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American Central Gas Technologies Co. was awarded $8.3 millionlast week after an arbitrator ruled that Union Pacific Resourcesand Duke Energy Field Services had monopolized natural gasprocessing in Panola County, the largest natural gas producingcounty in East Texas.
In the binding arbitration award, arbitrator Harlan Martin ruledthat UPR/Duke monopolized natural gas processing in the area.Martin, who released his order July 27, wrote that UPR/Duke “haswillfully acquired and maintained monopoly power through a seriesof overt acts intended to prevent potential competition and theentry of others in the Panola County gas processing business.” Theruling is considered significant because UPR and Duke were found tohave violated federal antitrust laws.
Although Duke Energy had objected, U.S. District Judge T. JohnWard of Tyler, TX, ruled last week that Martin’s order could bemade public.
According to the arbitration order, UPR/Duke processes more than90% of all gas processed in Panola County. In January 1997,American Central, headquartered in Tulsa, contracted with UPR/Duketo process its natural gas until December 2005. On April 1, 1999,Duke assumed the contract. American Central then filed the lawsuit,charging that it had been prevented from competing on its own.
The arbitrator awarded actual damages of $7.3 million andattorney fees of $1.8 million. He subtracted $762,000 from theaward for an overpayment by UPR to American Central for residuegas. The monetary damages were solely assessed against UPR, whichis a wholly owned subsidiary of Anadarko Petroleum Co.. based inHouston.
“This ruling by Judge Martin is the first victory toward endingthe monopolistic practices that have plagued the producers inPanola County for many years,” said Stephen E. Jackson, CEO ofAmerican Central. “American Central will continue to do everythingpossible to restore effective competition to give every producerand royalty owner the services they deserve and the profits theyhave rightfully earned.”
Thomas Paterson, a partner with Susman Godfrey in Houston andone of American Central’s attorneys, said that his client “had theguts to take on the biggest natural gas processing player in EastTexas. As a result of their victory, producers and other gasprocessing customers in Panola County may soon get some competitionin gas processing, and, hopefully, lower processing costs.”
Sam Baxter, a partner with Dallas law firm McKool Smith, workedwith Paterson on the American Central case, and said that eventhough monopoly claims are hard to prove, “this is an importantresult for our client, but it’s also a declaration that UPR andDuke have monopolized natural gas processing in Panola County.”
American Central gathers, treats and processes natural gas as aservice to oil and gas producers. It constructs pipelines to gathergas from individual wells and then aggregates the gas fromproducing wells for compression, dehydration and processing. Itthen delivers the gas to various inter- and intrastate long-haultransmission pipelines.
In July, the U.S. Department of Justice announced that UPR wouldpay $2.7 million to settle charges that it had underpaid royaltiesdue on crude oil drilled from federal and Indian leases. Thesettlement covered underpayments back to 1988, and endedallegations brought by whistle-blowers that UPR, along with otheroil companies, tried to short-change the government for royaltyfees.
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