November 22, 2011

Oil and Gas Pipeline Easements and Texas’ New Eminent Domain Law

There is a new arrow in the quiver of Texas oil and gas attorneys who represent land and mineral owners! Specifically, there are significant changes to the Texas eminent domain statutes, which went into effect on September 1, 2011. Oil and gas companies can still acquire easements across private property to build pipelines. If the pipeline is a private pipeline, the pipeline company must obtain the voluntary agreement of the property owner. If the pipeline is going to be a common carrier, and the pipeline company and property owner cannot agree on easement terms, the company can commence condemnation, or "eminent domain" proceedings, in which panels of commissioners appointed by a court decide the easement terms.

Another portion of the statute allows landowners to construct roads over the pipeline, although the pipeline company may still impose restrictions on things like the size and road material.

The new law applies to condemnation lawsuits initiated on or after September 1, 2011. These changes strengthen a landowner’s right to defend against eminent domain from both the government and private companies. One of the landmark changes to the eminent domain law is a new “bona fide offer” requirement, which means the purchasing entity must give a written offer for the property 30 days before the final offer is made. Additionally, a certified appraisal of the property in question must accompany the final offer, and that final offer must be of equal or greater value than the appraisal figure. The landowner now has 14 days to respond to the final purchase offer. The new law also allows landowners to obtain relevant information concerning the proposed easements from the potential purchasers.

Prior to the effective date of these new legal requirements, the number of condemnation proceedings surged in those areas of Texas that are experiencing increased oil and gas production. This has especially been the case in South Texas because of the Eagle Ford shale, where natural gas production nearly quadrupled and oil production increased tenfold between 2009 and 2010. According to an article in the Wall Street Journal, at least 184 lawsuits against landowners had been filed already between January and August 2011 in just four South Texas counties, compared to only 24 lawsuits in all of 2010. A district court judge in Lavaca County indicated that the number of lawsuits filed this year is “highly extraordinary.” That county alone registered 62 such lawsuits by August, 2011, compared with only 18 in all of 2010.

These pipeline cases are important to everyone involved, so there is incentive to make the process equitable and fair for all parties. Texas oil and gas companies employ thousands of workers and contribute to a healthy and growing economy. The boom in oil and gas production has also brought prosperity to many areas of Texas. However, it is equally important to consider the rights of private landowners whose property is affected by the pipelines.

It may take time to determine the total impact of revisions to Texas eminent domain law. Hopefully, the original purpose of the law will be fulfilled: giving landowners more knowledge and influence in negotiations with pipeline companies. These companies are going to face more significant hurdles in exercising their eminent domain rights than in the past, especially when this new eminent domain law is combined with the recent Texas Supreme Court decision in Denbury (read our recent blog entry on this case here). The Denbury decision essentially affirmed that there must be a reasonable probability that the pipeline will serve the public before a pipeline company can use eminent domain.

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