Oil Pipeline Builder Betrayed by Partner, Jury Told

Energy Transfer Partners LP (ETP) was dropped from a deal to build a pipeline from Oklahoma to the Texas Gulf Coast when collaborator Enterprise Products Partners LP (EPD) realized it could make more money with another company, a lawyer told a jury.

“They did it for greed, money -- not a little bit of money, billions of dollars of money,” Mike Lynn, an attorney for Energy Transfer, said in his opening statement today at a state court trial in Dallas.

The Energy Transfer-Enterprise pipeline, called the Double E, would have carried crude oil from a hub in Cushing, Oklahoma, to the Gulf of Mexico, competing for business with the southern leg of TransCanada Corp. (TRP)’s Keystone XL Pipeline.

Months after entering into the joint venture, Enterprise replaced Energy Transfer with the U.S. unit of Calgary-based Enbridge Inc. (ENB), Canada’s biggest transporter of crude oil.

Energy Transfer, based in Dallas, sustained at least $594 million in damages when Houston-based Enterprise cut it out of the plan in 2011, Lynn said. An expert witness will testify that the sum may be as much as $1.3 billion, a quarter of the profit the pipeline will generate over its lifetime, he said.

‘Another Opportunity’

“There is not going to be another opportunity like this,” Lynn said, referring to the deal. “We will never get it again.”

Enterprise and Enbridge lawyers denied the allegations in their opening statements, telling jurors that there was no formal partnership agreement between Energy Transfer and Enterprise and that the proposed project had failed to generate market interest.

“You have heard there is an oral partnership agreement between ETP and my client but you will not see any partnership agreement at all,” Enterprise’s lawyer, David Beck, told jurors.

The three agreements his client and Energy Transfer signed were non-binding and preliminary to a formal partnership, which was never formed, he told jurors. Energy Transfer was creating a “partnership by ambush,” Beck said.

“That project failed and it failed for a very good reasons,” Beck said. “They couldn’t get enough shippers to agree to ship on that pipeline.”

Keystone Competition

Enbridge’s lawyer, Michael Steinberg, said his client had been considering building a pipeline between Cushing and the gulf since at least 2010 as the last leg of a conduit from Alberta that could compete with the TransCanada’s Keystone project.

The pipeline project that ultimately went forward with Enterprise was completely different from the plan Enterprise contemplated with Energy Transfer Partners, he said.

The Enbrige-Enterprise project entailed purchasing the Seaway Pipeline, an existing conduit that runs from the gulf to Cushing, reversing its flow and then building a twin alongside it, Steinberg said.

Steinberg said Enbridge knew little about the dealings between Enterprise and Energy Transfer before it entered discussions with Enterprise in August 2011.

“Enbridge did not do a thing wrong in this case,” he said, arguing the jury should award Energy Transfer nothing.

Energy Transfer President and Chief Operating Officer Marshall McCrea was his company’s first witness. He told the court he was “shocked” to learn Enterprise had pulled out of the joint venture. The two companies had just signed Chesapeake Energy Corp. (CHK) to a 10-year, $800 million deal to ship oil through the planned Double E, McCrea told the court.

His testimony is slated to continue when the trial resumes before Dallas County District Judge Emily Tobolowsky on Feb. 3. Jury selection for the trial, which is scheduled to last five weeks, began on Jan. 27.

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

To contact the reporters on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net; Tom Korosec in state court in Dallas at tkorosec@bloomberg.net

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

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