No meeting was too small, too incremental for Trinity East CEO Tom Blanton, because too much was at stake. Whether it was a task force convening to shape rules that may or may not someday govern how gas wells are sunk in Dallas, or a Plan Commission meeting, he'd be there, even though the only item that concerned him was buried under a lengthy lullaby of zoning requests and replats. He'd sit through all of it if he had to. What choice did he have?
You could almost always count on seeing, somewhere near the front of the audience, the back of his razor-clean dome gleaming under the bright lights of council chambers. And he always wore a wool suit, because this was business, and he prided himself on his professionalism before city officials. He had interests to preserve here — $19 million worth, if all you counted was what his natural gas exploration company had paid for the rights to the shale gas trapped beneath city property in northwest Dallas. That investment had so far garnered his company exactly nothing in return. That was bad enough, but if you counted what Trinity East spent planning, preparing, consulting, chasing down a paper trail at the appraiser's office and leasing more than 10,000 acres of private and public land in Dallas County, from Irving to Farmers Branch — a mosaic of mineral rights in which Dallas city property was simply a large piece of a much greater whole — the figure was easily four times $19 million. Trinity East wouldn't talk exact figures, but one got the sense they were the kind of numbers it couldn't afford to sacrifice at the altar of environmentalism and municipal politicking.
Trinity East, Blanton stressed, was a small outfit. Actually, the entirety of Keystone Exploration, Trinity East's parent company, was located on the 31st floor of the Frost Bank tower in downtown Fort Worth. In its small lobby, a bullwhip and spurs hang from one wall. A scale model of an old steel derrick is set back against the glass windows of a conference room that looks out onto the low, dun expanse of downtown's trailing edge.
The company formed 12 years ago, back when the natural gas industry was just beginning to figure out how to drill down into North Texas' Barnett Shale and to curl that drill bit's straight-line descent into a lateral jog, transforming a geologic dead-end into a can't-miss reservoir. Blanton, an investor and developer, happened to have properties just north of Fort Worth. He'd invested in oil and gas for most of his life and knew the game well enough. Now the moneyman took up the risky but reward-rich task of exploration. Keystone drilled, by his count, 12 wells on six pad sites in Tarrant County.
In the ecosystem of an emerging mineral play, Keystone was a small fish. It couldn't throw money around with heavy hitters like ExxonMobil and Chesapeake Energy, so it had to be nimble and find a niche. It navigated thickets of municipal regulation while other companies were still out in the pastures and tiny hamlets where there weren't so many rules and neighbors. In Dallas County, it staked out corners of the shale that hadn't been proved up, tangling with a city no driller had dealt with and never really had a reason to.
At the height of the drilling frenzy in 2007, Keystone was intrigued by Dallas' request for bids to drill city acreage on territory that would represent the far eastern frontier of the Barnett. No one had drilled that far east, for a few reasons. The shale was deeper there, some 9,000 feet down, according to Kent Bowker, former geologist to George Mitchell, the wildcatter who proved shale gas was the next big thing. "Deeper means it's more expensive to drill. The folds in the rock make it harder for the lateral to stay in the zone; more difficult to steer the horizontal [drill bit]," Bowker said. "The rock is under more stress, it's harder to hydraulically fracture, and it requires more horsepower."
Bowker wasn't saying that it couldn't be done (Hell, oilmen will drill under Arctic ice if the money's right). What he was saying was that it had the potential to be a real expensive pain in the ass. But with natural gas prices climbing, climbing, climbing, companies all over the Barnett were enticed a little farther out onto the ledge by the same wildcat ethos that spurred booms and busts past.
Trinity East submitted the winning bid for a swath of city acreage snaking along the Trinity River in northwest Dallas proper.
And at the outset, it got a taste of the risks inherent when it drilled two exploratory wells in Irving, on land just across Tom Braniff Drive from the University of Dallas, to test out the geology that ran through its newly acquired holdings. According to Blanton, the thread on a string of production pipe seized and the casing tore. This occurred during fracking operations, papers filed with the Texas Railroad Commission in 2010 indicate. The well was toast, along with the millions it can cost to sink a typical Barnett hole. A number of oilfield services companies filed lawsuits against Expro Exploration — Trinity East's well operator — and liens against the wells themselves for unpaid bills. The claims appear to have since been settled. Trinity East says is hasn't given up on the busted well.
But a janky hole revealed more than just the difficulty of drilling down into the variegated, layer-cake crust of the earth under Dallas County. The financial turmoil and the flurry of liens and lawsuits it prompted evidenced the risks of the high-stakes exploration game, where small outfits like Trinity East make expensive gambles on wells that don't always come in. When they don't, the indies can't shake off those hits, that inevitable cost of doing business in the shale, quite as easily as the deep-pocketed majors.
And that was the difference. That was why you'd see Blanton's bald head down front at every meeting and not, say, his counterpart at XTO Energy. XTO was the other natural gas producer that paid the city $15 million to lease acreage around Hensley Field, the old naval air base near Grand Prairie. Of course, bear in mind that XTO was also a wholly owned subsidiary of ExxonMobil, a multinational with nearly $45 billion in revenue last year. XTO was ExxonMobil's $41 billion bet on fracking, purchased in 2009 when natural gas was at a third of its 2008 high. That bet hadn't panned out yet, but the company was known for taking the long view, years and even decades into the future. Point was, its lease with the city was caught up in the debate currently being waged at City Hall surrounding urban drilling in Dallas. The council had displayed no interest in renewing its contract. Meanwhile, gas prices were rebounding but still fetching a fraction of their heyday. So, XTO left $15 million on the table and walked away. Maybe it was tired of the hassle. Maybe the price of natural gas wasn't worth the expense of producing it, and XTO decided to cut its losses (we never heard back from them on that question).
Trinity East faced the same challenges.
But what Blanton's presence communicated at these meetings and hearings, large and small, was that Trinity East could not walk away from that kind of money. "Nineteen million means far more to us than it would to Chesapeake or Range Resources," Blanton said, leaning into a high-backed, leather chair at the head of a heavy granite conference table in Trinity East's offices, his suit traded for a tucked-in button-down and jeans. "You've seen our operations. We're one floor. We're a few people. [Our well operator] Expro is here."
And so, on a recent afternoon at their office in downtown Fort Worth, he and company President Steve Fort were clearly miffed, and seemed more than a little worried. That was because the day before, the Dallas Plan Commission voted down their drilling permits for the second time. That meant the City Council would need a supermajority to approve them, and no one seemed entirely comfortable with the odds of getting that many votes. If that wasn't enough to make them antsy, the contracts they'd signed not just with the city but with landowners across Dallas County sure would. Contracts are like milk. Eventually, they expire. Trinity East's leases — its many cartons of milk — were going bad, and they didn't come with refunds.
Looking back on how this all began, Fort couldn't do much more than shake his head. "This outcome is really absurd if you think about it."
You do have to wonder, though, what Blanton and Fort were thinking when they looked to the city for cues back at the beginning. Perhaps they didn't see the scale and intensity of the fight coming their way. But it wouldn't have taken a reading of the tea leaves to figure out that the path to Dallas' vaporous riches was treacherous.
It isn't like Blanton and Fort showed up at City Hall, hats in hand like pitchmen carpetbagging from town to town. Back in 2007, when Trinity East and XTO approached with open wallets, it was no happy accident that the city also happened to need the money. City Manager Mary Suhm was out scrounging for cash because the city was looking to hire 200 new cops and shore up its budget against a $1.35 billion bond package whose debt service was lightening city coffers. A request for bids on the ribbon of theoretically producible shale was one solution to a looming budget crunch. And here were Trinity East and XTO, eager to inject a little liquidity into the problem.
The companies would pay $34 million, the equivalent of a 5 percent tax increase, and cut the city a share of whatever royalties their gas wells produced. Fort has said the figure, depending on prevailing gas prices at the time, could reach into the billions. With natural gas prices hovering at around $9 per million BTUs by the time the city picked the winning bids, that cut was shaping up to be substantial.
Trinity East had big plans for the land. The city of Dallas was by far the company's largest mineral owner, and it was that city land that formed the centerpiece of Trinity East's design. It wasn't just the total acreage. The land the city offered was contiguous and the ownership uniform — a driller's dream. That also meant, on just three tracts, the company wouldn't be drilling one or two wells per pad site, the way it did in Tarrant County. With this kind of elbow room, it planned to drill more than 50 wells, fracturing more shale, releasing more gas, making a hell of lot more money.
The city acreage did another thing too: It provided economies of scale the rest of the private parcels Trinity East was putting together in Dallas, Irving and Farmers Branch by themselves couldn't touch. "You've got one set of equipment for 20 wells, and it costs about the same to operate that as it does for five wells and we've got four times the production," Fort said. And it was that economies of scale, they believed, that held this web of properties together, made it worth producing. Not to mention the fact that the Dallas lease represented an integral link for the gas gathering lines connecting the properties in Irving and Farmers Branch.
It must have been heartening to see that so much of the groundwork at the municipal level had already been laid. City staff brought the council an ordinance change in September 2007 to remove "gas drilling and production" from the definition of mining, which was prohibited on parkland. This was critical, because parkland composed much of Trinity East's acreage.
"It was very clever," recalled council member Angela Hunt, a longtime opponent to drilling in Dallas. "And it wasn't described or discussed that way, and that was the effect of it. I voted against it anyway, but unfortunately council approved it."
Yet, by the time the City Council was briefed on the 8,000 acres Dallas planned to lease out, the message for Trinity East must have looked muddled, to say the least. In PowerPoint slides, city staff noted on two separate occasions, "There will be no drilling on city parkland."
The council was reminded, though, that the yearly budget was banking on gas drilling money.
"You'll remember that when we approved the budget, we approved the budget that included $20 million worth of revenues that were necessary to balance the budget that came from the oil and gas drilling," then-Mayor Tom Leppert told the council.
"We're six months into the budget now," Suhm picked up, "and it would be difficult to be able to make up this money."
There was little doubt the city wanted to develop its resources, but the question any driller should have been asking themselves by now was: How? Especially when Mark Duebner, the city staffer heading up the natural gas effort, assured the council that the leases the city was prepared to sign would not guarantee Trinity East and XTO the right to drill.
And when the Park Board met the following June, board Vice President Delia Jasso (who is now a council member) put forth a motion to approve subsurface drilling on parkland, but with one big caveat: Drilling on the surface of parkland should be prohibited. As Trinity East's managers would later note, the best places to drill — the most isolated, unpopulated, out-of-sight tracts, perfect for a battery of blaring diesel generators and glowing derrick lights — were on undeveloped stretches of parkland! But the drumbeat against it only got louder.
Later that month, then-Councilman Mitchell Rasansky sought further assurance that the surface of city parkland would remain unmolested. He didn't exactly get the answer he was looking for.
Yes, then-Park Director Paul Dyer said, but also no. There was one other property Trinity East was considering for drilling. It had been leased by radio station KVIL to site a tower that distributed its broadcast. Ownership had since reverted back to the city. It was a wild parcel behind the L.B. Houston Golf Course driving range.
"Well, that means it will come back to council, if there will be?" Rasansky pressed. "The city of Dallas has taken great efforts to ensure that none of the surface level will be disturbed."
At that point, Duebner, the lead city staffer, spoke up. He said they had only recently learned from Trinity East that the city owned the radio tower tract. It wasn't in the lease yet, he added, and would have to come back to the council for approval.
But it never did, and instead the tract quietly made its way into the final contract, much to the relief of Trinity East.
No one bothered to mention to council that in some quarters, drilling on the radio tower tract was a foregone conclusion. The deal Trinity East managers made with the city, they say, hinged on it. The company's plan didn't work if there weren't enough drill sites. "We made it a condition that we have drill sites before we would close on the lease — drill sites on the city land," Fort said. "The radio tower tract was critical, and it was a point of discussion, and it was a condition to our taking that lease."
On August 15, 2008, the day the city finally inked a lease agreement with Trinity East, Suhm signed a second agreement that wouldn't surface for another four and a half years — a single sheet of paper that could explain why Trinity East was so very copacetic while much of City Hall characterized central aspects of its drilling plan as unconscionable. Far from pledging to shield city parkland from drilling, Suhm was "reasonably confident that Trinity East can be granted the right to use the 22-acre tract referred to as the radio tower tract ... as a drillsite location ..."
"Trinity East is relying on these good faith representations of the staff in closing this transaction," it read. It also stated there were "no guarantees." About whether other assurances were made beyond the wording of the agreement, Trinity East's Fort would only say, "Would you buy farmland knowing you'd never be able to farm it? Who would do that?"
But if he hadn't already picked up on the prevailing sentiment at council, he must have noticed when even drilling proponent Sheffie Kadane was on the record five days after the agreement was signed, seeking assurances that there would be no parkland drilling.
"We will not be on the surface of any existing parkland. That is correct," Duebner agreed.
If that wasn't confirmation enough, then-Councilman Dave Neumann said, "My support today is clearly contingent upon the fact that we will not in any way, shape or form damage our parks. Period, the end. And Mary, you're telling us in no way, shape or form, our parks will be at risk?"
"We will bring each drilling site back to you," Suhm replied, leaving herself an opening, and leaving out the agreement with Trinity East she'd just signed. "We will talk to you about what the risks or concerns are, and we will make recommendations. We don't want to risk the parks, either."
"OK, that's not as clear and convincing as I wanted it."
"I said we don't want to risk the parks, either. That is not our intent."
With that understood, Tennell Atkins moved to approve the subsurface drilling of city parkland, and the motion passed. Read the council's resolution: "The city of Dallas is prohibiting surface level drilling and mineral production on parkland as part of the gas leases."
Well, at least officially.
The very month Trinity East signed with the city and forked over millions, natural gas prices had held at around $8 or $9 per million BTUs. Then they plunged, through a winter that should have buoyed them, all the way down to $3.50 by the following spring. Natural gas producers had become so efficient at plumbing the Barnett Shale that they glutted the market with more gas than it needed. But there were other forces at work. Companies like Chesapeake Energy, which had gone on a buying binge fueled by Wall Street, contractually couldn't stop drilling, even though natural gas prices weren't break-even. Others, like Trinity East, had use-it-or-lose-it clauses in their lease agreements. If it didn't drill by a certain date, it lost the millions paid not just to the city, but to the landowners the company signed across Dallas County.
For that reason alone, Trinity East must have happily renewed its lease with the city in July 2011. It should have noticed, however, the troublesome language therein. The contract said Trinity East understood that it had to get a special-use permit from the City Council to drill — a "police power that cannot be contracted away." The contract hedged the same way about drilling the Trinity River floodplain, which would first require an amendment to city ordinance. The contract Trinity East signed said, at root, that they did not have an unequivocal right to drill.
It only got worse from there. A task force was convened to study the issue and recommend a new drilling ordinance. They came back in March 2012 with a set of proposed rules Trinity East feared would prevent them from drilling.
In an indignant letter to the task force, Dallas Cothrum, Trinity East's representative before the city, leveled a not-so-veiled threat. "Prohibiting drilling in public parks is a complete reversal of the city's position when the leases were sold. In fact, two of the pending drill sites are on parklands ... not only were these sites advertised in the original [request for proposals], but they were also specifically identified by city staff before the leases were purchased. It will result in a breach of agreement."
But the task force recommendations remained just that. The City Council didn't take them up. Finally, on December 21, City Council put Trinity East's permits to the Plan Commission, where they were stuck at the tail end of a lengthy agenda. It didn't stop drilling opponents from lining up and begging the commissioners, who had no experience with this issue, not to approve. An approval here, they knew, meant a simple majority would carry the day at the City Council. A defeat meant passage would require a supermajority. Four votes on the City Council could scuttle Trinity East's permits.
The commissioners were clearly uneasy with approving permits when the task force's proposed ordinance waited for council approval — an ordinance that would outlaw the centerpiece of Trinity East's plan. What's more, a few of the commissioners weren't sure whether they even could. The council would have to amend city code to allow drilling in a floodplain, and first hold a separate, public hearing about drilling parkland.
"I don't think we are in any position to authorize permits at a time when doing so is contrary to city ordinance," Commissioner Paul Ridley said. "This should be addressed by the City Council — elected officials — not us."
The commission voted to deny, and Trinity East's managers went on Christmas vacation knowing the hurdle had just gotten higher. But by the time everyone was back, Joe Alcantar, chairman of the Plan Commission, had moved for the body to take a second look at the permits, prompting outrage from opponents, befuddlement from fellow commissioners and an ethics complaint for an alleged breach of open meetings law. "It was an extraordinary procedure for the Plan Commission to reconsider a denial when there had been no apparent change in facts," Commissioner Ridley later recalled.
Extraordinary, sure. In Sally Wolfish's six years on the commission, she said she'd seen it happen twice. But it wasn't that extraordinary if you considered the fact that Alcantar was an appointee of Mayor Mike Rawlings, who was at the time warning that the city could face a lawsuit if Trinity East didn't get its permits.
"It's clear that there was a lot of institutional interest in having the Plan Commission approve these applications," Ridley said.
Trinity East's parent, Keystone Exploration, did have some experience both with getting stymied at the municipal level and in suing as a result. In December 2010, it sued Flower Mound when the town's oil and gas board wouldn't grant it an exemption to the town's stringent drilling ordinance. "Keystone filed in the district court and then nothing has happened," said Terry Welch, Flower Mound city attorney and a former member of Dallas' gas drilling task force. "I don't think they have the money to start fighting it."
But it wasn't just a question of money, Welch said. Would it even be in their best interest? "There's all kinds of case law about technical lease issues, but none about what is the power of a city to regulate gas drilling in corporate limits," he said. "There really isn't. So there is a lot of uncertainty and a lot of questions people don't know the answer to on both sides. Who wants to step up and be the test case?"
Or to suffer a precedent-setting loss, on either side?
There was also the matter of the lease renewal the company signed in 2011, which cautioned in crystalline terms that an unwieldy City Council — the municipal police power — could derail its plans. "When Trinity East signed this lease agreement originally, legally they weren't allowed to drill in parks or a floodplain," Councilwoman Angela Hunt said. "They knew that. They've been watching the city tell the Park Board and the public for months that there would be no drilling on parkland."
Apart from the alleged "breach" Cothrum referenced in his memo, Trinity East won't talk about suing the city.
Hunt, who was a commercial litigator before she joined the council, said she'd take the case any day. The mayor, on the other hand, was publicly fretting about the possibility, saying a "deal has been cut," but leaving the shape of that deal a mystery. It may have been Suhm's pledge to assist Trinity East that had him worried. Either way, that was about to be exposed to daylight. On February 6 the Observer obtained a copy of the agreement Suhm signed with Trinity East, pledging to help the company drill parkland while at the same time assuring the City Council that there were no such plans.
Three weeks later, the council convened so Suhm could explain, and so Hunt and Councilman Scott Griggs could ask questions. As it happened, they were the only ones who had any.
Even Suhm's practiced look of pained forbearance had to have been tested that day in City Council chambers. It was quiet in there, like everyone all at once held their breath — everyone except Hunt, who was at that very moment accusing Suhm of various acts of mendacity, committed mostly by omission.
Suhm tried to explain that she'd been tasked by the council with sniffing out new sources of revenue for the city. She tried to explain that in 2008 she was facing down a $90 million budget deficit. And that the city had maxed out its credit card on a $1.35 billion bond package approved by voters in 2006. And that, through all of it, she had managed to put that budget to rights without raising taxes, per Mayor Tom Leppert's instruction. That's what this hearing was for, after all. To let Suhm get it all out in the open, explain things. None of it mollified Hunt.
"You had every opportunity to clear the air on this, Mary, and we had to wait five years to get the facts," she said. "I'm telling you, I don't buy it."
She wasn't buying City Attorney Tom Perkins' legal opinion that Suhm was in fact within her rights to authorize the lease, either. "I believe we need an independent investigation on this to look at all the facts and make a separate legal conclusion about whether there was any wrongdoing."
Griggs said he found it troubling that a "side deal" was signed within five days of a council meeting where drilling parkland was understood to be verboten. "The difference is only five days," Griggs stressed. "Every single briefing made the point there will be no drilling on surface parkland. That represents a fundamental policy within the lease."
What's more, the lease had been altered without the council's knowledge, Griggs continued.
Suhm countered that city staff didn't think the lease had actually been changed, and as a result didn't believe it needed to come back to the council.
"Granted, that is not as clear as it should have been," Suhm conceded.
At that point, Councilman Dwaine Caraway stepped in to defend the city manager, saying she'd been completely forthright. "You're always gonna have some haters," he said.
Councilwoman Delia Jasso, who was on the Park Board in 2008 when she moved to approve a resolution against drilling on parkland, called Griggs' and Hunt's questions rank "pandering" and "character assassination."
But perhaps the most spirited defense of Suhm came from Councilwoman Vonciel Jones Hill, who likened the city manager to Christ on the cross. "Those who affixed those gallows to you may themselves hang on those gallows," she said. "Ms. Suhm, this is a Good Friday morning. But I guarantee to you from the faith well into which I reach, your Easter is coming, and I guarantee you will sail forth."
And then it was all over. Mayor Rawlings told the audience they were "witnessing democracy in action." Now it was time, he continued, to move on and be good stewards of taxpayer money. And, Blanton and Fort hoped, their own.
They put on brave faces in their office the day after the Plan Commission voted a second time to reject Trinity East's request. If the company doesn't drill, "we go on," Blanton said. "It'd be a sad day. How would you feel about losing $19 million?"
"It's much more than that," Fort interjected.
In more dire moments, their representative Dallas Cothrum called the prospect a "business-killer."
Hunt says it was a clear-eyed gamble that hasn't so far paid off. Trinity East says its simple business was distorted in the funhouse mirror of politics and uninformed environmentalism.
Regardless, the way forward isn't clear. If the council votes before May, it's likely drilling opponents can muster the four votes to block Trinity East. If they wait until after, term limits and elections may shape the council in unpredictable ways. Hunt and Griggs signed a memo asking for a vote this month. Given that theirs were the only signatures, the other members may not be too keen on taking up such a divisive issue in the midst of campaign season.
Meanwhile, Trinity East is running out of time. "Bottom line, this is the time to drill," Blanton said. "We have leases expiring and you have to secure that."
They can make a profit, they say, but not if wells haven't been spudded by the expiration dates. There are ways, Blanton says, of "throttling down" production on a well, to extract less gas and wait for the prices to come back up. He knows they will. They always do. "But that's our decision," he said. "It's no one else's decision. Let us make those choices. It's not them with the money in it. It's not them with the exposure."
