2017 Q1

Background: Denbury seeks to construct “Green Line” over TRLP land This saga began back in 2007, when Denbury sought to survey and construct a CO2 pipeline over land owned by Texas Rice Land Partners (“TRLP”). Denbury’s subsidiary, Denbury Green, was formed to build, own, and operate a CO2 pipeline, referred to as the “Green Line,” as a common carrier.  The Green Line was to cross over rice farming land owned by TRLP in Jefferson County, Texas.  TRLP denied Denbury access to survey for the pipeline. In response, Denbury filed a T-4 permit with the Texas Railroad Commission to obtain common carrier status and exercise eminent domain authority under Tex. Nat. Res. Code § 111.019(a) (“Common carriers have the right and power of eminent domain.”).  Denbury then filed suit against TRLP for an injunction. Meanwhile, as TRLP was challenging Denbury’s eminent domain authority, Denbury surveyed and constructed the Green Line pursuant to Tex. Prop. Code § 21.021(a), which allows a condemnor to take possession even while the property owner challenges the condemnor’s eminent domain authority. Prior to Texas Rice I, a Texas pipeline owner could argue that it was a common carrier with the power of eminent domain simply because it had declared itself a common carrier on an RRC form.  That changed in Texas Rice I, when the Texas Supreme Court held that the Texas Constitution requires objective evidence that the pipeline will probably serve the public, rather than the builder’s exclusive use. Texas Rice I set forth a more stringent test for determining whether a pipeline company qualifies as a common carrier: for a person intending to build a CO2 pipeline to qualify as a common carrier under Section 111.002(6) [of the Natural Resources Code], 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 who will either retain ownership of their gas or sell it to parties other than the carrier. [3] Denbury/Texas Rice I: Texas Supreme Court established the “Reasonable Probability Test”

“more likely than not.”

In Texas Rice I, the Texas Supreme Court held that Denbury’s evidence of intent to negotiate with unaffiliated parties, without more, established only a “possibility,” and not a “reasonable probability,” that the pipeline would serve the public at some point after construction. Moreover, the court held that the testimony suggested that Denbury Green would transport gas only for its own operations, rather than for any unaffiliated parties. The case was remanded to the trial court for further proceedings. On remand to the Jefferson County District Court, Denbury presented the following post-construction contracts as evidence: 1. A transportation agreement with the unaffiliated entity, Airgas Carbonic, Inc. that was entered into in January, 2013, after the pipeline was already constructed. Under this agreement, Denbury transported CO2 owned by Airgas Carbonic to an Airgas Carbonic manufacturing plant, which was ultimately sold to Airgas customers in the Houston area. finalized sometime after the pipeline was already constructed. Air Products captures and sequesters CO2. Under this agreement, Air Products ships captured CO2 into the Green Line at the Louisiana border, and title and ownership of the CO2 transfers to Denbury Green. Denbury Green then uses the CO2 in tertiary recovery operations, and ultimately sequesters the CO2 underground. On the basis of this evidence, the trial court granted Denbury’s motion for summary judgment, holding that Denbury Green was a common carrier with the right of eminent domain. 2. A transportation agreement with the unaffiliated entity, Air Products and Chemicals, Inc., which was Denbury/Texas Rice II

Beaumont Court of Appeals Sides with Landowners

The Beaumont Court of Appeals disregarded Denbury’s post-construction contracts, and reversed the trial court, essentially holding that a pipeline company must prove that it had the requisite intent at the time

Under this test, a “reasonable probability” is one that is


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