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Obtaining and Expanding Pipeline Capacity in the Shale Oil and Gas Revolution

January 16, 2013 Benjamin Rhem Jackson Walker L.L.P. brhem@jw.com• 512.236.2012. 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.

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Obtaining and Expanding Pipeline Capacity in the Shale Oil and Gas Revolution

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  1. January 16, 2013 Benjamin Rhem Jackson Walker L.L.P. brhem@jw.com• 512.236.2012 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

  2. Discussion Outline • The Denbury Decision • Impact on Pipeline Construction • Railroad Commission’s Response • Legislature’s Response

  3. 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

  4. 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”

  5. The Denbury Decision • 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.

  6. The Denbury Decision • 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 …”

  7. 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

  8. The Denbury Decision • 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?

  9. The Denbury Decision • 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

  10. 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

  11. 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

  12. 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”

  13. 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

  14. 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

  15. QUESTIONS? brhem@jw.com

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