Pipeline companies are asking the Texas Supreme Court to overturn a ruling they say jeopardizes new projects, escalating the battle over the costs of transporting oil and natural gas produced by the energy boom in South Texas.
The industry says its costs are soaring as landowners, bolstered by a recent appellate-court opinion, seek much higher payments for damage to their property values from pipelines and reject what they see as lowball offers from companies. Under Texas law, companies can build pipelines across private property over landowners’ objections, but must pay for use of the land and any damage to the value of the rest of the property.
The dispute in the South Texas case could have ramifications in other states where pipelines are proliferating along with new oil and gas fields, some legal experts say, as lawyers and appraisers build on arguments that have gained traction in court.
A year ago, an appellate court in San Antonio upheld a jury verdict against LaSalle Pipeline LP that awarded $600,000 to the Donnell family of McMullen County, Texas. The award was mostly for the loss of value to an 8,000-acre ranch after LaSalle built a natural-gas pipeline that stretched for four miles across the property.
LaSalle has appealed to the Texas Supreme Court, which has asked for briefs but not yet agreed to hear the case. Another pipeline company filed an amicus brief last month.
In the case, an appraiser hired by the family calculated the loss in value by studying sales of similar properties nearby, and found that those with pipelines sold for 20% less on average than those without pipelines.
A lawyer representing the family declined to comment on the case.
LaSalle didn’t dispute that it should pay for the rights to the 17 affected acres, but it said the pipeline didn’t diminish the value of the overall property at all. The Houston-based company argued that the landowner’s appraiser failed to consider factors besides a pipeline that could affect what people would pay for it, including location, shape and access to water.
LaSalle also maintained the landowner’s appraiser didn’t submit figures to the jury that would support his calculations.
Tom Zabel, a Houston lawyer representing LaSalle and other pipeline companies, said that costs to obtain rights of way have increased fivefold or sixfold in South Texas since the verdict in the Donnell trial.
In the Southwest alone, the Interstate Natural Gas Association of America estimates the region will need 50,100 miles of gathering pipelines, which take gas from wells to processing plants, between 2011 and 2020, 31% of the total nationally.
Energy Transfer Partners LP, a major pipeline operator that filed the amicus brief with the court in support of LaSalle, said that landowners, armed just with the appellate opinion, have argued in more than 20 condemnation hearings that pipelines would reduce their property values by at least 20%. Under state law, local panels hold hearings when pipeline companies sue landowners to obtain rights to build on their property.
Dallas-based Energy Transfer argued that if allowed to stand, the rationale affirmed in the appellate opinion would leave companies unable to “predict the costs associated with their projects and the viability of pipelines.”
Barry Diskin, a professor at Florida State University who has done work for pipeline companies, said he has never seen a study that found a systematic pattern in property values tied to pipelines. “I’ve not seen one, and I’ve looked,” he said.
But just the possibility of a major explosion is enough, in the real world, to depress property values near pipelines, said Marcus Schwartz, a lawyer in Halletsville, Texas, who represents landowners.