• Texas Supreme Court Ruling May Slow the Installation of Certain Pipelines
  • November 4, 2011 | Author: C. Brannon Robertson
  • Law Firm: King & Spalding LLP - Houston Office
  • There are over 150,000 miles of intrastate pipelines in Texas. In addition to natural gas, the lines transport many other products related to the oil and gas industry—crude oil, condensate, carbon dioxide, and more. This pipeline system is of national importance, as Texas is not only a major source of domestic energy production, but also the center of much of the nation’s refining and petrochemical activity. Yet a recent Texas Supreme Court decision may make it harder for pipeline owners to install new lines that transport products other than natural gas.

    A pipeline may cross hundreds of different private properties. To make such a system possible, the Texas Legislature confers upon private pipeline owners the power of eminent domain. For example, the Texas Natural Resources Code section 111 et seq. gives the power of eminent domain to crude oil, coal, hydrogen, and carbon dioxide transporters. But entitlement to this power requires that the private pipeline be a “common carrier” available for “public use.” If the pipeline is only for the private use of the owner, then it cannot invoke eminent domain to condemn an easement along its proposed route.

    Historically, whether or not a pipeline company is a common carrier has largely been for the company itself to decide, almost by fiat. In effect, a Texas pipeline was for public use if the pipeline company said that it was. But a recent Texas Supreme Court decision—Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC [1]—may change this historic rule.

    Respondent Denbury is in the business of tertiary recovery; it utilizes the injection of CO2 to increase oil well production. Denbury owns a naturally occurring CO2 reserve in Mississippi, and it sought to build a pipeline to transport the CO2 to various Texas production fields. Denbury applied with the Texas Railroad Commission—which regulates the oil and gas industry in Texas—for permission to operate the line. Denbury completed the Commission’s standard one-page permit application—known as a Form T-4—and indicated that the pipeline would be operated as a common line. Eight days later, the Commission granted the T-4 permit and classified the proposed line as a common carrier pipeline, thereby conferring eminent domain powers on Denbury.

    Denbury began surveying the line, including two tracts of land owned by Texas Rice Land Partners, which refused Denbury permission onto its land and sought an injunction barring Denbury from entering its property. The trial court granted summary judgment in Denbury’s favor. The matter eventually came to the Texas Supreme Court.

    While the Supreme Court recognized that private pipeline companies “plainly” have the power of eminent domain in Texas, it held “that authority is subject to special scrutiny by the courts.” First, the Court held that the mere granting of a common carrier permit by the Railroad Commission does conclusively establish status as a common carrier. Importantly, the evidence showed that the Commission had never denied a common carrier permit to an applicant, and that the Commission undertakes no effort to determine that the pipeline will actually be available for public use. Second, the Court held that Denbury was not entitled to common carrier status simply because it said that it would make its pipeline available to others wishing to transport CO2. Instead, to qualify as a common carrier, the Court held that a “reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting [CO2] for customers who will either retain ownership of their [CO2] or sell it to parties other than the carrier.” The burden of proof falls on the pipeline company. The Court remanded Denbury to trial court where it must now meet this burden.

    Pipeline owners should carefully consider the impact of the Denbury decision on their expansion plans. In particular, going forward, they will likely have to pay more than lip service to the claim that their pipelines will be available for public use, should they wish to exercise eminent domain powers.

    Finally, it should be noted that the decision may have less of an impact on natural gas transporters, as opposed to carries of other oilfield liquids, as natural gas transporters may be able to rely on the on their status as a public utility to exercise eminent domain, even if they are not a common carrier. See, e.g., Mercier v. MidTexas Pipeline Co., 28 S.W.3d 712, 718 (Tex. App.—Corpus Christi 2000, pet. denied) disapproved on other grounds by Hubenak v. San Jacinto Gas Transmission Co., 141 S.W.3d 172 (Tex. 2004).

    [1] http://www.supreme.courts.state.tx.us/historical/2011/aug/090901.pdf