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Pipeline Easements – A Fair Deal ?

As oil exploration and production has increased, so too has the need to overhaul the oil transportation system. While rail remains a method of transporting crude oil, often at the expense of other cargo such as crops and cattle, pipelines present an attractive alternative.

The Dakota Access Pipeline is a 1,100-mile crude pipeline that will run diagonally through the Dakotas. Building a pipeline usually means crossing privately-held land. In the case of the Dakota Access Pipeline, more than 500 privately-owned parcels will have to be crossed. In order to facilitate construction of the pipeline, the operator behind the Dakota Access Pipeline will negotiate easements with the owners of these parcels.

 

The relationship between public utilities and negotiated easements is nothing new.  Easements may be granted to private businesses, such as a public utility company, to cross a land parcel in order to provide common services such as sewer access or electricity. Oil pipeline easements present a different situation. Setting aside for the moment the issue of whether the pipelines are a good thing economically for the state, affected landowners should tread carefully.

Unlike a public utility easement, an oil/gas pipeline moves product for profit across land rather than providing a direct benefit to the land. At peak capacity, millions of dollars worth of oil will be moving through these pipelines every day. Are affected landowners receiving fair compensation?

 

Traditionally in these situations, landowners receive “market value” of the land affected by an easement, which often includes money for reduction in agriculture output. The developer has published a table of “anticipated” market rates online:
http://www.daplpipelinefacts.com/landowner-facts/landowner-qa.html

While this system makes sense under the common public utility easement paradigm, how does this process apply when the landowner’s property is the “transportation vehicle” for a commodity? How does one calculate “fair market value” when millions of dollar’s worth of product are flowing across privately-held land? Is a one-time payment for an easement fair compensation?

 

What is to prevent a landowner from refusing to take the deal presented to them? The developer states, “In a small number of cases, however, an agreement cannot be reached. At this point, various legal options are available both to property owners and Dakota Access Pipeline.”

What exactly are these various legal options? This may mean litigation in a “forced taking” through a lawsuit called eminent domain. Under the doctrine of eminent domain, private property may be seized so long as the seizure is for a public purpose, and fair compensation is provided.

 

The concept of “public purpose” is liberally construed under the law. So, a seizure could be for a public purpose even when the direct benefactor is a private company, such as a pipeline operator. “Fair compensation” typically means that the taking party must provide market rate for the seized or affected land. In such cases, the focus is on production loss to the landowner rather than benefit provided to the operator.

The stage has already been set to allow for eminent domain seizures. Recently, a judge ruled that landowners must allow Dakota Access representatives on to their land to conduct surveys, environmental studies, and similar activities despite the fact that the state PUC has yet to fully approve the pipeline project. While the judge recognized that there was no existing legislation that allowed for pre-PUC approval takings, his interpretation of the law allowed for such a ruling. Existing South Dakota law allows for Pipelines holding themselves out as “common carriers” engaged in the sale of commodities, like crude oil, to utilize public condemnation when necessary. So, if the easements are coming, for what terms should landowners be on the lookout?

 

Typically, when landowners are approached about an easement they are presented with a standard agreement. These agreements will not refer to any individualized needs or considerations. Rather, they contain many important legal terms.

Here are examples of common terms:

-“Temporary periods” are often mentioned. How long is temporary?

-Many agreements give an operator the right to conduct a range of activities (reconstructing, modifying etc.) at any time. However, the Landowner does not retain the right to renegotiate the type of access allowed. These activities could cause future disturbances to the Landowner’s use and enjoyment of their land. Is the landowner left without any recourse?

-Some agreements allow for the installation of “any appurtenant facilities.” What are these appurtenant facilities? Are they going to impact the Landowner’s use and enjoyment of the land?

 

While Landowners may feel pressure to sign, that does not mean that they must be left with a bad deal.

Any proposed agreement should be reviewed with the help of experienced advisors. A landowner should always carefully consider the circumstances of his land and, importantly the future of his land.

 

Author: David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in South and North Dakota.