Pipeline companies head to court over partnership dispute

By Mark Curriden
The Texas Lawbook

When does a business relationship become a partnership?

That question is at the heart of a multibillion-dollar dispute involving three giant oil and gas companies that is scheduled to start trial this week in Dallas.

Energy Transfer Partners of Dallas claims that Houston-based Enterprise Products Partners broke its commitment to jointly build a pipeline from Cushing, Okla., to Houston that both companies initially estimated could bring them billions of dollars in revenue annually.

ETP argues that Enterprise and Canada-based Enbridge conspired to illegally cut ETP out of the deal.

Enterprise and Enbridge, in court documents, say ETP’s lawsuit is “meritless” because there never was an actual partnership or joint venture with ETP.

“Energy Transfer Partners is trying to get in the courthouse what it could not achieve in the marketplace, ” lawyers for Enterprise said in court documents asking the judge to dismiss the case.

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A judge in Dallas County denied the request and opening statements are expected Thursday or Friday. The trial is expected to last four weeks.

“This is going to be a great case because the issues are important and there are so many great lawyers involved, ” says David Elrod, a Dallas trial lawyer whose practice focuses on energy litigation.

The case, which has received little public attention, features some of Texas’ most prominent trial lawyers.

Dallas’ Mike Lynn of Lynn Tillotson Pinker & Cox represents ETP. David Beck of Beck Redden in Houston and Dick Sayles of Sayles Werbner are defending Enterprise. Dallas attorney Jeffrey Levinger and a team from Sullivan & Cromwell in California represent Enbridge.

All of the lawyers declined to comment on the case.

Bigger picture

While most business contract disputes are mired in the arduous interpretation of technical legal language, this trial is expected to provide extraordinary insight into the business operations and strategic thinking of leaders at three of the largest and fastest-growing oil companies in North America.

Top executives at all three energy companies are under subpoena and expected to testify.

But in court documents, the three companies say the primary issue at the heart of the case is whether ETP and Enterprise legally formed a partnership to build the pipeline from Cushing, which is a major oil hub, to Houston, where the crude could be refined or shipped.

ETP, a Dallas-based energy conglomerate with about $50 billion in oil and gas assets, claims Enterprise majority owner and chairman Dan Duncan of Houston initially approached ETP about a joint venture in the months before Duncan died in 2010.

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Enterprise, which has an estimated $38 billion in assets, and ETP renewed partnership discussions in the spring of 2011 and signed a nonbinding agreement a few weeks later.

ETP says the relationship quickly solidified and the partnership started taking shape.

The two companies, which called their new venture Double E Pipeline, even signed a deal in August 2011 with Chesapeake Energy to ship “at least 100,000 barrels of oil per day on the Double E Pipeline for a 10-year period.”

The breakup

Less than a month later, Enterprise announced it was ending its relationship with ETP to do a similar partnership with Enbridge, a company based in Calgary that has about $30 billion in oil and gas assets and annual revenues of about $11 billion.

ETP claims Enterprise and Enbridge conspired to interfere with and end the joint venture with ETP. It seeks more than $1.2 billion in actual and punitive damages.

Enterprise and Enbridge counter there was no actual partnership with ETP because the two sides never took the official steps to finalize the deal and that Enterprise legally backed out of the proposed joint venture.

Letter cited

Enterprise attorneys, in court documents, point to an April 21, 2011, letter between the two companies as proof their partnership had not been made final.

“No binding or enforcement obligations shall exist between the parties with respect to the (relationship) unless and until the parties have received their respective boards’ approvals, ” the agreement stated.

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ETP lawyers, in court documents, say the relationship between the two companies had moved well beyond the terms agreed to in the April 2011 letter.

Lawyers for ETP argue that Texas law liberally defines the existence of a business partnership, even in some cases in which the parties involved claim there is no such partnership, much like the existence of a common-law marriage under Texas family law.

The Texas Lawbook is an online publication that covers business law in Texas. A longer version of this article is at texaslawbook.net.

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