Total E&P USA, Inc. v. Kerr-McGee Oil Gas Corp.
| Decision Date | 12 March 2013 |
| Docket Number | No. 11–30038.,11–30038. |
| Court | U.S. Court of Appeals — Fifth Circuit |
| Parties | TOTAL E & P USA, INC., Plaintiff–Appellee Statoil Gulf of Mexico, L.L.C., Intervenor Plaintiff–Appellee v. KERR–McGEE OIL AND GAS CORP.; Lynn Belcher; C. Dan Bump; Cathy Zeornes Guy; Gary A. Hummel; Allen D. Keel; Kevin A. Small; Wayne G. Zeornes, Defendants–Appellants. Lynn S. Belcher; C. Dan Bump; Cathy Zeornes Guy; Gary A. Hummel; Allan D. Keel; Kevin A. Small; Wayne G. Zeornes, Plaintiffs–Appellants v. Statoil Gulf of Mexico, L.L.C., Defendant–Appellee. |
OPINION TEXT STARTS HERE
Scott Allen O'Connor, Dana Erin Dupre, C. Peck Hayne, Jr., Gordon, Arata, McCollam, Duplantis & Eagan, L.L.C., New Orleans, LA, for Plaintiff–Appellee.
Warren W. Harris, Bracewell & Giuliani, L.L.P., Dick Watt, Andre Charles deLaunay, Watt Beckworth Thompson & Henneman, L.L.P., Houston, TX, Andrew Tillman Lilly, John Y. Pearce, Montgomery Barnett, L.L.P., New Orleans, LA, for Intervenor Plaintiff–Appellee.
Michael H. Rubin, David Roy Dugas, Kyle Achee Ferachi, McGlinchey Stafford, P.L.L.C., Baton Rouge, LA, Ernest L. Edwards, Jr., Billy Richard Moore, Jr., Beirne, Maynard & Parsons, L.L.P., M. Taylor Darden, Matthew James Fantaci, Carver, Darden, Koretzky, Tessier, Finn, Blossman, New Orleans, LA, Andrew McCollam, III, McCollam Law Firm, P.C., David Michael Gunn, Chad Flores, Erin Hilary Huber, Constance Hankins Pfeiffer, Beck, Redden & Secrest, L.L.P., Houston, TX, for Defendant–Appellant.
Patrick Stephen Ottinger, Ottinger Hebert, L.L.C., Lafayette, LA, for Thomas M. Campbell, Jr., et al., Amici Curiae.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before GARZA, DENNIS, and HIGGINSON, Circuit Judges.
This case involves a contractual interpretation dispute over whether overriding royalties are payable out of the initial oil and gas production from a tract of land on the outer continental shelf adjacent to Louisiana. In 1998, pursuant to the Outer Continental Shelf Lands Act (“OCSLA”),1 the United States issued a mineral lease of the tract to oil companies for mineral exploration. In 1999 and 2001, overriding royalty interests (“ORRI”) were carved out of the lessees' working interest in all production and assigned to seven individuals referred to herein as the “Belcher Group” (ORRIs totalling 0.2625% assigned in 1999) and to Kerr–McGee Oil and Gas Corporation (“Kerr–McGee”) (ORRI of 3.7373% assigned in 2001).
When production under the lease was obtained in 2009, three oil companies owned the lessees' working interests: Chevron USA, Inc. (“Chevron”) (58% share), Total E & P USA, Inc. (“Total”) (17% share), and Statoil Gulf of Mexico, L.L.C. (“Statoil”) (25% share). Chevron immediately began paying overriding royalties out of its share of the production to the Belcher Group and Kerr–McGee. Total and Statoil, however, took the position that they were not obliged to immediately begin paying overriding royalties out of their shares of production. They claimed that no overriding royalties were due because the ORRI assignment contracts contained “calculate and pay” clauses stating that: “The overriding royalty interest assigned herein shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner's royalty under the Lease.” 2 Total and Statoil asserted that the “calculate and pay” clauses were intended to suspend their obligation to pay overriding royalties out of production whenever payments of the United States' 12 1/2% landowner royalty under the lease were to be suspended pursuant to the Outer Continental Shelf Deep Water Royalty Relief Act (“DWRRA”).3
It is undisputed that, upon the commencement of production under the lease in 2009, the payment of the government's 12 1/2% landowner royalties was determined to be suspended until 87.5 million barrels of oil equivalent had been produced, pursuantto the DWRRA. Therefore, Total and Statoil argue, no overriding royalties are due so long as the payment of the U.S. landowner royalties are suspended. The Belcher Group and Kerr–McGee disagreed, contending that the “calculate and pay” clauses were not intended to suspend overriding royalties under any circumstances but were meant to ensure that overriding royalties would be calculated using the same methods as required by the lease for measuring and computing the government's 12 1/2% landowner royalties. In other words, they argued that the “calculate and pay” clauses were intended to specify the manner of calculation and payment of overriding royalties, not to make the accrual of overriding royalties dependent upon the payment of landowner royalties to the United States. This litigation ensued. Because Chevron agreed with the ORRI owners' interpretation of the “calculate and pay” clauses and continued to pay overriding royalties to them, Chevron has not been sued or made a party to this case.4
The district court granted a motion for summary judgment by Total and Statoil, declaring that the “calculate and pay” clauses in the 1999 and 2001 ORRI assignments clearly and explicitly require that the payment of overriding royalties shall be suspended during the suspension of the U.S. 12 1/2% landowner's royalty under the DWRRA. The district court expressly refused to engage in further interpretation of the assignment contracts in search of the parties' intent or to consider any evidence on that issue.
The Belcher Group and Kerr–McGee appealed. The issue on appeal comes down to whether the language in the “calculate and pay” clauses providing that the overriding royalties “shall be calculated and paid in the same manner and subject to the same terms and conditions as the landowner's royalty under the lease” clearly, explicitly, and unambiguously was intended to suspend the payment of overriding royalties if, upon production, the DWRRA were to result in a threshold suspension of the payment of landowner royalties to the United States.
We conclude, under the applicable Louisiana law, that the “calculate and pay” clauses in the ORRI assignment contracts do not clearly and explicitly express the intent that overriding royalty payments shall be suspended whenever the U.S. landowner royalties are suspended under the DWRRA; and that the “calculate and pay” clauses must be interpreted further in search of the common intent of the parties to the assignment contracts. Assuming without deciding that the “calculate and pay” clauses may reasonably be interpreted as Total and Statoil contend, the clauses are at least ambiguous because a reasonable inference also may be drawn that the “calculate and pay” clauses merely refer to the lease terms and conditions for the method of calculating overriding royalties and that they do not intend for the lessees' obligation to pay overriding royalties out of production to be suspended altogether under any circumstances. Because of this ambiguity and permissible inference, there is a genuine dispute as to a material issue of fact, viz., the assignment contract parties' intentions regarding the “calculate and pay” clauses. Therefore, because, in reviewing the summary judgment de novo, we must resolve all ambiguities, permissible inferences, and material issues of fact in favor of the non-moving parties, the Belcher Group and Kerr–McGee, we conclude that Total and Statoil are not entitled to a judgment as a matter of law. For these reasons, we reverse the district court's summary judgment and remand the case to it for further proceedings.
To understand the legal context within which the ORRI assignment contracts must be interpreted, it is helpful to have a general understanding of the governing federal statutes and regulations, as they have been interpreted by this court.5
“[OCSLA] authorizes the Secretary of the [Interior] to grant and manage leases for recovery of oil, gas, and other minerals from submerged lands located on the Outer Continental Shelf.” Mesa Operating Ltd. P'ship v. U.S. Dep't of Interior, 931 F.2d 318, 319 (5th Cir.1991). “OCSLA thus vests the federal government with a proprietary interest in the [outer continental shelf] and establishes a regulatory scheme governing leasing and operations there.” EP Operating Ltd. P'ship v. Placid Oil Co., 26 F.3d 563, 566 (5th Cir.1994). “OCSLA provides that the [Department of the Interior (‘DOI’) ] obtains royalties from lessees based on the ‘amount or value of the production saved, removed, or sold.’ ” Mesa Operating Ltd., 931 F.2d at 319–20 (quoting 43 U.S.C. § 1337(a)(1)).
“OCSLA also vests in the Secretary the sole authority and responsibility to ‘prescribe such rules and regulations as may be necessary to carry out such [leasing] provisions [of OCSLA].’ ” Id. at 319 (alterations in original) (quoting 43 U.S.C. § 1334(a)). Pursuant to this authority, the DOI has several times issued regulations governing how royalties on production from OCSLA leases are to be computed and how lessees are to record and report production information relevant to those calculations. The regulations in effect when the lease here was issued in June 1998 were promulgated by the DOI agency then known as the Mineral and Mining Service (“MMS”). Those regulations provided, inter alia, that “[a]ll oil (except oil unavoidably lost or used on, or for the benefit of, the lease, including that oil used off-lease for the benefit of the lease when such off-lease use is permitted by the [agency], as appropriate) produced from a Federal ... lease ... is subject to royalty,” 30 C.F.R. § 202.100(b)(1) (1997); and that “[w]hen paid in value, the royalty due shall be the value, for royalty purposes, [under the regulations] multiplied by the royalty rate in the lease,” id. § 202.100(a)(1).6 These provisions apply to the United States' landowner's royalty owed by OCSLA mineral lessees and not to overriding royalties owed by lessees to third party ORRI...
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Total E&P United States, Inc. v. Kerr–McGee Oil & Gas Corp.
...for reformation, but only on the grounds specifically stated by the district court. Respectfully, I dissent. 1. Our prior opinion, 711 F.3d 478 (5th Cir.2013), is vacated and withdrawn and this opinion is substituted in its place. 2.43 U.S.C. § 1331 et seq. 3. Although the two “calculate an......