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Industry Wants Texas Court to Revisit Eminent Domain Decision

The Texas Supreme Court may soon decide on a request to revisit a 2011 opinion on the use of eminent domain that some industry representatives say could stymie the efforts of companies trying to build oil and gas pipelines to service growing production in the state's shale plays.

The case (No. 09-0901), which was argued before the Texas Supreme Court last April, pitted Denbury Green Pipeline-Texas LLC against Texas Rice Land Partners, which refused to let Denbury survey two pieces of land in Jefferson County, TX, for a proposed pipeline to connect Denbury's Jackson Dome carbon dioxide (CO2) reserve in Mississippi to oil wells in the Hastings Field in Brazoria and Galveston counties in Texas. Denbury took the landowners to court, where Denbury was initially found to be a "common carrier" that could invoke eminent domain, and Texas Rice was enjoined from interfering with the company's "right to enter and survey" its proposed pipeline route across Texas Rice land.

Texas Rice fought the ruling to the Texas Supreme Court, which last August reversed the lower court decision, saying that pipeline companies can only use eminent domain when the project in question is for public use.

"To qualify as a common carrier with the power of eminent domain, the pipeline must serve the public.. [E]xtending the power of eminent domain to the taking of property for a private use cannot survive constitutional scrutiny," the court said in its decision. "The Denbury Green pipeline would not serve a public purpose if it were built and maintained only to transport gas belonging to Denbury from one Denbury site to another. As a constitutional matter, we can see no purpose other than a purely private one in such circumstances."

The decision about whether Denbury's pipeline would serve a public or a private use should not have been decided by the Railroad Commission of Texas (RRC), which had issued the company a permit to operate the pipeline in 2008, the court said.

"We have long held that 'the ultimate question of whether a particular use is a public use is a judicial question to be decided by the courts,'" the court said in its decision. "We have also held in numerous contexts that the commission does not have authority to determine property rights."

In a series of briefs filed since then, industry representatives have asked the Texas Supreme Court to reconsider its decision.

"The fact that virtually the entire Texas and national oil and gas industry has joined in submitting a unified amicus brief in this case confirms the devastating impact this court's opinion will have on the industry as a whole," according to a filing tendered on behalf of the Texas Pipeline Association, Gas Processors Association, Atmos Energy Corp., Texas Association of Business, Natural Gas Supply Association, Association of Oil Pipelines, Independent Petroleum Association of America and Texas Oil & Gas Association. While supporters of the decision say it pertains only to CO2 pipelines, the industry thinks the opinion "is written in such broad terms that it is susceptible to application to all types of pipelines," and it "gives no guidance about what evidence will satisfy the new test, other than to say evidence of regulation by the Railroad Commission is not enough."

Energy Transfer Partners subsidiary ETC NGL Transport LLC, which claims to be the largest intrastate pipeline system in Texas, said in its filing that it is already feeling the repercussions of the decision. Based on the Texas Supreme Court opinion, a county court recently issued a temporary injunction precluding ETC from taking possession of an easement "and quickly harming ETC's project, which is much needed by producers in the Eagle Ford Shale area of Texas."

And the RRC in its filing said the court's decision "appears to move the determination of regulatory status to the courts for a case-by-case determination," and "will likely make it more difficult to obtain pipeline right-or-way easements in Texas and could significantly impact the development of needed pipeline infrastructure within the state."

But "the sky is not falling," according to the Texas Farm Bureau, which supports the court's 2011 decision.

"The court's opinion construes a single statute relating to carbon dioxide pipelines and allows property owners to challenge the common carrier status of the condemner," according to the bureau. "The extent to which the opinion is applicable to other types of pipelines, operating under different statutory authority, is not yet determined."

The Texas Supreme Court could decide as early as Friday to either let its previous decision stand, amend that decision or rehear the case.

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