Special Report: ETP's Continued Confidence in Rover Pipeline Timeline -- But Easement Issues May Remain Its Achilles Heel

During today's Energy Transfer Partners' (ETP) earnings call discussion about the Rover Pipeline Project, management chose not to respond to questions about the potential impact of outstanding easements along the planned route of the pipeline. Obtaining easements along the route is critical to Rover meeting its tree clearing deadline. As we have previously reported, the Rover Pipeline project is racing to complete its tree clearing operations by March 31, the end of the tree clearing window mandated by the U.S. Fish and Wildlife Service, and explicitly provided in Rover's Certificate of Public Convenience and Necessity. While FERC in Rover's Certificate Order refers to tree clearing (Environmental Condition 25), in numerous affidavits in federal court Rover refers to its requirement to complete tree felling "and later clearing" by March 31, suggesting that Rover is employing a somewhat atypical approach to clearing due to its condensed timeline.
When a Certificate holder is unable to otherwise negotiate the granting of rights-of-way with the landowners along the route of a gas pipeline project, the Natural Gas Act allows the Certificate holder to petition the court (state or federal) to allow it to acquire the rights-of-way by eminent domain. But oftentimes the percentage of easements that require condemnation, and ultimately litigation, are well below 5% of the land along the planned route of the pipeline. Rover was not able to successfully negotiate 30% of its required rights-of-way. Therefore, Rover had to file suit in early February to obtain the remainder of the rights-of-way via eminent domain in federal district courts along the route of the Rover pipeline. In just Ohio, for example, Rover filed suit in three different federal district courts (the Northern District Court (Eastern Division); the Northern District Court (Western Division); and the Southern District Court (Eastern Division)), requesting that the courts grant to Rover the required rights-of-way. In addition, Rover is seeking "immediate possession" of the rights-of-way, in a so-called "quick-take" process.
Affected landowners in the three Ohio proceedings have objected to Rover's request for immediate possession, arguing that while the Natural Gas Act allows Certificate holders such as Rover to obtain rights-of-way through eminent domain, Rover does not have a legal basis to request immediate possession of the rights-of way. Opponents have also consistently argued that FERC granted Rover three years from the issuance of the Certificate, February 2, 2017, to place the pipeline in service. And, in fact, according to them, Rover has conceded that it only needs two years to complete all construction and restoration work, because Rover only sought two-year construction easements. In addition to relevant portions of the Natural Gas Act, the condemnation process is governed by the Federal Rules of Civil Procedure, which provides that a landowner may take up to 21 days to formally respond to Rover's condemnation action in court, and which allows an affected landowner to request a jury to set the compensation to be paid by Rover for the rights-of-way. In fact, the Ohio landowners have requested that the courts enforce these requirements, and not grant any rights-of-way until the compensation is determined by a jury and paid to the landowners. The first initial window into progress with this condemnation litigation may occur on Friday, February 24, with the first hearing for these arguments, with hearings in other courts scheduled through early March.
It is not clear how the federal courts will rule on Rover's requests for immediate possession of the rights-of-way, or the landowners' counterarguments. But it is clear that it's down to the wire for Rover. In Rover's initial legal filings to acquire the rights-of-way, Rover stated that it must "complete all tree felling activities for the project before March 31, 2017 to be able to meet the contractual in-service date Rover's producers-shippers are counting on in entering into precedent agreements with Rover for shipment of natural gas through the Rover project...."
According to court documents, Rover has also noted that if it has to "move-around" a tract of land, it "would be liable for move-around costs for each skipped tract or group of tracts of approximately $407,000 per move-around for construction spreads with a pipeline of a smaller diameter and approximately $687,000 for construction spreads with a pipeline or pipelines of larger diameter, and the same amounts will be incurred a second time for re-mobilization of equipment on each spread."

ETP Earnings Call -- Rover Update

On its earnings call this morning, ETP reiterated its commitment to the most recent critical project dates, including its expectation for a full notice to proceed with construction from FERC on March 1. (This is a change to Rover's initial request, February 8.) ETP also expressed confidence that Rover will receive its two remaining outstanding permits (Ohio EPA 401 Water Quality Certification, U.S. Army Corps of Engineers, Buffalo District 404 Dredge and Fill Permit) today (February 23) or tomorrow (February 24). They also maintained the July estimate for Phase I in service to the Defiance, Ohio hub.

In response to an analyst question regarding Rover's ability to meet its March 31 tree-felling deadline, the company reminded the audience of its right to proceed with non-mechanized felling across the upland portion of the project, which represents 90% of the total acreage. The other 10% represents the wetland acreage that requires 401 Water Quality Certification from the Ohio EPA. But what remains unknown-- and which was not addressed by ETP, -- s the extent of the acreage included in the outstanding condemnation proceedings referenced above. When questioned by an analyst on the earnings call, ETP did not give specifics or expectations.

In response another question regarding Rover's ability to meet the March 31 deadline, the company acknowledged that, given the time constraints, its contractors will be focusing on simply felling trees "to get them on the ground" and also acknowledged that felling and stacking/clearing trees in separate stages is not a typical or efficient tree-clearing process.