The company behind the proposed Keystone XL pipeline will not file a legal challenge to the Obama administration's decision yesterday to deny a permit for the project, an official said today.

Ken Murchie, director of Keystone facilities development at TransCanada Pipelines Ltd., told Greenwire at a conference in Houston today that the company, which is behind the proposed $7 billion link between the Canadian oil sands and Gulf Coast refineries, will instead focus on working with Nebraska state authorities on a reroute through that state (see related story).

It will then seek to reapply for a permit.

The company would have faced an uphill battle if it went to court to challenge the Obama administration's decision to deny a permit for the project, legal experts say.

What makes the legal terrain look particularly uncertain for TransCanada and oil industry groups, like the American Petroleum Industry, is that the decision to deny the permit appears to have come directly from the White House. President Obama based his decision on a determination that the pipeline was not in the national interest.

While agency decisions are challenged all the time under the Administrative Procedure Act (APA), it is tougher to get at presidential decisions, noted James Vines, a partner at the King & Spalding law firm.

"It's tough," Vines said. "Courts tend to defer heavily to the exercise of presidential discretion."

Overall, "I wouldn't say it's an advantageous legal position" for TransCanada, he added.

Lawyers do point out, however, that there is an agency action out there: Obama based his decision on a recommendation made by the State Department. At the same time that Obama made his announcement, the State Department said it did not have time to consider the environmental impact of the latest proposed route under the National Environmental Policy Act. Last month, Republicans insisted on a 60-day deadline for a final ruling on the pipeline as part of the payroll tax-cut deal.

Obama blamed the denial largely on what he called the "rushed and arbitrary deadline."

The State recommendation could potentially be challenged as a "final agency action" under the APA, lawyers say, but because the president made the final call, courts may not see it as such.

"This could be fatal to any litigation attempt, as I'm not sure the State Department recommendation would constitute a 'final' agency action," said Jonathan Adler, director of the Center of Business Law and Regulation at Case Western Reserve University School of Law.

The lack of certainty on this point emphasizes how the decision "presents very unique circumstances as a matter of administrative law," said Amy Atwood, a Center for Biological Diversity attorney working to derail the project.

Gronewold reported from Houston.