurance of assistance are often

sought by outside parties in development

deals

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Explanatory Notes

When the City Council has determined that a

project is in the Citys best interest, staff hasdeveloped a standard response to these requests

for assurance

Will use its reasonable efforts to place before theCouncil those matters requiring City Council approval

Include explicit statement that this does not

constitute a binding agreement

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Explanatory Notes Using these principles/guidelines, staff

negotiated the content of Trinity Eastsproposed letter and the City Manager signed

it, acknowledging and agreeing to staffs

assistance

(Attachment G)

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Timeline In 2010 and 2011, Trinity East asked for an

extension to the lease Trinity East agreed to reduce the city-owned

acreage leased, but wanted the radio tower

tract to remain in this reduced acreage Radio tower tract was included in the 2011

briefings to City Council regarding the possible

extension and in the map attached to the2011 City Council agenda item

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Timeline

On June 16, 2011, the Park Board recommendedauthorizing a Chapter 26 hearing to considersurface gas drilling and production use at the

radio tower and the gun club sites

On June 22, 2011, City Council authorized (13-1, 1Vacant) amended lease

30 month extension

Reduced mineral acreage, but reiterates that RadioTower tract is included

Added provisions to clarify that Trinity East must Request Chapter 26 hearing, if it seeks to drill in parkland

Address floodplain issues if it seeks to drill in floodplain

Obtain SUPs if it intends to drill24


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Summary Review of Issues 22 acre Radio Tower tract

Not included because of lag in property status update

Noted to City Council at June 25, 2008 meeting

City Manager had the authority to execute the lease once title work wascompleted

August 2008, Trinity East letter acknowledged by City Manager No guarantees made

Common practice in development deals

City Manager has the authority to sign non-binding letters

Surface/subsurface drilling activities in parkland Subsurface approved August 20, 2008 after Chapter 26 hearing process,

subsequent to lease signing

Surface On June 25,2008 staff discussed with Council need for Chapter26 hearing if parkland was requested as a drilling site

90-day period to conduct title work Staff negotiated an earnest money deposit from Trinity East while it

conducted its comprehensive title work

City Council authorization not limited to a 90-day period

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Appendix

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Attachment A

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Attachment B From June 2007 to June 2010, Council

approved five SUPs for gas drilling andproduction on private property

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Approved SUPs: June 2007 June 2010

SUP 1791

Approved - October 28, 2009

SUP 1673Approved - June 13, 2007

SUP 1674

Approved - June 13, 2007

SUP 1672

Approved June 13, 2007

formMountain Creek Lake

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Approved SUPs: June 2007 June 2010

SUP 1806Approved June 9, 2010

North Lake Cypress Waters

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Attachment C

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Attachment D

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A h E


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Chapter 26 Texas Parks and Wildlife Code Section 26.001 provides

that a municipality may not approve any project that

requires the use any public land designated and usedprior thereto as a park, recreation area, scientific area,wildlife refuge, or historic site, unless the municipality,acting through its duly authorized governing body,

determines that: (1) there is no feasible and prudent alternative to the use

or taking of such land; and

(2) the project includes all reasonable planning to

minimize harm to the land, as a park, recreation area,scientific area, wildlife refuge, or historic site, resultingfrom the use.

Attachment E

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Chapter 26 The section provides that

the findings are to be made after notice and apublic hearing, commonly referred to as a Chapter

26 hearing and

its provisions do not constitute a mandatoryprohibition against the proposed use if the

findings are made to justify it

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Attachment F Audio and Transcript

June 25, 2008

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Attachment G


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Attachment G


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Attachment H


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TimelineSeptember 5, 2006 Economic Development & Housing Committee briefing

Gas Exploration in the City ofDallas, discusses available property for drilling operations

and attracting exploration companies to the City of Dallas.

Slide 27, the following city-owned properties have been identified as potential sites for gasexploration. Seven properties are listed.

Slide 32, Whats next. . . .Code amendment to permit gas exploration on parkland and/or in

other zoning districts, RFP for gas exploration on City-owned property.

April 2007

May-June 2007

The 22.4 acre property known as the Radio Tower site was in transition. The property wasdonated to the park department in 1963; however, the property was encumbered with a 30-

year lease and purchase option that later became the subject of a lawsuit. In the lawsuit

settlement, the c ity conveyed the property (subject to a reverter) for use as a radio tower. The

title reverted to the City of Dallas in April 2007.

Staff began compiling lists of city-owned property within the Barnett Shale for the NaturalGas Exploration Request for Proposals. The lists of city-owned properties were categorized in

three areas, one of which is the Dallas North Properties. The 22.4 acre Radio Tower tract,

within the other Dallas North Properties, did not appear on this list because of the lag time in

getting the 22.4 acres into the citys system after it reverted back to the city.

Attachment H

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Timeline

June 11, 2007 Transportation and Environment Committee briefing

Proposed Gas Drilling and Production Regulations Briefing outline: (1) need for code

amendment (Chapter 51A); (2) background on natural gas production in the Barnett Shale;

(3) natural gas drilling and production phases; (4) major issues to be addressed; and (5)

update on status of code amendment.

July 20, 2007

August 27, 2007

City issued RFP for gas drilling and production. No city-owned surface drill sites were

specifically part of this RFP, but the RFP does not say no surface drilling rights.

Council Briefing

Proposed Gas Drilling and Production Regulations/Request for Proposals Briefing

outlines: (1) need for code amendment (Chapter 51A); (2) background on natural gas

production in the Barnett Shale; (3) natural gas drilling and production phases; (4) major

issues to be addressed; and (5) update on status of code amendment.

September 5-13,

2007

Surface sites identified by staff for amended RFP, including LB Houston Golf Course (1700

Royal Lane).

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Timeline

October 1, 2007 RFP amended to include locations for surface drilling sites on city-owned property to benefit

the lease play. RFP Exhibit G included future Elm Fork Soccer Complex and other parkland as

potential sites.

October 10, 2007 RFP for Gas Well Drilling and Production Leases Addendum No. 8 - Exhibit G Property

Available for Potential Surface Use. Parkland was removed from the Exhibit with the

following explanation, With respect to surface rights, we note that properties that have been

designated and used as a park, recreation area, scientific area, or historic site may beunavailable for surface use under applicable state and federal laws.

September 12, 2007 Council approved amendments to Dallas Development Code regarding gas drilling

regulations. Gas drilling regulations do not prohibit gas drilling and production use on

parkland, but require an SUP. See also, Dallas Development Code Section 51A-

4.203(3.2)(E)(v), All structures and equipment, including tanks . . . must be spaced at least . .

. 100 feet from any . . . recreational use (except when the operation s ite is in a public park). . .

.

FOR: Medrano, Neumann, Caraway, Hill, Salazar, Davis, Atkins, Kadane, Allen, Natinsky,

Rasansky; AGAINST: Hunt; ABSENT: Leppert, Garcia, Koop

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Timeline

February 6, 2008 Council briefing, Gas Drilling and Production Leases

Slide 6, The RFP included city-owned properties located on the western edge of the city and

within the Barnett Shale area of play. Several key locations include . . . LB Houston Golf

Course. By using horizontal drilling, drill sites can be located at the edge of these properties to

provide minimum impact.

Slide 24, There will be no drilling allowed on the surface of city parkland. The Texas Parks &

Wildlife Code would require a finding that there is no feasible and prudent alternative to using

the park surface as a drill site.

Slide 26, Only 5 sites of city property are available for potential on-site drilling. There will be

no drilling on city parkland. . . . All drill sites will still have to undergo the SUP process. . . and must comply with all other laws. . . .

Slide 35, Recommendation, Council approval of lease for gas well drilling and production in

the City of Dallas with XTO Energy, Inc. and Trinity East.

November 9, 2007 Trinity East responded to RFP. Special instructions in the RFP stated, It shall be the

responsibility of the Respondent to determine the actual net mineral acres to be leased. For

purposes of this Proposal and unless otherwise established by a credible authority on such

matters acceptable to the City of Dallas, the net mineral acres shall be assumed to be the

acreage listed in the description of the property listed above.

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Timeline

February 27, 2008 Council authorized City Manager to execute two 36-month lease agreements with one

36-month renewal option, as well as initial options to lease, with Trinity East.

FOR: Leppert, Garcia, Caraway, Medrano, Neumann, Hill, Salazar, Atkins, Kadane,

Allen, Koop, Natinsky; AGAINST: Hunt, Davis; ABSENT: Rasansky

Trinity East and City Manager executed two Leasing Agreements (the initial

options) for the Dallas North and Trinity River Properties respectively, giving Trinity

East the option to secure oil and gas leases subject to a title review, objection, cure, and

price adjustment process. Said process was to be completed within a calculated period if

Trinity East was to have its benefits as a matter of right.

March 6, 2008 Administrative revision to Resolution No. 08-0720. The revision is an amendment made

from the floor by Councilmember Natinsky on February 27, 2008, to revise Sections 1

and 2 of the resolution.

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Timeline


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TimelineJune 5, 2008 Park Board presentation on Gas Drilling and Production Leases.

Slide 24, There will be no drilling allowed on the surface of City of Dallas parkland. The

Texas Parks & Wildlife Code would require a finding that there is no feasible and prudent

alternative to using the park surface as a drill site.

Slide 26, Only 5 sites of city property are available for potential on-site drilling. There will beno drilling on city parkland. . . . All drill sites will still have to undergo the SUP process

. . . and must comply with all other laws. . . .

Slide 36, next steps, lease executed with Trinity East . . . public hearing for parkland.

The Park Board then recommended that a Chapter 26 Council public hearing be authorized toconsider allowing the non-park subsurface gas drilling and production use on certain parkland.

In one of the Park Board resolution whereas clauses it states, the City of Dallas will prohibit

surface level drilling and mineral production on all parkland and any subsurface mineral

extraction will take place at an off-site location as to not reduce or distract from any of the

recreation uses or experiences of parks in question. . . .

June 6-26, 2008 Trinity East began raising an issue about the lack of drill sites associated with the Trinity East

properties. City staff and Trinity East met and Trinity East brought up the Radio Tower tract.

Staff checked with the Park Department Director to see if the Radio Tower tract could be part of

the transaction. On June 26, Trinity East sent a formal written proposal that included the Radio

tower tract.

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Timeline

August 15, 2008 Leases with Trinity East were executed, which permit exploring, drilling, and producing oil and

gas, laying pipelines, and building roads to produce oil and gas on specific land identified in

Exhibit A of the lease.

Exhibit A of the Group 1 lease identifies three proposed drill site locations and one drill site

location. The proposed drill site locations are parkland and in the flood plain. These parkland

sites were identified as proposed drill site locations because a Chapter 26 Council public hearing is

required; a code amendment to allow the gas drilling and production use in the flood plain or a fill

permit is required; and an SUP is required.

June 25, 2008 Council authorized a Chapter 26 public hearing to be held on August 20, 2008 to receive

comments on the use of subsurface parkland for natural gas drilling and production. The agenda

materials state, The City of Dallas is prohibiting surface level drilling and mineral production on

parkland as part of the gas leases. The City of Dallas has taken great efforts to ensure none of the

surface level recreational uses will be disturbed. All natural gas drilling and production will take

place at an off-site location through methods such as directional drilling. Accordingly, no parkassets or recreational activities will be impacted.

Discussions occurred between Council and staff regarding the need for future public hearings for

a surface gas drilling and production use on parkland. The Park Department Director also

confirmed that there was one property being considered for surface drilling, the Radio Tower site,

that would not affect adjacent parkland.

FOR: Leppert, Garcia, Caraway, Medrano, Neumann, Hill, Salazar, Atkins, Kadane, Allen, Koop,

Natinsky, Rasansky, Hunt; ABSENT: Davis

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TimelineAugust 15, 2008

continued

August 20, 2008

Letter from Trinity East to the City of Dallas and countersigned by City Manager regarding

Trinity Easts purchase of an oil and gas lease (Group 1) stating, City staff has advised us

that although they can make no guarantees, they are reasonably confident that Trinity East

can be granted the right to use. . . the Radio Tower Tract as a drill site location. . . .The City

staff will use its reasonable efforts to assist Trinity East in placing before the Dallas Council

those permits and other matters requiring Council approval. . . .We understand that this letteris not a binding agreement, but is merely a good faith representation of our discussions.

Council held a Chapter 26 public hearing and authorized the non-park subsurface gas

drilling and production use subject to the terms and conditions in the contract authorized by

the Council on February 27, 2008.

The agenda materials state, the City of Dallas is prohibiting surface level drilling and

mineral production on parkland as part of the gas leases. In the whereas clause of the

resolution, it states, the City of Dallas has taken great efforts to ensure none of the surface

level recreational uses will be disturbed, and any subsurface mineral extraction will take

place at an off-site location as to not reduce or detract from any of the recreation uses or

experiences of the parks. . . .

FOR: Leppert, Garcia, Medrano, Neumann, Hill, Atkins, Kadane, Allen, Koop, Natinsky;

AGAINST: Hunt; ABSENT: Caraway, Salazar, Davis, Rasansky

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TimelineFebruary 10, 2011

March 17, 2011

Letter to Trinity East regarding request for extension of the oil and gas leases listing the

processes and requirements with which Trinity East must comply or complete before it may

drill on the proposed drill site locations, including a Chapter 26 hearing, amendments to the

flood plain regulations or a fill permit, and SUPs.

Trinity East filed two SUP applications for surface gas drilling and production at the LBHouston Sports Complex (the radio tower and the gun club proposed drill sites)

April 20, 2011 Council briefing Update on a number of environmental and regulatory aspects of gas

drilling and provide information on concerns raised by citizens. Slide 23 identifies 3

proposed drill sites and 1 drill site, but does not indication locations.

Closed session gas drilling updates.

June 15, 2011 Closed session - Legal issues involving the oil and gas leases between City of Dallas and

Trinity East, LLC.

June 16, 2011 The Park Board recommended that a Chapter26 Council public hearing be authorized toconsider allowing a non-park surface gas drilling and production use at the LB Houston

Sports Complex (the radio tower and the gun club proposed drill sites)

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TimelineJune 22, 2011 Council authorized an amendment to the Trinity East oil and gas leases executed on August

15, 2008. The amended leases extended the primary term by 30 months and added

provisions stating Trinity East understands that (1) the proposed drill sites are located on

parkland, and Council must authorize the non-park gas drilling and production use; (2) the

proposed drill sites are in the flood plain, and gas drilling is not a permitted use in the flood

plain without a code amendment or a Council-authorized fill permit; (3) an SUP is required;

(4) a gas well permit is required before the land may be used for gas drilling and

production; and (5) that the citys police powers cannot be contracted away. All other terms

of the lease not expressly amended continued in full force and effect.

FOR: Caraway, Medrano, Jasso, Neumann, Hill, Salazar, Davis, Atkins, Kadane, Allen,

Koop, Natinsky, Margolin; AGAINST: Hunt; 1 VACANCY

July 1, 2011 ACM signed amendment to oil and gas leases.

August 10, 2011 Council deferred authorizing the public hearing to consider the non-park surface gas

drilling and production use on the two sites at the LB Houston Sports Complex until 30

days after the gas drilling and production ordinance is amended.

Closed session occurred.

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trinity east gas lease memo and briefing feb 2013

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