obtaining and expanding pipeline capacity in the shale oil and gas revolution

Obtaining and Expanding Pipeline Capacity in the Shale Oil and Gas

Revolution

The Denbury Decision – Its Impact on Pipeline Construction and How the

Legislature and Railroad Commission Will Respond

January 16, 2013

Benjamin RhemJackson Walker [email protected]• 512.236.2012

Discussion Outline

• The Denbury Decision

• Impact on Pipeline Construction

• Railroad Commission’s Response

• Legislature’s Response

The Denbury Decision

• The Facts:– Denbury was planning the route for a CO2

pipeline from Mississippi to East Texas for enhanced oil recovery

– Denbury was attempting to access the property of Texas Rice for survey purposes

– Landowners denied access– Denbury sued Texas Rice for an injunction to

allow it access to the property

The Denbury Decision• The Facts:

– On MSJ, trial court found that Denbury was a “common carrier” and has eminent domain authority under Nat. Res. Code § 111.019

– Trial court’s determination was based, in large part, on the Commission’s approval of the T-4 permit application

– Decision affirmed by the appellate court, relying on the fact that the pipeline “will be available for public use”


• The 9th Court of Appeals’ decision was appealed to the Supreme Court

• The Issue:– Whether Denbury had established its

common carrier status as a matter of law because it had filed an application for a T-4 Permit with the Texas Railroad Commission, which the Commission had approved.


• The Holding:– merely filing the paperwork and offering to make the

pipeline available for public use does not make the pipeline a “common carrier” with the power of eminent domain.

– “for a person intending to build a CO2 pipeline to qualify as a common carrier … a reasonable probability must exist that the pipeline will at some point after construction serve the public by transporting gas for one or more customers …”

The Denbury Decision• A New Standard:

– A T-4 permit alone does not establish common-carrier status

– Must demonstrate a “reasonable probability” that the pipeline will serve the public

• The Court did not hold that Denbury was not a common-carrier – only that Denbury was not entitled to a summary judgment on whether it was a common carrier under the Court’s new test


• Concerns– Narrowly tailored decision as written

• Common-carriers• Intending to build• CO2 pipelines

– But how long until the Denbury approach is applied to other types of pipelines?


• Concerns (cont.)– Litigation at every step – county-by-county

• Consistency– 456 District courts and 222 county courts at law– 678 potential venues

• Timeliness– Individual trials will greatly increase the time necessary

to develop needed infrastructure

– Regulatory uncertainty in Texas will cause investment dollars to go elsewhere

Response to Denbury

• Twofold process– Create more robust review at the

Commission?• Agency rulemaking

– Limit the approval or denial of T-4 permit to be solely within the jurisdiction of the Railroad Commission?• Amendment to Nat. Res. Code

The “New” T-4 Permit Process

• Create a more robust T-4 application process?– Evidentiary hearing process within the

Commission– Findings of fact and conclusions of law– Goal is to keep the permitting process within

the Commission’s domain

The “New” T-4 Permit Process

• What would a hearing at the Commission decide?– Whether third party shippers would want to use the

pipeline– Whether a public statement (i.e., tariff or

advertisement) that pipeline is available has been made

– Whether a “public use” has been established– Does the pipeline meet the legislative test to be a

“common carrier”

Legislature’s Response

• Amend Nat. Res. Code– Insulate the T-4 permitting process– Approval or denial of T-4 permit would be solely within

the jurisdiction of the Railroad Commission – Creates a process with one hearing, as opposed to

allowing multiple hearings within each county– Appeals of a T-4 permit decision would go to Travis

County District Court → Third Court of Appeals → Supreme Court

Ways to Influence the Outcome

• Engage the Commission – Follow the rulemaking– Submit comments– Don’t just say what you don’t like, but offer

constructive solutions• Contact trade associations and legislators

– House Committee on Land and Resource Management has held several hearings on the issue and needs to hear from you

QUESTIONS?

[email protected]

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