Background and Commercial Context

This case arose from a complex web of capacity sublease agreements in the Permian Basin crude oil transportation market. Medallion Pipeline Company, which operates a pipeline system carrying West Texas Intermediate crude oil (WTI) in the Permian Basin, obtained capacity on EPIC Crude Pipeline's system to transport 27,778 barrels per day (approximately 850,000 barrels per month) to the Port of Corpus Christi. Medallion then entered into two agreements with ARM Energy Management on July 3, 2019—a Transportation Agreement and a Terminal Agreement—effectively subleasing this EPIC capacity to ARM. The agreements contained ship-or-pay obligations requiring ARM to tender or pay for 850,000 barrels per month at $1.35 per barrel for transportation and $0.15 per barrel for terminal services, backed by prepayment deposits and credit support totaling $32.7 million.

The Dual Breach Claims

ARM sued Medallion claiming two distinct breaches: first, that Medallion refused to transport West Texas Light crude oil (WTL) on the pipeline despite the Transportation Agreement's incorporation of EPIC's tariff, which at the time of contracting specified both "Permian Common Stream 1" (WTI) and "Permian Common Stream 2" (WTL) as acceptable crude petroleum grades; and second, that Medallion failed to provide terminal facilities capable of accommodating a Suezmax vessel—a marine vessel with capacity up to one million barrels—as allegedly required by Section 3.4(a) of the Terminal Agreement. Medallion counterclaimed for ARM's failure to maintain required credit support and failure to pay amounts due under the ship-or-pay provisions after ARM allegedly breached the Agreements. The trial court awarded ARM approximately $37.8 million, representing return of the prepayments and credit support plus prejudgment interest.

The Appellate Court's Reversal

The Dallas Court of Appeals reversed the trial court's judgment in its entirety. While the full reasoning is not detailed in this withdrawn and superseded opinion, the court's disposition is clear: it reversed the damages award to ARM, rendered judgment that ARM take nothing on its breach of contract claims against Medallion, and remanded Medallion's breach of contract counterclaim to the trial court for further proceedings. The court noted that "all issues are settled in law" and issued a memorandum opinion under Texas Rule of Appellate Procedure 47.4. The opinion was subsequently withdrawn and superseded by a May 19, 2025 opinion, suggesting the court may have refined its analysis or provided additional reasoning in the final version.

Critical Contractual Provisions at Issue

Several key contractual provisions appear central to the dispute. The Transportation Agreement required Medallion to provide "Committed Firm Service" defined as "priority capacity that is equivalent to the highest level of service offered or provided by EPIC Pipeline" for transportation "in accordance with, and subject to, the Tariff." Critically, effective December 1, 2020, EPIC amended its tariff to reflect it was "not currently offering service under Permian Common Stream 2"—the WTL stream. The Terminal Agreement's Section 3.4(a) provided that ARM "shall be entitled to Nominate on a Firm Basis up to one (1) marine vessel (the 'Firm Loading Vessel'), for the marine loading of Crude Petroleum either at the Initial Terminal or the New Terminal... each with a capacity of not more than one million (1,000,000) Barrels." However, Exhibit B required nominated vessels to "comply with the 'safe berth' designated by the Port" and be "dimensionally acceptable and meet all of the requirements of the wharf facilities."

Implications for Midstream Capacity Agreements

This case presents critical lessons for practitioners drafting and negotiating midstream capacity agreements, particularly sublease arrangements. The reversal suggests courts will carefully scrutinize whether alleged service obligations are truly guaranteed or are instead subject to upstream provider capabilities and tariff modifications. The incorporation of third-party tariffs by reference—here, EPIC's tariff into Medallion's agreements with ARM—creates potential risk when those tariffs are subsequently amended to eliminate service offerings. Additionally, the dispute over Suezmax vessel access highlights the importance of distinguishing between entitlements to nominate vessels "with a capacity of not more than" a specified amount versus guarantees that facilities can physically accommodate such vessels, particularly when terminal construction was incomplete at contract execution. The remand of Medallion's counterclaim for ARM's alleged breaches suggests the appellate court found merit in Medallion's ship-or-pay and credit support claims, potentially exposing ARM to significant liability despite its initial trial court victory.