95 1185 La.App. 1 Cir. 2/23/96, Amoco Production Co. v. Fina Oil & Chemical Co.

• Decision Date: 23 February 1996
• Citation: 670 So.2d 502
• Parties: 95 1185 La.App. 1 Cir
• Court: Court of Appeal of Louisiana — District of US

Page 502

670 So.2d 502

95 1185 La.App. 1 Cir. 2/23/96, 135 Oil & Gas Rep. 78

AMOCO PRODUCTION COMPANY v. FINA OIL & CHEMICAL COMPANY.

No. 95 CA 1185.

Court of Appeal of Louisiana First Circuit.

Feb. 23, 1996.

Rehearing Denied March 29, 1996.

On Appeal from the Thirty-Second Judicial District Court, in and for the Parish of Terrebonne, Trial Court No. 105,166; John T. Pettigrew, Judge Presiding.

Brett Furr, Baton Rouge, Karen K. Westall, Houston, TX, for Plaintiff/Appellant, Amoco Production Company.

Francis Barry, Jr., New Orleans, for Defendant/Appellee, Fina Oil & Chemical Company.

Before CARTER and PITCHER, JJ., and HILLARY J. CRAIN, J. Pro Tem. ¹

[95 1185 La.App. 1 Cir. 2] CARTER, Judge.

This is an appeal from a trial court judgment on cross motions for summary judgment.

BACKGROUND

Amoco Production Company (Amoco) and Fina Oil & Chemical Company (Fina) are working interest owners in the Tex W-3, RA SUA # 1 Well (Tex W-3 Well) Lake Boudreaux Field, Terrebonne Parish, Louisiana.

On March 24, 1971, Amoco and Fina's predecessor, La Terre Petroleum Corp. (La Terre), ² entered into an operating agreement for the properties generally known as the Lake Boudreaux Prospect. ³ In the operating agreement, Amoco and La Terre agreed to share the risks, costs, and production from the Lake Boudreaux Prospect on a 50/50 basis. Amoco was designated as the operator of the Prospect in the operating agreement. Under the terms of the operating agreement, each party was obligated to take in-kind or separately dispose of its proportionate share of the oil and gas produced from the unit area. ⁴

[95 1185 La.App. 1 Cir. 3] Thereafter, Amoco and La Terre began drilling the Tex W-3 Well, which was completed as a producer of oil and gas. On August 1, 1972, the well was unitized in the Tex W-3 formation by the Commissioner of Conservation.

Initially, the only outlet for the natural gas produced from the Lake Boudreaux Field was an intrastate pipeline operated by Louisiana Intrastate Gas Corporation (LIGC). La Terre entered into a gas sales contract with LIGC for the sale of its share of the gas in the intrastate market. Amoco did not take and market its share of the gas at this time because Amoco had a contract with parties, which necessitated delivery of the gas to an interstate pipeline. At the time, federal regulations prohibited delivery of intrastate gas to an interstate pipeline.

On November 16, 1972, Amoco and La Terre entered into a letter agreement regarding the sale and marketing of the production from the well. In the letter agreement, Amoco and La Terre agreed that, pursuant to La Terre's agreement with LIGC, La Terre would begin marketing its share of production from the production from certain oil and gas leases. ⁵ The letter agreement further provided as follows:

Since Amoco does not desire, at this time, to market its share of gas production saved and sold, it is agreed that Amoco's share of gas production saved and sold attributable to said oil and gas leases listed on "Exhibit A", is considered deferred for the period commencing with La Terre's first gas deliveries therefrom to Louisiana Intrastate Gas Corporation until such time as Amoco's share of the gas production saved and sold is marketed. Therefore, for the purpose hereof, it is agreed that Amoco will not be credited with any portion of the gas production saved and sold from the leases reflected on "Exhibit A" during such time, but during such time Amoco will produce the wells in accordance with La Terre's instructions.

At such time as Amoco's share of gas production is delivered to its purchaser, subject to the conditions hereafter established, La Terre will make available to Amoco and Amoco shall be entitled to and shall be permitted to take, before any processing thereof, its share of the gas production from the leases reflected on Exhibit "A" plus an additional amount of gas from said Leases 1 through 25 listed on Exhibit "A", plus Amoco's pro rata share of an additional amount of gas from Lease No. 26 listed on Exhibit "A", less the pro rata share of Phillips Petroleum Company which equals one-half of La Terre's share of such gas [95 1185 La.App. 1 Cir. 4] production until the quantity of gas deferred in accordance with the above has been produced for Amoco's account. It is understood and agreed that La Terre shall relinquish one-half of its share of the gas production as above provided from said leases reflected on Exhibit "A" only for such period of time as is required to enable Amoco to receive that volume of gas to which it would have been entitled had it commenced the sales of its gas on the same date that La Terre commenced first gas deliveries therefrom to Louisiana Intrastate Gas Corporation.

The letter agreement also provided the method by which the parties would calculate the over and under balance. ⁶ The November 16, 1972, agreement was never amended.

Thereafter, in December, 1977, an interstate pipeline connection became available, and Amoco began taking delivery of its share of the gas. In an effort to balance Amoco's under-production, pursuant to the November 16, 1972, letter agreement, Amoco also took delivery of the "additional amount of gas from said Leases 1 through 25 listed on Exhibit 'A', plus Amoco's pro rata share of an additional amount of gas from Lease No. 26 listed on Exhibit 'A', less the pro rata share of Phillips Petroleum Company," which equaled one-half of La Terre's share of such gas production.

On October 15, 1987, Tex W-3 Well was plugged and abandoned, and the production from the well permanently ceased. Between December, 1977, and October 15, 1987, Amoco was unable to receive that volume of gas to which it would have been entitled had it commenced the sale of its gas on the same date that La Terre commenced first gas deliveries. After October 15, 1987, it was impossible for Amoco to receive its equitable share of production from Tex W-3 Well. As a result, as admitted by Fina, Amoco was under-produced and Fina was over-produced by 852,087 mcf or 923,469 MMBTU of gas, which is valued at $453,751.84.

FACTS

On October 14, 1992, Amoco filed the instant suit for a money judgment against Fina. In its action, Amoco alleged that it was under-produced and that Fina was over-[95 1185 La.App. 1 Cir. 5] produced from Tex W-3 Well. Amoco further alleged that, because Tex W-3 Well was plugged and abandoned, in-kind balancing is impossible and that it is entitled to cash balancing in the amount of $453,751.84. Fina answered Amoco's petition, generally denying the allegations, raising peremptory exceptions pleading the objections of no cause of action, no right of action, and prescription, and asserting numerous defenses. ⁷ The parties conducted discovery, including interrogatories, requests for admission and production, and depositions.

Thereafter, Amoco filed a motion for summary judgment, contending that there were no genuine issues of material fact in dispute and that it was entitled to judgment as a matter of law. Attached to Amoco's motion were the deposition testimony of Van E. Parham, copies of the operating agreement, the letter agreement of November 16, 1972, and the gas purchase agreement with LIGC, various correspondence between the parties, Amoco's requests for and answers to admissions, as well as various jurisprudence and scholarly articles on gas balancing. In support of its motion, Amoco argued that, when the well is depleted and there is an under-production, the under-produced party is entitled to cash balancing.

Fina then filed a cross motion for summary judgment, contending that there were no genuine issues of material fact in dispute and that it was entitled to judgment as a matter of law. Attached to Fina's motion for summary judgment were many of the same items submitted by Amoco as well as copies of jurisprudence and scholarly articles on the issue of gas balancing. In its memorandum in support of its motion for summary judgment and opposition to Amoco's motion for summary judgment, Fina argued that the agreements between Amoco and Fina provided for in-kind balancing of any production imbalances and that Amoco was not entitled to cash balancing.

[95 1185 La.App. 1 Cir. 6] On March 10, 1995, a hearing on the motion for summary judgment was held, and the trial court rendered judgment, granting Fina's motion for summary judgment and dismissing Amoco's claims and denying Amoco's motion for summary judgment. The judgment stated that "the contracts between the parties, i.e. the 1971 Operating Agreement and the November 16, 1972, Letter Agreement, clearly provided for 'in-kind balancing', not cash balancing." The judgment was signed on March 23, 1995.

Amoco filed an application for supervisory writs with this court with regard to the denial of its motion for summary judgment and appealed the trial court judgment insofar as it granted Fina's motion for summary judgment. On June 26, 1995, this court, under docket number 95CW1259, denied Amoco's writ application, stating that the "trial court's interlocutory ruling denying relator's motion for summary judgment can be raised in its appeal of the final judgment granting defendant's motion for summary judgment."

On appeal, Amoco assigned, as error, the following specifications of error:

1. The Trial Court committed error in granting the Motion for Summary Judgment filed by Fina Oil & Chemical Company when it interpreted the Deferred Production Agreement dated November 16, 1972 inconsistently with the interpretations argued by both Amoco and Fina, and then, under its erroneous interpretation, raised and resolved material factual issues in the complete absence of any evidence regarding the material factual issues.

2. The Trial Court committed error in denying the Motion for Summary Judgment filed by Amoco Production Company when, had it properly interpreted the Deferred Production Agreement, it would have concluded that Fina has admitted all...