Pipeline Power Struggle Spurs $463 Million Court Showdown

Energy Transfer Partners LP (ETP) wants a share of the $463 million in annual revenue generated by an oil pipeline stretching from Oklahoma to the Gulf of Mexico after Enterprise Products Partners LP allegedly cut it out of a deal to build it.

Months after forming a joint venture for the pipeline dubbed the “Double E” after the companies’ initials, Enterprise replaced ETP with the U.S. unit of Calgary-based Enbridge Inc. (ENB) to construct and operate the conduit, ETP said in its lawsuit set for trial today in state court in Dallas.

Enterprise and Enbridge “stole the opportunity” to share in the profit from the pipeline from the oil hub of Cushing, Oklahoma, to Texas refineries, ETP attorney Michael Lynn said in a court hearing in May.

Enbridge and Enterprise, which operates 50,000 miles of pipelines according to its website, will benefit from their deal with a route intended to compete with TransCanada Corp. (TRP)’s planned Keystone XL pipeline to the Gulf Coast. TransCanada has started moving crude from Cushing to Texas refineries through its Gulf Coast line, also known as the southern leg of the Keystone, while the Calgary-based company continues to seek U.S. approval for the northern portion of the route.

Being excluded from the Double E project is a double loss for ETP because it’s locked in an earlier agreement with Enterprise to operate the Old Ocean Pipeline, a natural gas conduit in Texas running from Maypearl to Sweeney, according to court records.

Double Loss

ETP said in court filings it can’t convert the Old Ocean pipeline to carry crude because Enterprise still has a say in how it’s used. That will keep ETP from realizing a greater profit by moving crude, allowing Enterprise to maintain a dominant position in the Gulf Coast transport market with Calgary-based Enbridge, Canada’s largest transporter of crude oil. Enterprise and Enbridge operate the Seaway pipeline, which carries crude from Cushing to a terminal near Freeport, Texas.

Enterprise and Enbridge have denied ETP's claims. The trial before Dallas County District Judge Emily Tobolowsky is set to begin with jury selection today and is scheduled to last five weeks. ETP seeks damages including profit from the pipeline in the case filed in 2011.

David Beck, a lawyer for Enterprise, told Tobolowsky at the same May hearing that written agreements bar all of ETP’s claims.

“Parties can enter into non-binding agreements and that is what the parties did in this case,” he said.

Non-Binding Language

Beck said the three documents the parties signed all had language indicating that they were not binding on Enterprise or ETP. There are no legally recognizable damages, he said.

ETP, based in Dallas, owns and operates about 43,000 miles of crude oil, natural gas and natural gas liquids and refined-product pipelines according to its website. It has a market capitalization of about $20.5 billion. The company closed at $54.04 in New York Stock Exchange trading on Jan. 24.

Houston-based Enterprise, with a market value almost three times that of ETP, has six off-shore platforms, as well as its gas, crude oil and petrochemical pipelines, according to its website.

ETP said in court filings it had discussed with Enterprise the feasibility of converting the Old Ocean conduit, which runs from Cushing to Texas, from one carrying natural gas to one that carries crude and would compete for customers with TransCanada’s Keystone.

Chesapeake Commitment

Chesapeake Energy Corp. (CHK) had committed to shipping at least 100,000 barrels of oil a day through the Double E, according to ETP.

While ETP and Enterprise were marketing their plan, Enterprise secretly began working with Enbridge, which was also trying to build a pipeline from the oil hub of Cushing to Houston to accommodate the transport of increased domestic oil production, according to ETP filings.

Enterprise, in an August 2011 statement, said it was dropping out of the Double E project because of a lack of commercial support.

Enterprise and Enbridge later reversed the flow of the Seaway pipeline, which began delivering oil from Oklahoma to Freeport, Texas, on the Gulf Coast in June 2012.

ETP claims in its suit that customer commitments, work product and project momentum were misappropriated when Enterprise broke off the agreement. It’s suing Enterprise for breach of joint-enterprise and breach of fiduciary duty.

It has accused Enbridge of aiding and abetting that breach.

Enbridge has said ETP’s claims are without merit and unsupported by evidence.

The case is Energy Transfer Partners LP v. Enterprise Products Partners LP (EPD), DC-11-12667, District Court, Dallas County, Texas (Dallas).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net; Tom Korosec in Dallas County Court at and tkorosec@texaswordworks.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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