452 Crosstex NGL Pipeline, L.P. v. Reins Rd. Farms-1, Ltd.

Richard F. Brown

 
The following is not a legal opinion.  You should consult your attorney if the case may be of significance to you.
 
Crosstex NGL Pipeline, L.P. v. Reins Rd. Farms-1, Ltd., 404 S.W.3d 754 (Tex. App.—Beaumont 2013, no pet.) held that under the statutes granting pipelines the right to condemn a right of way, the pipeline must be for a public use and a natural gas liquids pipeline may not fit within the statutory requirement that the pipeline be a “crude petroleum pipeline.”  When Reins Road Farms-1 Ltd. (“RRF”) repeatedly refused Crosstex NGL Pipeline, L.P. (“Crosstex”) access to its property to survey for Crosstex’s planned natural gas liquids pipeline, Crosstex filed for declaratory judgment and a temporary injunction preventing RRF from interfering with its right as a common carrier to access and survey RRF’s tract of land.  RRF argued that Crosstex could not establish its status as a common carrier or that the pipeline would be used by the public.  The trial court held a hearing on Crosstex’s request for a temporary injunction and denied the request without making written findings of fact or conclusions of law.  On appeal, Crosstex claimed the trial court abused its discretion in failing to grant the temporary injunction claiming: (i) its pipelines are a crude petroleum line given common carrier status under Section 111.002(1) of the Texas Natural Resources Code, and (ii) Crosstex is entitled to common carrier status under Section 2.105 of the Texas Business Organizations Code because the pipeline is available for public use.
 
In response to Crosstex’s claim that its pipeline is a “crude petroleum line,” RRF contended that pipelines carrying natural gas liquids are not crude petroleum pipelines, and therefore the trial court did not abuse its discretion in refusing to grant the temporary injunction.  The court considered the Webster’s Dictionary definition of “crude petroleum” as “petroleum as it occurs naturally, as it comes from an oil well, or after extraneous substances (as entrained water, gas, and minerals) have been removed.”  The court also considered the Texas Natural Resource Code’s definition of “crude oil” as “any naturally occurring liquid hydrocarbon at atmospheric temperature and pressure coming from the earth, including condensate.”  Because Crosstex’s Vice President of Corporate Development testified at the temporary injunction hearing that the natural gas liquids transported in the pipeline are extracted from a stream of crude gas by subjecting the crude gas to temperatures well below freezing, the appeals court held that the trial court could determine that a natural gas liquids pipeline is different than a crude petroleum pipeline.  Therefore, the trial court did not abuse its discretion in rejecting Crosstex’s claim that its natural gas liquids pipeline qualifies as a crude petroleum pipeline entitling Crosstex to common carrier status under Section 111.002(1) of the Texas Natural Resources Code.
 
In response to Crosstex’s claim that it qualified for common carrier status under Section 2.105 of the Texas Business Organization Code because its pipeline would be open for use by the public, RRF pointed to evidence submitted at the temporary injunction hearing that the Crosstex pipeline’s maximum capacity would be 70,000 barrels per day and that Crosstex had a pre-existing commitment to provide its affiliates with 70,000 barrels a day, leaving virtually no capacity for customers’ natural gas liquids.  Four of the five contracts Crosstex produced as evidence of its efforts to obtain unaffiliated customers to use the pipeline required that Crosstex purchase the natural gas liquids before the product entered the Crosstex pipeline.  RRF also pointed to evidence that the fifth Crosstex contract is with an entity whose processing plant does not connect to the proposed Crosstex pipeline.  The court held that this evidence allowed the trial court to determine that Crosstex was building a pipeline for the purpose of transporting its own natural gas liquids, and therefore, the trial court did not abuse its discretion in denying Crosstex’s request for a preliminary injunction.
 
The significance of this case is the court’s holding that a natural gas liquids pipeline may not be the same as a “crude petroleum pipeline” under the statute, and that a public use means a public use.  However, review was limited to “abuse of discretion.”