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.

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.

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 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.

To view a PDF of this article, click here.

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.

Here is a live stream of last night’s Q&A with Mark Lanier, The Lanier Law Firm, and Justin Hodge, Johns, Marrs, Ellis, Hodge & LLP, on Houston Post-Flood Inverse Condemnation.

Watch Q&A on Houston Post-Flood Inverse Condemnation

We are honored to team up with Mark Lanier, The Lanier Law Firm, to host a Q&A on Houston Post-Flood Inverse Condemnation.  The purpose of the meeting is to bring healing to our community and answer questions concerning the flooding.  More information is below.

Neighborhood Q&A on Sunday, September 10, at 5:00pm.