Crude Oil by Rail Terminal - Project Development Dispute

Litigation, North America

The development of a crude-by-rail (CBR) terminal project did not progress as the joint venture (JV) parties had originally expected. In the dispute, the Claimant contended that one JV party interfered with development progress, the Defendant responded that the Claimant did not achieve critical milestones required to sanction the CBR project. Baker & O'Brien provided an expert report that analyzed development activities, economic assumptions, industry trends, prevailing commercial conditions, and review of a valuation model.

Pipelines are the primary modes of transport for moving crude oil long distances over land because of their overall cost efficiency and generally more favorable environmental and safety considerations. Although shipping crude oil by rail was viewed to be an antiquated concept that harkened back to the Rockefeller days, drastic production growth in key basins like the Bakken (North Dakota) and Eagle Ford (Southwest Texas) changed everything, beginning in 2011.

Around that time, crude oil shipments by rail in the U.S. began to increase drastically from less than 100 thousand barrels per day (MB/D) to over 900 MB/D by 2014 (figure). This activity came to a rather inglorious decline when new pipelines were built to connect the key growth basins to major crude oil hubs, such as Cushing and Houston. The decline in oil prices, beginning in late 2014 certainly didn't help matters.

To enable shipment of crude oil by rail, a loading terminal must be constructed near the production source, and there must be available receiving terminals in target markets. Many of these new crude-by-rail (CBR) terminals began as "merchant" projects - independently owned without any physical integration with oil producers or refiners.

Baker & O'Brien was engaged by one of the joint venture partners on one such merchant project, which was to be a CBR receiving terminal near several refineries. After originally agreeing to jointly develop the CBR project, the JV partners ended up in court over a failure to progress the project, with one party making a claim that the other party interfered with the project's development progress, thereby financially damaging the Claimant. The Defendant responded that the critical milestones were not achieved by the Claimant, and that the project's economic prospects were uncertain.

Baker & O'Brien was asked to assess the various project documents and related communications, including the development activities and key assumptions made in assessing the project's economics. We were also asked to evaluate the industry trends and commercial environment prevailing at the time of development, to review a valuation (damages) model, and to opine on other expert reports. The lead Baker & O'Brien consultant provided an expert report and testified at deposition.

Kevin G. Waguespack

Chief Executive Officer

Industry
Transportation and Storage
Service
Project Feasibility / Litigation / Expert Witness Testimony
Region
North America