pipelineWe now know what it takes to establish common carrier pipeline status in Texas.  According to the Texas Supreme Court in Denbury Green Pipeline Texas LLC v. Texas Rice Land Partners Ltd., all that is required is a reasonable probability that the pipeline will, at some point after construction, serve the public by transporting a product for one or more customers who will either retain ownership or sell it to parties other than the carrier. A “reasonable probability” is “more likely than not”.

Summary judgment evidence established a reasonable probability that at some point after construction, Denbury Green’s CO2 pipeline known as the Green Line would serve the public, and thus Denbury Green is a common carrier as a matter of law. This means no jury trial in Jefferson County at which common-carrier status would be the issue.

A long history

In its original opinion first time up the appellate ladder, the court held that “checking the box” on Railroad Commission Form T-4 was insufficient to establish that a pipeline is a common carrier. The record showed only the possibility of future customers, which is not the same as a probability. Plus, there was objective evidence – from Denbury’s own web site – of its intent to use the pipeline solely for its own purposes. After that opinion, the court of appeals found that the facts at the trial court did not establish common carrier status.

This time around, though, Denbury presented evidence necessary to make its case. For example:

  • Testimony that the line was designed to be close to refineries, plants and other facilities that could use the line to transport and store CO2.
  • Transportation agreements with two unaffiliated entities and a sister company acting on behalf of itself and working interest owners unaffiliated with Denbury.

This was “reasonable proof of a future customer”, thereby demonstrating that the line will transport to or for the public for hire and is not limited in its use to the wells, stations, plants and refineries of the owner.

How else can we make it easier?

The Supreme Court removed two court of appeals-imposed hurdles to common-carrier status:

  • The court eliminated the requirement that agreements with third parties be sufficiently substantial to establish common-carrier status as a matter of law. The Supreme Court ruled that the public interest need not be “substantial”. Evidence of a “reasonable probability”, etc. is substantial enough to satisfy the public use requirement.
  • Evidence is no longer limited to pre-construction events or the proponent’s subjective intent or beliefs at the time of its plan to construct the line.  Post-construction contracts are relevant to the analysis.

Left for another day is whether a contract between affiliated entities that may benefit unaffiliated working interest owners is sufficient to establish common carrier status.

A musical interlude.