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Energy Transfer Partners, L.P. v. Enter. Prods. Partners, L.P.

Supreme Court of Texas

October 8, 2019, Argued; January 31, 2020, Opinion Delivered

NO. 17-0862

Opinion

The issue in this case is whether ] Texas law permits parties to conclusively agree that, as between themselves, no partnership will exist unless certain conditions are satisfied. We hold that it does and that the parties here made such an agreement. Accordingly, we affirm the judgment of the court of appeals.1

Cushing, Oklahoma is a major trading hub for crude oil. For decades, the United States imported most of its crude oil from abroad to its Gulf Coast refineries, where the oil was processed and shipped north through Cushing. In 2008, new technology enabled oil production in the Dakotas and Canada, resulting in oil being transported to Cushing from the north. But no pipeline existed to move oil stored at Cushing south. An excess supply accumulated, driving down the price of oil sold there. Sensing economic opportunity, major pipeline companies began exploring ways to move oil south from Cushing.

Among them were ETP2 and Enterprise,3 competitors that are among the ten largest energy companies in the United [*2]  States. Enterprise co-owned with ConocoPhillips a pipeline called Seaway that sent oil north to Cushing from the Texas Gulf Coast. Enterprise lobbied ConocoPhillips for years to reverse the pipeline's direction, but ConocoPhillips refused. Enterprise also talked to Canadian pipeline company Enbridge about a joint project but to no result.

In March 2011, Enterprise approached ETP about converting a pipeline called Old Ocean into one that could move oil south from Cushing. Old Ocean transports natural gas from Sweeny, Texas, near the Coast, up to Maypearl, near Dallas. ETP owns the pipeline, but Enterprise holds a long-term lease on it. Converting the pipeline to one for transporting oil and extending it the rest of the way to Cushing would require a massive investment from the parties and committed customers willing to pay a sufficient tariff to justify the investment.

The parties agreed to explore the viability of the project, which they dubbed "Double E". In three written agreements, they reiterated their intent that neither party be bound to proceed until each company's board of directors had approved the execution of a formal contract. The Confidentiality Agreement, signed in March [*3]  2011, recited that Enterprise and ETP had "entered into discussions with each other in connection with a possible transaction involving a joint venture to provide crude oil transportation [from Cushing to Houston] utilizing [the] Old Ocean Pipeline". The agreement laid out the parties' rights and responsibilities with respect to confidential information exchanged during the discussions and then stated:

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2020 Tex. LEXIS 46 *; 593 S.W.3d 732; 63 Tex. Sup. J. 340

ENERGY TRANSFER PARTNERS, L.P. AND ENERGY TRANSFER FUEL, L.P., PETITIONERS, v. ENTERPRISE PRODUCTS PARTNERS, L.P. AND ENTERPRISE PRODUCTS OPERATING LLC, RESPONDENTS

Prior History:  [*1] ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS.

Enter. Prods. Partners, L.P. v. Energy Transfer Partners, L.P., 529 S.W.3d 531, 2017 Tex. App. LEXIS 6658 (Tex. App. Dallas, July 18, 2017)

CORE TERMS

partnership, parties, pipeline, condition precedent, formation, oil, conditions, joint venture, factors, definite agreement, open season, crude oil, negotiations, transport, shippers

Business & Corporate Law, General Partnerships, Formation, Partnership Agreements, Business & Corporate Compliance, Contract Formation, Contracts Law, Contract Formation, Contract Conditions & Provisions, Conditions Precedent, Standards of Performance, Standards of Performance, Waivers, Contracts Law, Defenses