Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC

November 30, 2013 § Leave a comment

The supreme court’s decisions in Texas Rice Land Partners v. Denbury Green Pipeline-Texas, LLC[1] and the Texas Legislature’s unanimous passage of Senate Bill 18 – reflect the trend to provide greater protections to landowners.

What has now come to be known as a “Denbury Challenge” is arguably a rejection of the historically established process through which pipeline companies attained their right of eminent domain. The Court begins by stating “the Texas Constitution safeguards private property by declaring that eminent domain can only be exercised for ‘public use.’”[1] The ruling holds that simply checking off a box on a government form designating the pipeline as a “common carrier” is not sufficient to assume it is to be used as such.[2] The Court found that simply filling out the Form T-4 permit and filing it with the Texas Railroad Commission was not conclusive proof of common carrier status and, therefore, a public use.[3] In order for a pipeline to be considered a “common carrier”, the Court explained that the users must be more than the corporation funding the project or its subsequent affiliates; it must be open to public use.[4] However, it is the notion of “affiliate” that Denbury attempted to use to establish their right to eminent domain.[5] The term has been translated as referring to a body with some sort of operational control, percentage ownership of the parent company, or both. Unfortunately for the pipeline company, which is actually a subsidiary of a subsidiary of Denbury Resources, Inc., it was classified as an “affiliate” of the parent corporation, and therefore restricted from claiming “common carrier” status and subsequent eminent domain rights.[6]

But Denbury was not a direct challenge on the right to condemn, but rather the landowner’s refusal to allow the pipeline company access to survey his land. As part of the eminent-domain process, a pipeline company often needs to gain the right to survey a parcel of land early in the condemnation process. If consent is not given by the landowner, then the pipeline company may be forced to file a Temporary Restraining Order (TRO) against the landowner. During this process, the company must also designate whether it claims “common carrier” status. To claim this designation, pipeline companies often produce the Form T-4 permits from the Texas Railroad Commission to establish a public use. To be considered a common carrier, a pipeline company is required to “present reasonable proof of a future customer”, one “who will either retain ownership of their gas or sell it to parties other than the carrier”.[7] The Texas Supreme Court rejected the Form T-4 as conclusive proof of public use and looked to other evidence such as the company’s own website.[8] The Court explained:

Under our test, Denbury Green did not establish common-carrier status as a matter of law. A Denbury Green vice president attested that Denbury Green was negotiating with other parties to transport anthropogenic CO2 in the pipeline, and that the pipeline “can transport carbon dioxide tendered by Denbury entities as well as carbon dioxide tendered from other entities and facilities not owned by Denbury.” This affidavit does not indicate whether Denbury Green itself intended to use all of that gas for its own tertiary recovery operations. As discussed above, a carrier is not a common carrier if it transports gas only for its own consumption. The witness also stated in his deposition that the CO2 carried in the pipeline would be owned by affiliate Denbury Onshore, but that there was “the possibility we’ll be transporting other people’s CO2 in the future.” He did not identify any possible customers and was unaware of any other entity unaffiliated with Denbury Green that owned CO2 near the pipeline route in Louisiana and Mississippi. This evidence does not establish a reasonable probability that such transportation would ever occur. Further, the record includes portions of Denbury’s own website that suggest the pipeline would be exclusively for private use.[9]

Although Denbury did not provide enough evidence to prove its common carrier status, the Denbury decision may arguably be limited to challenging common carrier status of carbon dioxide and hydrogen pipelines.[10] Nevertheless, pipeline companies should expect disclosure requests, discovery, and litigation regarding whether the Denbury decision should be extended to other common-carrier pipelines that follow a similar T-4 application process.[11]

[1] Id. at 195.

[2] Id. at 204.

[3] Id. at 198.

[4] Id. at 200.

[5] See id.

[6] See id. at 200-01.

[7] Ken McKay, The Denbury Decision: What it Says, What it Doesn’t Say & What People Say it Says, University of Texas School of Law: 11th Annual Gas and Power Institute (2012); Denbury, 363 S.W.3d at 204.

[8] Denbury, 363 S.W.3d at 202-03.

[9] Id.

[10] Id. at 202 n. 28; see also Rhinoceros Ventures Group, Inc. v. TransCanada Keystone Pipeline, L.P., 388 S.W.3d 405, 409 (Tex.App.—Beaumont 2012, pet. filed) (noting that the Denbury opinion is limited to person seeking common-carrier pipeline status under Section 111.002(6) and expressed no opinion concerning other pipelines).

[11] Ken McKay, The Denbury Decision: What it Says, What it Doesn’t Say & What People Say it Says, University of Texas School of Law: 11th Annual Gas and Power Institute (2012).

[1] Texas Rice Land Partners, Ltd. v. Denbury Green Pipeline-Texas, LLC, 363 S.W.3d 192 (Tex. 2012); see also 381 S.W.3d 465 (Tex. 2012) (denying rehearing).

[2] LaSalle Pipeline, LP v. Donnell Lands, L.P., 336 S.W.3d 306 (Tex. 2011).

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