Enterprise Breached Pipeline Contract, Energy Transfer Says

Enterprise Products Partners LP breached its contract when it abandoned an agreement to build a pipeline while planning to pursue a similar project with another company, Energy Transfer Partners LP said in a lawsuit.

Energy Transfer filed suit in Texas state court on Sept. 30, a day after Enterprise announced the new pipeline project with Enbridge Inc. Energy Transfer, based in Dallas, alleges breach of contract, breach of fiduciary duty and unfair competition in the lawsuit, which also accuses Enbridge of interference.

Enterprise, the biggest U.S. pipeline operator, proposed a joint venture with Energy Transfer in April to build a 400,000-barrel-a-day oil conduit from Cushing, Oklahoma, to Houston. Enterprise, based in Houston, called off the so-called Double E pipeline on Aug. 19 citing a lack of sufficient customer interest.

The company announced a partnership with Calgary-based Enbridge on Sept. 29 to build an 800,000-barrel-a-day pipeline between the two cities. That project is known as the Wrangler pipeline.

Enterprise tried to persuade Energy Transfer “to terminate the joint venture due to the new pipeline’s supposed lack of commercial viability, while simultaneously plotting to establish a new joint venture to build the same pipeline,” Energy Transfer said in its complaint.

“When Enterprise could not persuade Energy Transfer to terminate the joint venture, Enterprise simply pretended that the joint venture never existed,” according to the complaint.

‘Frivolous’ Lawsuit

The lawsuit is “frivolous” and Enterprise will seek to have it dismissed, Rick Rainey, a company spokesman, said in an e-mailed statement.

Larry Springer, a spokesman for Enbridge, said the company doesn’t comment on pending lawsuits.

The Wrangler pipeline may generate more than $100 million a year in revenue, said Daniel Spears, a portfolio manager at Swank Capital LLC, which has about $1.5 billion under management including stock in Enterprise, Energy Transfer and an Enbridge subsidiary. The project is expected to cost more than $1 billion, he said.

The Double E and Wrangler pipelines are among at least three proposals to ease a supply bottleneck at the Oklahoma storage hub. Cushing is the delivery point for West Texas Intermediate, the benchmark U.S. crude. Because of a lack of pipeline connections to Gulf Coast refineries, West Texas Intermediate trades at a discount to imported oil.

Competing Pipelines

TransCanada Corp.’s Keystone XL line from Canada to the U.S. would provide a route for Canadian oil to reach the Gulf. Magellan Midstream Partners LP announced Sept. 1 that it will reverse an existing pipeline between Houston and El Paso to ship West Texas oil to the Gulf Coast.

Energy Transfer fell $1.11, or 2.7 percent, to $39.90 at 4:15 p.m. in New York Stock Exchange composite trading. Enterprise fell 10 cents to $40.05. Enbridge fell 86 cents, or 2.6 percent, to C$32.59 on the Toronto Stock Exchange.

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

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