Expropriations: One Possible Result of the Natural Gas Drilling Boom

One possible effect of the ongoing natural gas drilling boom is an increase in expropriations.  Several Louisiana state and federal statutes authorize private companies to expropriate private property for the purpose of constructing, operating and maintaining natural gas pipelines and related equipment.  Those statutes include La. R.S. 19:2, La. R.S. 30:554, and 15 U.S.C. § 717f.

Before expropriating private property, companies seeking to acquire an interest in property for pipeline-related purposes are obligated to attempt negotiations with the property owner.  See, e.g., La. R.S. 19:2.  If expropriation proceedings become necessary, the company seeking expropriation must show that its purpose is "public and necessary."  See La. Const. Art. 1, § 4(B)(4); ExxonMobil Pipeline Co. v. Union Pacific R. Co., 2009-1629 (La. 3/16/10), 35 So. 3d 192, 196-97.  Once the expropriator satisfies that baseline requirement, it enjoys vast, though not total, discretion in determining the extent and location of the property to be expropriated.  ExxonMobil Pipeline, 35 So. 3d at 200.  The Louisiana Supreme Court has identified four factors the expropriator should consider: costs, environmental impact, long range area planning, and safety considerations.  Id. (citing Red River Waterway Commission v. Fredericks, 566 So. 2d 79, 83 (La. 1990)).  As long as the expropriator gives these factors some consideration, its decision should not be second guessed.  The only limits are that the expropriator may not exercise its discretion in bad faith, or act so capriciously and arbitrarily as to make its decision "unreasoned."  Acadian Gas Pipeline Sys. v. Bourgeois, 04-578 (La. App. 5 Cir. 11/30/04), 890 So. 2d 634, 641.  Of course, the Louisiana Constitution also requires that expropriator provide "just compensation" to the property owner.  La. Const. Art. 1, § 4(B)(4).

Thus, companies planning to construct natural gas pipelines in Louisiana encounter relatively friendly expropriation laws and jurisprudence.  Especially in light of the recent drilling boom and the steps taken by industry to make use of abundant natural gas supplies (some of which have been discussed in previous entries), pipeline expropriators should have little difficulty establishing that their purpose is "public and necessary."  Courts have held that the need to maintain steady supply in light of increased demand and the need to take advantage of abundant resources are "public and necessary" purposes.  See, e.g., Acadian Gas Pipeline Sys. v. Nunley, 46,648 (La. App. 2 Cir. 11/2/11), 77 So. 3d 457, 463 (specifically mentioning the "huge resources" available from the Haynesville Shale formation).  In many cases, necessity will effectively have been established before an expropriation proceeding reaches the courts, as the expropriator will have obtained a certificate from either the Louisiana Commissioner of Conservation or the Federal Power Commission.  See La. R.S. 30:554; 15 U.S.C. § 717f. 

While Louisiana's existing pipeline infrastructure is often cited as a key consideration by energy and chemical companies planning new development in this state, additions to that infrastructure may ramp up, particularly if industry is successful in implementing new and emerging uses for natural gas.  If that comes to pass, expropriations may be among the many results of the ongoing natural gas supply boom.

 

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