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When is a Texas Oil & Gas Pipeline a Common Carrier Under the Texas Rice I Test?

With so many new oil and gas pipelines being constructed presently in Texas, the Texas Supreme Court’s timing for additional guidance on when a pipeline company is a common carrier in the case of Denbury Green Pipeline-Texas L.L.C. v. Texas Rice Land Partners Ltd, et al. could not be more appropriate. A second opinion in that case focuses on when a pipeline company can be considered a “common carrier”, a status that grants the company the right to exercise eminent domain powers.

The Denbury Pipeline case has been making its way through the Texas court system for a number of years and this is not the first time that some aspect of the case has been heard by the Texas Supreme Court. In 2012, in Texas Rice Land Partners Ltd, et al v. Denbury Green Pipeline-Texas L.L.C.,  the Texas Supreme Court articulated a standard based on the Texas Natural Resources Code to determine when a pipeline company can have common carrier status. The standard or test is referred to as the Texas Rice I test. At the time, the Texas Supreme Court did not apply the test to the facts of the case, but instead reversed and remanded the case to the trial court for proceedings consistent with the common-carrier test it established, thus “affording Denbury Green the opportunity to produce reasonable proof of a future customer, thus demonstrating that [the pipeline] will indeed 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.”

Test Under Texas Rice I

Under the Texas Rice I test, a pipeline qualifies as a common carrier when there is a reasonable probability at or before the time the common carrier status is challenged that the pipeline will serve the public by transporting gas for customers who will either sell the gas to third parties other than the carrier or will retain ownership of the gas. A pipeline cannot transport gas only for its own consumption and qualify for common carrier status.

In the current opinion, the Court specifically addressed the issue of whether Denbury Green Pipeline-Texas is a common carrier pursuant to the Texas Natural Resources Code by using the Texas Rice I test. If Denbury Pipeline is considered to be a common carrier, it means that the pipeline has the right to exercise the power of eminent domain in accordance with the Texas Natural Resources Code Section 111.019(a).

It Must Be Reasonably Probable That Pipeline is For the Public To Be A Common Carrier

The Texas Supreme Court focused on the issue of Denbury’s intent to service other customers other than itself once the pipeline was built. Under the Texas Rice I test, the pipeline’s intent must be a reasonable probability that it will provide gas to other customers, i.e., the public, and this intent needs to be supported by direct evidence.

At the new hearing in the trial court, Denbury produced a 2013 contract to transport gas product for a third party. The contract served as direct evidence of the reasonable probability that Denbury intended to transport the gas it carried for third parties, and thus the Court determined that Denbury was entitled to common carrier status under the Texas Rice I test.

The pipeline in this case was used to transport carbon dioxide. However, there is no reason that the same principle discussed in these cases will not apply to pipelines carrying natural gas or other petroleum products.

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