Fite Oil & Gas, Inc. v. SWEPI, L.P., 020515 FED5, 13-31244

Docket Nº:13-31244
Opinion Judge:PER CURIAM:
Party Name:FITE OIL & GAS, INC., Plaintiff-Appellant v. SWEPI, L.P., Defendant-Appellee
Judge Panel:Before JOLLY, SOUTHWICK, and HAYNES, Circuit Judges.
Case Date:February 05, 2015
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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FITE OIL & GAS, INC., Plaintiff-Appellant

v.

SWEPI, L.P., Defendant-Appellee

No. 13-31244

United States Court of Appeals, Fifth Circuit

February 5, 2015

Appeal from the United States District Court for the Western District of Louisiana USDC No. 5:11-CV-1621

Before JOLLY, SOUTHWICK, and HAYNES, Circuit Judges.

PER CURIAM: [*]

Fite Oil & Gas, Inc. appeals from the district court's declaratory judgment that, as a lessee who refused to participate in the drilling of a well, it must pay its own lessors the royalties they are due. Fite's claims have become moot during the pendency of this action. We VACATE the district court's order and REMAND with instructions that the complaint be dismissed.

FACTS AND PROCEDURAL BACKGROUND

Fite and SWEPI, L.P. held oil, gas, and mineral leases on some of the same property in northwest Louisiana. According to the original complaint, Fite acquired interests in 2007 under two leases executed in the early 1960's, covering acreage in four sections of land in DeSoto Parish, Louisiana. Fite claimed that SWEPI acquired leases "in direct conflict with Fite's interest." SWEPI argued that some of its interests were in "top leases, " i.e., subsequent leases that would become effective only upon the expiration of the prior leases. In August 2009, Fite demanded that SWEPI release its competing leases. In September, SWEPI wrote Fite that it would not release its acreage.

In October 2009, SWEPI wrote Fite about its intent to drill a well in a unit approved by the Louisiana Commissioner of Conservation. The unit would cover some of Fite's leasehold. By statute, owners of separately-owned tracts within a drilling unit approved by the Commissioner may agree to pool their interests and jointly develop the property. La. Rev. Stat. § 30:10(A). The SWEPI letter referred to a subsection of that same statute which provides that those who drill the well are "entitled to own and recover out of production" the drilling, completion, and operating costs allocable to the non-participating owner and also to retain a "risk charge." § 30:10(A)(2)(b)(i). Only after these amounts have been recovered out of production will the non-participating owners begin to receive their percentage of production revenue. See id.

The two companies engaged in discussions about Fite's lease interests and the well. According to Fite's original complaint, SWEPI offered $2, 000 per acre to buy Fite's interests. Fite claimed SWEPI invalidly withdrew the offer in September 2010. In December, SWEPI again wrote Fite, setting out the costs of the well, referring to the statutory penalty that non-participating working interest owners must bear, and offering Fite a chance to participate by agreeing to share in the costs of the well. The well apparently had already been completed. According to Fite's complaint, negotiations between the companies failed.

The drilling of the well began in October 2009, and it was completed in March 2010. Production ceased in December 2011. Revenue from the well was less than the cost of drilling and completion. Throughout the period of production, SWEPI paid nothing to Fite because it had not agreed to share in the costs of the well. Those costs were still being recouped when production ceased. SWEPI also did not make royalty payments out of this revenue to Fite's lessors or to Fite for their benefit. Until it recouped its costs and the risk charge under Section 30:10(A)(2)(b)(i), SWEPI asserted that it had no obligation to pay anything to the lessors of a non-participating working interest owner. It maintained that Fite, as lessee, was required to pay its lessors out of its own funds.

In September 2011, Fite filed suit in the United States District Court for the Western District of Louisiana. Production from the well was still occurring but was nearing its end. In the complaint, Fite claimed that SWEPI had agreed to purchase Fite's interests for $693, 280. The suit sought that sum, other damages, and a declaration that SWEPI had to pay the royalties due to Fite's lessors. SWEPI denied that it had agreed to purchase Fite's interests. It claimed that a formal written agreement was contemplated but never executed. It also denied any obligation to pay the royalties owed under Fite's leases.

Fite amended its complaint in January 2013. It dropped its claim that SWEPI had agreed to purchase its interests. It now sought only a declaratory judgment stating that Fite had not incurred the risk penalty, and that SWEPI was obligated to pay Fite's lessors the royalties they were due from production. The risk charge would become a moot point, though, because production on the well ceased before the costs of drilling and completing the well were recovered. Thus, SWEPI could not recover a risk charge out of production revenues.

Both parties moved for summary judgment, contending that Section 30:10(A)(2) required the other to make the royalty payments. In November 2013, the district court ruled in favor of SWEPI. Fite timely appealed.

In November 2014, after briefing and...

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