93 0349 La.App. 1 Cir. 5/20/94, Martin Exploration Co. v. Amoco Production Co.

• Decision Date: 20 May 1994
• Citation: 637 So.2d 1202
• Parties: 93 0349 La.App. 1 Cir
• Court: Court of Appeal of Louisiana — District of US

Page 1202

637 So.2d 1202

93 0349 La.App. 1 Cir. 5/20/94, 129 Oil & Gas Rep. 50

MARTIN EXPLORATION COMPANY v. AMOCO PRODUCTION COMPANY.

No. 93 CA 0349.

Court of Appeal of Louisiana, First Circuit.

May 20, 1994.

Rehearing Denied June 27, 1994.

Judith V. Windhorst, Carl D. Rosenblum, Robin D. McGuire, New Orleans, Mr. Dana K. Larpenteur, Plaquemine, for plaintiffs-appellants Wells Fargo Bank and ATC Realty Eight, Inc.

J. Clayton Johnson, Jr., Brett P. Furr, Baton Rouge, Mr. David M. Ellison, Baton Rouge, for defendant-appellee Amoco Production Co.

Before FOIL, PITCHER and PARRO, JJ.

[93 0349 La.App. 1 Cir. 2] PITCHER, Judge.

This appeal arises from the trial court's judgment denying Martin Exploration Company's (MECO) claim against Amoco Production Company (Amoco) for a contribution of acreage pursuant to an operating agreement. We affirm.

FACTS

In the fall of 1979, Amoco owned mineral leases in the Morganza area of Pointe Coupee Parish. Amoco wrote letters to the other mineral lessees in the area, including MECO, Gulf Oil Corporation (Gulf), and Chevron U.S.A., Inc. (Chevron), requesting that they farm out their acreage to Amoco. ¹

Amoco and Gulf finalized a farmout agreement on March 10, 1980, in which Gulf committed to assign to Amoco an interest in its Ravenswood lease (referred to as the red acreage ²) in return for Amoco drilling a well in a unit which included the red acreage. Unlike Gulf, MECO would not agree to a farmout, but instead a letter agreement was negotiated on February 7, 1980, between MECO and Amoco, which provided that Amoco would drill a well (the Hess well) to test the Morganza prospect. Initially, MECO did not commit to pay any of the costs of the Hess well. However, if a portion of MECO's leases (referred to as the blue acreage) was included in the Hess unit, MECO was required to either join with Amoco in a mutually satisfactory operating agreement or farm out its blue acreage to Amoco. As to subsequent wells in the Morganza prospect, MECO committed to either join "up front" in the risk and cost of drilling those wells or farm out its acreage on a well-by-well, unit-by-unit basis.

Under the terms of the letter agreement, if MECO elected to [93 0349 La.App. 1 Cir. 3] join with Amoco in the drilling of subsequent wells, MECO would be responsible for its share of drilling expenses whether or not the well was successful. If MECO chose to farm out its blue acreage, Amoco would pay all of the drilling costs, but in return, Amoco would be assigned a portion of MECO's interest.

Operations on the Hess well began in December of 1979, and continued through August of 1980. In July of 1980, Amoco began operations on the Ravenswood Company, Inc. "B" No. 1 Well (Ravenswood well), located on Amoco's Gulf farmout acreage (the red acreage).

By letter dated August 13, 1980, Amoco requested that MECO elect to either farm out its interest in the blue acreage or participate in the drilling of the Ravenswood well. By letter dated August 28, 1980, MECO elected to participate in the drilling of the Ravenswood well under the terms of the February 7, 1980 letter agreement, including the execution of a "mutually satisfactory operating agreement."

In October of 1980, Amoco sent to MECO a proposed operating agreement, dated to be effective as of October 21, 1980. The proposed operating agreement was a "Model Form Operating Agreement, A.A.P.L. Form 610-1977," a common form of agreement used in the oil and gas industry. Article III.B of the proposed operating agreement provided that the interests of the parties in costs, liabilities and production of the Ravenswood well would be as shown on Exhibit "A". Exhibit "A" is a typed addendum attached to the printed form of the operating agreement and sets forth the interests owned by each mineral lessee. This proposed operating agreement also contained Article VIII.C, commonly referred to as the "Contribution Clause."

Thereafter, Amoco and MECO negotiated and revised the terms of the proposed operating agreement. Apparently, MECO changed the effective date of the operating agreement to January 1, 1980, and then, the operating agreement was executed by Ken Martin on behalf of MECO on January 23, 1981. The operating agreement, with the January 1, 1980 effective date, was forwarded to Amoco. Dale [93 0349 La.App. 1 Cir. 4] Gilliam, who was to execute the operating agreement on behalf of Amoco, noticed that the effective date had been changed. He checked the operating agreement for other changes, and referred to Exhibit "A" to confirm that there had been no change in the parties' interests. Dale Gilliam executed the operating agreement on Amoco's behalf on February 13, 1981.

On April 29, 1981, MECO made demand on Amoco for contribution of its share in the red acreage by virtue of its participation in the drilling of the Ravenswood well. Amoco refused to tender to MECO a proportionate share of the red acreage.

On March 18, 1982, MECO ³ instituted this action against Amoco, alleging that Amoco breached the operating agreement. Specifically, MECO claimed that Amoco failed to follow the terms of the agreement, particularly the Contribution Clause. MECO alleged that the Contribution Clause obligated Amoco to "promptly notify" MECO of the farmout agreement entered into between Amoco and Gulf, and to "promptly tender" to MECO a share of the acreage earned from Gulf by virtue of the drilling of the Ravenswood well.

After a lengthy trial, the trial court denied MECO's claim. It is from this judgment that MECO now appeals.

CONTRACT INTERPRETATION

The controversy in this case centers on the interpretation and application of several clauses in the operating agreement.

A contract between parties is the law between them, and the courts are obligated to give legal effect to such contracts according to the true intent of the parties. LSA-C.C. art. 2045; Bailey v. Franks Petroleum, Inc., 479 So.2d 563, 566 (La.App. 1st Cir.1985); G/O Enterprises, Inc. v. Mid Louisiana Gas Company, 444 So.2d 1279, 1285 (La.App. 4th Cir.), writ denied, 446 So.2d 318 [93 0349 La.App. 1 Cir. 5] (La.1984); Rebstock v. Birthright Oil & Gas Co., 406 So.2d 636, 640 (La.App. 1st Cir.), writ denied, 407 So.2d 742 (La.1981). This intent is to be determined by the words of the contract when they are clear, explicit, and lead to no absurd consequences. LSA-C.C. art. 2046; Thomas v. Knight, 457 So.2d 1207, 1209 (La.App. 1st Cir.1984); Campesi v. Margaret Plantation, 417 So.2d 1265, 1267 (La.App. 1st Cir.), writ denied, 422 So.2d 163 (La.1982).

When the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent. LSA-C.C. art. 2046; Investors Associates Ltd. v. B.F. Trappey's Sons Inc., 500 So.2d 909, 912 (La.App. 3rd Cir.), writ denied, 502 So.2d 116 (La.1987); Kalmn, Inc. v. Walker Louisiana Properties, 488 So.2d 340, 343 (La.App. 3rd Cir.1986). Furthermore, the rules of interpretation establish that when a clause in a contract is clear and unambiguous, the letter of that clause should not be disregarded under the pretext of pursuing its spirit. LSA-C.C. art. 2046, comment (b); Cashio v. Shoriak, 481 So.2d 1013, 1015 (La.1986).

The meaning and intent of the parties to the written contract in such cases must be sought within the four corners of the instrument and cannot be explained or contradicted by parol evidence. LSA-C.C. art. 1848; Tauzin v. Claitor, 417 So.2d 1304, 1309 (La.App. 1st Cir.), writ denied, 422 So.2d 423 (La.1982). Contracts, subject to interpretation from the instrument's four corners without the necessity of extrinsic evidence, are to be interpreted as a matter of law, and the use of extrinsic evidence is proper only where a contract is ambiguous after an examination of the four corners of the agreement. Investors Associates Ltd. v. B.F. Trappey's Sons Inc., 500 So.2d at 912. See Kemp v. Hudnall, 423 So.2d 1260, 1261 (La.App. 1st Cir.1982), writ denied, 428 So.2d 474 (La.1983); Wilson v. Cost + Plus of Vivian, Inc., 375 So.2d 683, 685 (La.App. 2nd Cir.1979).

When the terms of a written contract are susceptible to more than one interpretation, or there is uncertainty or ambiguity as to its provisions, or the intent of the parties cannot be ascertained [93 0349 La.App. 1 Cir. 6] from the language employed, parol evidence is admissible to clarify the ambiguity or show the intention of the parties. Dixie Campers, Inc. v. Vesely Company, 398 So.2d 1087, 1089 (La.1981); Ayers v. Kent, 438 So.2d 691, 693 (La.App. 2nd Cir.1983). In cases in which the contract is ambiguous, the agreement shall be construed according to the intent of the parties. LSA-C.C. art. 2045. Intent is an issue of fact which is to be inferred from all of the surrounding circumstances. Kuswa & Associates, Inc. v. Thibaut Construction Co., Inc., 463 So.2d 1264, 1266 (La.1985); Commercial Bank & Trust Company v. Bank of Louisiana, 487 So.2d 655, 659 (La.App. 5th Cir.1986). A doubtful provision must be interpreted in light of the nature of the contract, equity, usages, the conduct of the parties before and after the formation of the contract, and other contracts of a like nature between the same parties. LSA-C.C. art. 2053; Allen v. Burnett, 530 So.2d 1294, 1301 (La.App. 2nd Cir.1988).

Whether a contract is ambiguous or not is a question of law. Myers v. Myers, 532 So.2d 490, 494 (La.App. 1st Cir.1988); Aycock v. Allied Enterprises, Inc., 517 So.2d 303, 309 (La.App. 1st Cir.1987), writs denied, 518 So.2d 512, 518 So.2d 513 (La.1988). Where factual findings are pertinent to the interpretation of a contract, those factual findings are not to be disturbed unless manifest error is shown. See G/O Enterprises, Inc. v. Mid Louisiana Gas Company, 444 So.2d at 1285; Universal Iron Works, Inc. v. Falgout Refrigeration, Inc., 419 So.2d 1272, 1274 (La.App. 1st Cir.1982). However, when appellate review is not premised upon any factual...