Busted: Plains All American Pipeline Company Convicted in Oil Spill

05202015-Refugio-Oil-Cleanup-53_t958

Image of beaches in Santa Barbara County following 2015 oil spill. Courtesy of The Santa Barbara Independent.

Plains All American (“Plains”), a Houston based pipeline company, was found guilty of nine criminal charges for its role in the worst oil spill to occur on the California coast in the past 25 years. Contrary to what many may assume, it is well-established that a corporation, rather than individuals, can be convicted of criminal charges. For a high-profile example, BP, formerly the British Petroleum Company, plead guilty to eleven counts of voluntary manslaughter following the Deepwater Horizon disaster where they were ordered to pay $4.5 billion in penalties and fines. In the same vein as the BP case, a Santa Barbara County jury convicted Plains on nine of the fifteen criminal charges brought by the Attorney General of California including one felony count of failing to properly maintain its pipeline and eight misdemeanor charges. The misdemeanor charges included destruction of protected wildlife, such as marine mammals and seabirds.

The pipeline breach occurred just a few weeks before Memorial Day in 2015, and the resulting oil spill forced multiple beaches and campgrounds to shut down for two months. The pipeline breach was caused by corrosion in the line, and resulted in at least 123,000 gallons of crude oil flooding the Refugio State Beach. The incident also put a damper on the local tourist economy and fishing industry. The surrounding oil industry was also stifled by the breach because the pipeline supported local refineries by transporting crude oil from seven offshore rigs. The rigs have remained idle since the spill.

Plains pleaded not guilty to the charges stating that it believed its operation of the pipeline met or exceeded both industry and legal standards. The company’s view is that the jury incorrectly decided the case, and it points to the fact that, despite the guilty verdict, the jury did not find any knowing misconduct by the company. Plains has stated that it accepts full responsibility for the accident, and is in the process of exploring all of its post-conviction legal options.

Federal inspectors however, assert that the company committed several preventable errors. Plains operates the pipeline from a control room in Texas which is over 1,000 miles away. Prior to the incident, operators in the Texas control room had disabled an alarm which would have signaled a leak. As a result, the operators were unaware that a spill had occurred when they restarted the pipeline. The preventable restart of the already ruptured line caused the incident to compound in scope.

Plains has formally apologized for the spill and paid for cleaning and restoration efforts. So far, the spill has cost the company $335 million in clean-up, not including lost revenue, according to the company’s annual report. Despite the incident, the company is already seeking approval to repair or rebuild corroded pipelines. It has also filed an application to construct a new pipeline in the same location.

Plains is scheduled to be sentenced on December 13. Because Plains is a company and not an individual person, it faces only fines. The severity of the fines Plains could face is unclear. Whatever the trial court imposes, this case is only the beginning of Plains’ legal issues related to this accident. The U.S. Government has yet to weigh in on the issue, and could decide to impose additional fines. Further, Plains faces a federal class-action lawsuit. The plaintiffs in that case are the owners of beachfront properties, fishing boat operators, the oil industry, and oil workers who have lost jobs due to the accident.

What this means for the average landowner is that despite the assurances of pipeline companies that preventative measures are in place to prevent spills, accidents still occur. Landowners with pipelines constructed across their properties are forced to live with this risk.

Written by Christopher Chan and Graham Taylor

Power Surge: High-Voltage Powerlines and their Negative Impact on Land Values

Power lines near Thompsons, TX. Image courtesy of Houston Public Media.

The Journal of Real Estate Research recently published a study by Chris Mothorpe and David Wyman, assistant professors at the College of Charleston, concluding that a property’s vicinity to high-voltage power lines can negatively impact its value. Unlike prior investigations that had similar conclusions, Mothorpe and Wyman focused solely on vacant lots of land, as opposed to lots with constructed homes, to ensure a pure translation of the damages to the tract of land.

The study found that vacant parcels adjacent to high-voltage powerlines sold for 45% less than similar lots that weren’t located near powerlines. Parcels that were non-adjacent, but within 1,000 feet of a powerline sold at an 18% discount to comparable parcels located further away. In order to make the numbers meaningful to actual homeowners, the study combined the numbers regarding vacant land with data describing the proportion of a property’s value made up by the land alone. To do this, the researchers assumed a market where land accounted for 20% of a home’s overall value. Therefore, a 45% decrease in the land value alone, due to its being adjacent to a high-voltage powerline, would yield a 9% drop in overall property value.

Mothorpe and Wyman created a data set from sales of 5,455 vacant parcels sold between 2000 and 2016 in Pickens County, S.C. The lots were located around a network of high-voltage powerlines transmitting power from the Oconee Nuclear Station. Three primary factors are cited as causing the discount. First, buyers are concerned by the perception of adverse health affects associated with nearness to high-voltage powerlines. Second, buyers tend to find the powerlines visually unappealing. Finally, high-voltage lines produce an audible humming noise easily perceived by those residing nearby. Of the three, researchers believe that the visual factor is the most problematic for potential homebuyers.

Studies like these are important to the landowner for at least two reasons. First, they provide an empirical foundation for the overwhelming landowner preference against the presence of high voltage lines. These studies can help support appraisals which assert property damages based on proximity to an incoming powerline. Second, these studies should put landowners on notice that powerlines being built in the vicinity of their home can have a very real, and negative, impact on property value.

Written by Graham Taylor and Christopher Chan

The “New” Pipeline-Stopping Strategy…and Why it Won’t Work in Texas

Cascade Mountains

The Cascade Mountains. Image courtesy of Cascade Climbers.

Texas is in the midst of an oil and gas boom. The Permian Basin is quickly becoming the largest producing oil field in the world and shows no signs of slowing down. Elsewhere, environmental activists are coming up with unique, and so-far effective, strategies of blocking the expansion of oil and gas pipelines.

Environmental organizations have gotten creative and are using State’s rights as a sword rather than as a shield. In the past, the Federal Energy Regulatory Commission (“FERC”) would approve interstate pipelines and they would be built. State’s rights were a shield for protecting against environmental harm, but they had little impact on preventing the actual construction of pipelines. Now, activists have flipped the script and have begun employing Section 401 of the Clean Water Act (“CWA”) as a weapon against the oil and gas industry. Section 401 gives states the right to review new projects to ensure that they will not negatively impact the local water supply. Environmental organizations, such as the Waterkeeper Alliance, are claiming that Section 401 results in States having “veto power” over FERC’s decisions meaning that the State can unilaterally deny the Clean Water Act Permit.

Unsurprisingly, oil and gas companies disagree with this novel interpretation of the law by arguing that the law should continue to work as it has always worked. Under the traditional scheme, the FERC approvals are often conditioned in ways that give States some oversight. However, it is a mere “shield.”

So, how does the strategy work? It is quite simple. It requires the support of the State government, a finding of environmental harm, and a denial of the Clean Water Act permit. This is largely a political process which is why these activists have narrowed their sights on more left-leaning states like New York and Oregon.

In New York, the strategy successfully stalled the construction of the Constitution Pipeline. The New York State Department of Environmental Conservation denied Clean Water Act certification to the pipeline even after the pipeline received FERC approvals. In a victory for the environmental activists, the United States Supreme Court denied the pipeline company’s request to appeal the Second Circuit’s decision thereby leaving New York’s decision intact.

In Oregon, groups like Rogue Climate are hoping to repeat the victory in New York in their fight against the Jordan Cove project. The Jordan Cove pipeline is designed to transport natural gas across the Cascade mountains to the Oregon coast. Some activists believe that if they can stop pipelines like Jordan Cove, they can help reduce the demand for drilling, because who wants to drill for a product that can’t make it to market?

But enough about New York and Oregon. Let’s get back to where we started, Texas. Is there a path to victory for environmental activists via the Clean Water Act in Texas? The simple answer is probably not. The key to success for this strategy is a political one. In Texas, there is no side of the political aisle that wants to go to war with oil and gas companies because of their importance to the state’s economy.

Thus, despite their strategic success in other parts of the country, environmental activists are unlikely to prevail in Texas.

Written by Graham Taylor

The West Texas Rat Race: “Big Oil” Companies Racing to Ensure their Share of the Permian Basin’s Unprecedented Production of “Black Gold”

 

Photo of fracking operation in the Permian Basin. Image courtesy of FreightWaves.

Currently, Texas is aiming to surpass Iran and Iraq in terms of oil production. Let that sink in for a moment. If Texas was its own country, it would soon be No. 3 in the world in terms of oil production. The key to this massive amount of production is the Permian Basin—and “Big Oil” is rushing in to claim their pieces of the Permian pie.

Just last month, British Petroleum (“BP”) purchased $10.5 billion worth of oil assets in Texas. To put this in perspective, this is the largest acquisition BP has made in 20 years and is the first major investment they have entered into in the United States since the 2010 Deepwater Horizon disaster. So why would BP suddenly decide to delve back into business in the United States? The answer is quite simple, the Permian Basin is the most desired region for oil production in the United States, and perhaps even the entire world. Many in the oil and gas industry believe that the Permian Basin rivals Saudi Arabia’s Ghawar Field, the largest conventional oil field in the world.

Prior to BP’s $10.5 billion purchase, ExxonMobil (“Exxon”) made a $5.6 billion deal in January of 2017 that doubled its assets in the Permian Basin. That 2017 purchase was Exxon’s largest since 2010. The Permian Basin is encouraging “Big Oil” companies to open up their checkbooks.

However, despite more companies becoming involved in the Permian Basin and the resulting increase in production, the current infrastructure is at capacity. The Permian Basin is running out of pipeline, water, sand, buildings, and employees. These “growing pains” seem to be the only impediment to an extraordinary growth in production previously unseen in the United States. Of the infrastructure issues listed, the lack of pipelines is described as the most pressing.

New pipelines are being built but they take time, money, and, in many cases, condemnation proceedings. A big part of pipeline construction in Texas is condemnation. Pipeline companies must acquire land and easements in order to build their pipelines and oftentimes resort to condemnation in these acquisitions. This means that property owners near the Permian Basin and across Texas should brace themselves because the pipelines are coming.

Plains All American Pipeline, for instance, is building the $1.1 billion Cactus II pipeline to carry crude oil from the Permian Basin all the way to Corpus Christi. The project is set to open in the third quarter of 2019. Phillips 66 and Enbridge are building the Gray Oak Pipeline from the Permian Basin region to Corpus Christi and Houston. Gray Oak is expected to open during the second half of 2019. The surge of production in the Permian Basin made these pipelines a necessity for oil and gas companies to be able to profit off of their costly investments.

Cactus II and Gray Oak are merely two examples in a pattern of increased pipeline construction coming out of the Permian Basin. As long as production remains at these high levels, property owners between the Permian Basin and the destination cities should expect to hear the pipeline companies knocking on their doors.

Written by Graham Taylor and Kyle Baum.

Texas Supreme Court Holds that Displaced Landowners are Allowed to Recover

car-repair-drawing-56

Art Courtesy of GetDrawings.com.

Morale v. State is a condemnation case recently decided by the Texas Supreme Court on June 2, 2018. The landowners, Stephen and Kimberly Morale, owned and operated a vehicle collision repair business. The shop was located on a 33,000 square-foot parcel in the town of Little Elm, Texas, and was being partially condemned for the sake of expanding FM 720. Specifically, the State through TxDOT sought to obtain a 3,200 square-foot strip of land and would demolish a portion of the landowners’ property improvements as part of the taking.

The Court held:

  1. The State’s previous, but revoked, designation of the Morales’ property as “displaced” was relevant to the determination of the property’s highest and best value.
  2. Input from the landowner’s theories and evidence regarding the State’s motive for withdrawing the displacement classification were relevant.
  3. The testimonies of the city engineer and city attorney regarding the potential granting of a zoning variance for the subject property were speculative and therefore irrelevant to a determination of value.

On the first point, as part of their theory of valuation, the landowners presented evidence that the State had previously classified the landowners as being “displaced.” Displacement, according to the Texas Administrative Code, section 21.116, is a status assigned to a landowner when the construction of a State highway project forces them to relocate. Under the Code, the landowner’s relocation fees are to be paid by the State. This evidence was favorable to the landowners, who used it to support one of their valuation theories, resulting in higher compensation.

The State’s attempt to exclude the evidence was denied by the trial court. The jury awarded the landowners the amount of $1,064,335.00, an amount significantly higher than the State’s appraisal of $122,953.00. The State appealed, and the appellate court reversed the trial court’s ruling on the grounds that the displacement evidence was both irrelevant and speculative. The Morales petitioned the Texas Supreme Court for review, and the Court granted their petition.

The Texas Supreme Court took issue with the appellate court’s reasoning regarding its treatment of the displacement evidence. Firstly, the Court pointed out that the decision to admit or exclude evidence is largely within the trial court’s discretion. Further, it found fault with the appellate court’s conclusion that the displacement classification was wholly irrelevant. Rather, the Court concluded that the displaced status contributed to the ability of the Morales to prove their theory of the case.

Regarding the second relevancy ruling, the landowners, as part of their case, presented evidence to suggest that the State’s motives for withdrawal of the displacement designation were suspect. As with the displacement evidence itself, the trial court allowed the arguments, but the court of appeals disapproved. It reasoned that the landowners’ questioning of the State’s motives for revoking the displacement classification did not add new information to the case, let alone its value. The Texas Supreme Court thought otherwise. It held that the Morales’ inquiries into the State’s reasons for applying, then revoking the classification, were relevant because the application, and subsequent removal of the classification, was a piece of probative evidence for an adversarial trial.

Finally, the Texas Supreme Court held that the testimonies of the city attorney and city engineer regarding the possibility of a zoning variance were irrelevant. The Court made clear that zoning variances granted to other property owners have no relevance if they do not apply to the specific property being condemned. Because Little Elm did not commit to a variance for the landowners’ property, the testimonies of the city attorney and city engineer were impermissibly speculative. Therefore, the trial court was within its discretion to exclude the evidence, and the appellate court erred when it disagreed.

This case is important for condemned landowners as they attempt to seek just compensation for their land when displaced. Allowing landowners access to the full range of relevant facts will help them give the jury a more precise picture of exactly what their land is worth. Ultimately, the Supreme Court reversed the appellate court’s decision and reinstated the trial court’s award.

All Aboard! – Bullet Train Makes Progress as Texas Central Partners Teams Up With Amtrak, Engineering, and Construction Firms

tp007-2

Image of Japanese Shinkansen Bullet Train. Image courtesy of InsideJapanTours.com.

Construction of the much anticipated 200 mile-an-hour Houston to Dallas Bullet Train may begin as early as next year. Despite strong support from the State Government, the $15 billion project is not entirely free from controversy. Proponents of the train argue that the train’s constructor, Texas Central Partners, will take no public money for the project, and that taxes on fares could net $3 billion into the State’s budget annually. They also point out that the construction would mean direct spending of as much as $36 billion, a capital deployment that would create tens of thousands of construction jobs. Based on proposed plans, the train will likely bridge stations located near Houston’s Northwest Mall and the Kay Bailey Hutchinson Convention Center in Dallas.

Though route finalization has yet to occur, there are other signs of project progress. Texas Central Partners has joined forces with the Amtrak Corporation, which already has an established interstate network within the Texas. Additionally, the Federal Railroad Administration (“FRA”) has approved the draft environmental impact statement. The FRA has also proposed a route it believes to be optimal for its perceived minimum impact on landowners. Additionally, multiple engineering and construction firms have joined Texas Central Partners to lay the groundwork for construction.

But the project isn’t in the clear yet. Despite the assurance of private funding, the cost of a high-speed rail still remains incredibly expensive, and concerns exist regarding the ability of the project to complete within costs. Indeed, there is some evidence to support these reservations. For example, the costs for the bullet train project in California have currently risen to a staggering $77 billion, with projections that the cost could rise to $100 billion. In 2008, project costs were only projected to be $40 billion. Texas Central Partners asserts that its use of private funds and its high level of government support, will allow them to avoid the issues that have impeded previous projects.

Much of the opposition to the train comes from landowners located along the project’s proposed route. Justifiably, they are concerned with the possibility that Texas Central Partners will use the power of eminent domain to forcibly take the property necessary for the train. Texas Central Partners has responded to these concerns by announcing that they will offer the landowners fair market value for the land they acquire, as well as generally trying to keep landowner impact to a minimum. Landowner interests remain unconvinced however, and have proposed twenty pieces of legislation, all operating in some way to inhibit the project’s development. Of these twenty, only two, which prohibit the use of public funds for construction, have passed.

Whatever the project’s eventual construction date, landowners along the train’s route should be aware of the definite progress the project is making.

Written by Jack Brasher, Christopher Chan, and Justin Hodge.

Permian Basin Production Growth for Oil, Natural Gas, Motivates Construction of New Pipelines – Condemnation to Follow?

P2K Pipeline Map

Permian to Katy, “P2K,” Pipeline. Photo Courtesy of Sempra LNG & Midstream, Boardwalk Pipeline Partners.

According to industry experts, the Permian Basin located in West Texas will soon produce enough crude to surpass all OPEC nations except Saudi Arabia. Despite limitations in labor and pipeline transport capacity, it is estimated that production will nearly double from the current 3.3 million barrels per day, to 5.4 million barrels per day by 2023. This trend of growth in the Permian mirrors the increase in oil production experienced by the nation as a whole. Indeed, total United States production has recently surpassed the Saudis, making America the world’s second largest oil producer, with the Russians retaining the top spot.

In addition to oil, the Permian Basin is also an abundant source of natural gas, a fuel type important for electrical generation. Texas’ consumption of natural gas is seasonal, and local demand for it fluctuates correspondingly. However, the manufacturing boom in Mexico has caused the construction of many new factories, most of which rely on natural gas for power generation. The Permian’s proximity to the south of Texas, and the ease of delivery this facilitates, makes it optimally placed to serve the Mexican market.

This massive increase in production, along with optimistic production projections, has inspired a whole slew of new pipeline projects to transport crude oil and natural gas from the Permian. However, the enthusiasm for new pipeline construction may not merely be due to the generally accepted future growth estimates. Some experts have suggested that the current “takeaway” capacity of existing pipelines, the volume of product that can be piped away from the Permian daily, may have already been surpassed by raw production, or is nearing that point. As previously mentioned, the Permian’s present day, total production capacity, is thought to be around 3.3 million barrels per day. According to one expert however, the current daily capacity of takeaway pipe serving the Permian may be less than 3 million barrels per day. This means that the Permian’s full capacity may already be underutilized.

Liquid products produced out of the Permian often head to processing facilities to be converted into a variety of formulas and distributed to consumers. One such destination is the so-called “Gulf Coast Market,” an expanding collection of processing, storage, and shipping facilities that includes the Houston area. This region is a highly desirable pipeline termination point because it provides access, not only to the domestic market, but also to international markets, such as Mexico. Upcoming Texas Condemnation projects such as the Permian-Katy, or “P2K” project being developed by Boardwalk Pipeline Houston and Sempra LNG, and the recently announced Permian to Beaumont line being planned by ExxonMobil and Plains All American Pipeline L.P., are examples of the kinds of projects expected in the next few years. Landowners in the path of these pipelines should keep an eye out for construction announcements that could affect them, because many of these pipeline companies may use eminent domain to take the pipeline easements.

Written by Christopher Chan and Justin Hodge.

Luke Ellis and Justin Hodge (Program Co-Chair) – Faculty at Houston Eminent Domain Conference

Luke Ellis and Justin Hodge (Program Co-Chair), Marrs Ellis & Hodge LLP, are both faculty at the upcoming Houston, Texas Eminent Domain: CLE International Conference on Thursday, May 10, 2018 and Friday, May 11, 2018.  Luke will be speaking on Thursday at 10:00 am on Texas Eminent Domain Legislative Reform Efforts and Justin will be speaking as part of a panel on Friday at 10:15 am on the Legal Impacts of Hurricane Harvey.   The full conference schedule can be found here.  We hope you can join us at the conference.

Screen Shot 2018-05-09 at 11.15.20 AM

Houston Chronicle Quotes Justin Hodge – Inverse Condemnation Lawsuits Filed Over Homes Flooded by Barker Addicks Dams

The Houston Chronicle quotes Justin Hodge, Johns Marrs Ellis & Hodge, LLP partner, this morning over the federal inverse condemnation lawsuits filed because of the United States Army Corps of Engineers’ decision to release dam waters from Barker and Addicks dam and resulting in flooding of thousands of Houston homes and properties. The articles states, “It’s the largest flood event resulting from a direct decision of a government arguably in our lifetime” said Justin Hodge, who teaches eminent domain at University of Houston Law Center and is representing clients in two of the federal cases. You can read the full articles below.