A Fracking Mess: Just Compensation for Regulatory Takings of Oil and Gas Property Rights

As the Trump administration tries to roll back federal regulations on the oil and gas industry, constituents depend on state and local governments for protection from the worst impacts of industrial-scale fracking. Yet as the debate about proper regulation of the oil and gas industry continues, the specter of potential takings liability looms over the public discourse. Such liability is premised on the idea that government regulation of fracking might constitute a taking of private property that requires payment of just compensation — that is, the amount of money that should be paid to owners if indeed there is a taking. I have previously defined this type of claim as “fracking-takings.” These claims are unlikely to succeed for a variety of reasons, but the potentially large and uncertain liability on government calls for considered analysis of how fracking-takings claims would be valued.

This Article aims to fill a gap in the existing literature by using the example of fracking-takings to examine the valuation framework for regulatory takings claims. No detailed treatment of this topic exists outside the context of land valuation. Just as in other areas, the rapid technological development that has enabled the recent fracking boom provides a useful opportunity to examine the law of just compensation.

This Article advances two key points regarding just compensation for fracking-takings claims. First, the standard valuation method of fair market value presents difficult, perhaps impossible problems of evidence. This makes valuing fracking-takings claims highly uncertain, which undercuts the efficiency goal of just compensation. Second, even putting aside those evidentiary hurdles, equating the fair market value of taken property with just compensation in the fracking-takings context would frustrate the fairness goal underpinning takings law by risking a windfall for the property owner at public expense and shifting the risks of oil and gas development to the government. Thus, courts should avoid an all-or-nothing approach and carefully calibrate just compensation based on the facts of each case. Moreover, government regulators should not fear takings liability, since threatened liability would violate the theoretical framework underpinning just compensation law and therefore is unlikely to be unduly burdensome.