Week Ending August 7, 2020

D.C. Circuit Ruling Keeps DAPL Operating, Sets Case for Further Action

This Article Appears as Published in Foster Report No 3311

An appeals court provided some relief to Energy Transfer August 5, ruling that Dakota Access Pipeline (DAPL) does not need to shut down right away, but the court did not render a decision on the need to complete an environmental impact statement (EIS) for the oil pipeline.

The EIS question, which was at the heart of the U.S. District Court for the District of Columbia July 6 decision for DAPL to shut down by August 5, will be addressed later by the U.S. Court of Appeals for the D.C. Circuit. The appeals court halted the district court order and set a briefing schedule for more filings in the case through August and September.

Thus, Energy Transfer gained a small victory but still faces the prospect of challenges on the EIS and the lack of an easement as laid out in the district court decision. The Standing Rock Sioux tribe and others challenging the pipeline have vowed to continue the fight for the pipeline, which has been operating for three years, to shut down.

During an August 5 call with analysts an hour or so after the appeals court ruling, Energy Transfer officials discussed the development and expressed confidence in their legal position. DAPL does not need a new EIS from the U.S. Army Corps of Engineers, said Tom Mason, general counsel at Energy Transfer. The company is reviewing the appeals court decision, which upheld the district court on the lack of an easement, Mason said.

With the easement vacated and the question of whether an EIS will be required, “we expect further proceedings” at the courts, with a decision on the EIS question expected by the end of the year, Mason said. DAPL and Energy Transfer are not certain if the Corps has made any progress on an EIS or intends to work on one while the legal proceedings are carried out, executives said. The Corps is under the government’s purview and Energy Transfer does not have insight on that element, they said.

The company remains confident that it will win in the appeals process, Mason said.

Energy Transfer arguments did not carry the day at the appeals court. “At this juncture, appellants have failed to make a strong showing of likely success on their claims that the district court erred in directing the Corps to prepare an environmental impact statement,” the panel of three judges concluded.

Similarly, the appeals court ruled that the district court did not make the needed findings for injunctive relief to have DAPL emptied of oil and shut down. The district court July 6 ruling did not meet the four-factor test under the National Environmental Policy Act (NEPA) for such injunctive relief, but it also did not abuse its discretion as asserted by Energy Transfer in its appeal, according to the per curiam order.

“We expect appellants to clarify their positions before the district court as to whether the Corps intends to allow the continued operation of the pipeline notwithstanding vacatur of the easement and for the district court to consider additional relief if necessary,” the appeals court said.

The briefing schedule before the appeals court is set to begin August 26 with appellant briefs, followed by supporting briefs in early and mid-September, with reply briefs due by September 30. Given that schedule, a ruling on the EIS question is expected by the end of the year, Energy Transfer officials said.

The district court ruling was written by Judge James Boasberg, and Energy Transfer asserted that he exceeded his authority in ordering DAPL to be purged of oil and shut down. Multiple elected officials and industry groups came out with statements opposing the district court ruling, which they said would put more oil on railroad cars to move it to market

DAPL was the subject of numerous protests in 2016 and later, as its construction near the Standing Rock Sioux reservation was challenged, with sometimes violent confrontations and security measures used by states and Energy Transfer. The pipeline stretches beneath the Missouri River and Lake Oahe, from North Dakota into Illinois along a 1,200-mile route. The Standing Rock Sioux relies on Lake Oahe for drinking water, agriculture, industry, and religious practices.

The district court noted that in March it had determined the Corps had failed to produce an EIS for the pipeline, although the project met the requirements for an EIS under NEPA. The Corps had granted a permit for an easement to DAPL to construct and operate a segment of that crude oil pipeline running beneath Lake Oahe without an EIS, and the court determined the permit had to be vacated.

When the district court had remanded the case to the Corps in March, it asked the Corps what the appropriate interim remedy would be, such as whether the easement should be vacated and the pipeline emptied during the remand process.

Among those who were pleased with the appeals court ruling was Sen. Kevin Cramer (R-N.D.), who said it represents a victory for North Dakota energy. “On the day DAPL was originally ordered to be shut down and emptied, we receive another assurance the pipeline can keep playing its important part in bolstering America’s energy dominance,” Cramer said in an August 5 statement.

When the district court issued its decision in July, some observers questioned the timing of an EIS from the Corps and noted that it is leading to investor fatigue on the legal and regulatory headwinds for energy infrastructure projects. Others noted that DAPL and Keystone XL have been the subject of political moves based on who is in the White House, with former President Barack Obama exerting pressure for the Corps to conduct an EIS.

An EIS for DAPL is not expected to be completed before late April 2021 if the courts deem it needed, and the outcome of the November election for president could play a role in DAPL’s future, observers have claimed.

Energy Transfer officials declined to speculate on the election outcome or if a victory by Joe Biden would have a negative effect on the company’s assets. “Everyone has different opinions on that” and it is too hard to speculate, said Mason.

Energy Transfer officials also discussed other pipeline projects, potential acquisitions, and reduced spending due to lower oil demand and effects of the COVID-19 pandemic. The company lowered its 2020 capital spending plan to $3.4 billion, a reduction of $600 million from the original guidance provided in February. A $400 million reduction was announced at the end of the first quarter, and another $200 million reduction was included in the latest results.

Energy Transfer expects about 80% of the growth capital in 2020 will be spent on project that are scheduled to be in service in late 2020 or early 2021. The company forecast growth capital spending to be about $1.3 billion in 2021, and between $500 million and $700 million in 2022 and 2023.

The expansion and infrastructure additions include oil and natural gas liquids (NGL) pipelines in Texas and Pennsylvania, enhancements at Marcus Hook industrial complex and projects to move more liquids to Gulf Coast and other markets. The latter group includes an expansion of the Lone Star Express NGL pipeline and construction at the Mont Belvieu fractionator facility along the Gulf Coast to handle up to 1 million barrels/day of NGLs.

Officials were asked about merger and acquisition plans due to some recent transactions for pipeline assets, and they said they do not have a long list of assets that they are looking to part with at the moment. Organic growth has been the mantra at Energy Transfer and not acquisitions that can bring on credit requirements, said Kelcy Warren, CEO and chairman. Any potential deal would have to deleverage credit, and while consolidation could be expected during market downturns, it is hard for Energy Transfer to contemplate at the moment given current valuations, Warren said.

The company has a backlog of construction on various projects coming into service over the next six months because it went through an aggressive growth spurt, Warren told analysts. The capital spending will decline after those are in service as the projects have taken a bit longer for completion than originally planned, he said.

By Tom Tiernan ttiernan@fosterreport.com

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