© 2015 The Texas Lawbook.
By Kerry Curry
(April 25) – A Houston jury ruled Thursday that Energy Transfer Partners breached its contract with competitor Enterprise Products Partners by failing to properly maintain a natural gas pipeline being used by the two energy midstream giants.
The Harris County District Court jury awarded Enterprise $3.7 million.
At the center of the dispute is the Old Ocean natural gas pipeline, a 240-mile pipeline which flows natural gas from Maypearl, near the Dallas-Fort Worth area, down to Sweeney, a small town 20 miles from the Gulf of Mexico.
Through a twist of fate involving mergers made in 2004 by each party to the lawsuit with other companies in the industry, ETP owned the pipeline, but its competitor — Enterprise — had a “into perpetuity lease” on the line, said Rusty Hardin, lead attorney with Houston’s Rusty Hardin & Associates LLP, who tried the case for Enterprise along with firm partners Jeremy Monthy, Andy Drumheller, Joe Roden and senior attorney Carolyn Courville.
Enterprise sought about $21 million in damages, including $16 million for a pipeline it said it had to build when the ETP pipeline was rendered unusable due to ETP lowering the pressure.
This is the second multimillion-dollar contract dispute between the two pipeline companies.
The first case took place a year ago when Enterprise and ETP battled for five weeks in a Dallas courtroom in a lawsuit over whether the competitors had formed a joint venture to build an oil pipeline from Oklahoma to Texas. A jury ruled in favor of ETP and awarded $319 million in damages after finding that Enterprise improperly backed out of the deal. The judge in the case issued a final judgment of more than $500 million for ETP. That case is on appeal.
Read our story: Oil and Gas Partnership by Ambush: The Challenges of Disclaiming a Partnership or Joint Venture in Texas.
This second case is also far from over. It will still need to go before Smoots-Hogan for a final judgment and petition by Enterprise seeking an order requiring ETP to perform its obligations under the agreement.
ETP is expected to appeal.
The verdict is highly significant for Enterprise, Hardin said, because the economic future of natural gas in the U.S. will heavily favor a flow of gas to the Gulf Coast and into Mexico. As a result, ETP and Enterprise will be long-term competitors in this region.
The Old Ocean pipeline is the only pipeline to the Gulf accessible by Enterprise. ETP had access to three others, so the pipeline was far more critical to Enterprise, Hardin said.
Enterprise contended that ETP purposely reduced the pressure to damage a competitor.
“The significance (of the verdict) is that if Energy Transfer’s position had held sway with the jury — that they were found not to be in breach of the contract — it would mean the owner-operator of a pipeline who has leased space to a competitor could shut that person out of the pipeline by just lowering the pressure,” Hardin said.
ETP was using the upper portion of the pipeline and had made repairs to that portion. While making those repairs it lowered the pressure on the lower end. After those repairs were done, the pipeline company lowered the pressure of the lower portion even further, according to Enterprise.
As a result, Enterprise built a $16 million, 7-mile pipeline when the lower portion was rendered unusable due to the low pressure in order to fulfill its obligations to customers in the Houston area, Hardin said.
Hardin said restoring access to the pipeline will result in hundreds of millions of dollars in revenue for Enterprise in years to come.
ETP’s lead attorney, Jean Frizzell with Reynolds Frizzell LLP, declined to comment on the case.
The case was challenging for both sides because neither ETP nor Enterprise were involved in drafting the original contract some 35 years ago, said Jeremy Monthy, a lawyer for Enterprise. That was done by predecessor companies, he said.
It called for ETP to pay to maintain the pipeline but the contract didn’t spell out what exactly that involved.
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