Apache Corp. v. W & T Offshore, Inc.

• Decision Date: 16 November 2010
• Docket Number: No. 09-31122,09-31122
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: APACHE CORPORATION, Plaintiff-Appellant, v. W & T OFFSHORE, INC., Defendant-Appellee.

626 F.3d 789

APACHE CORPORATION, Plaintiff-Appellant,

v.W & T OFFSHORE, INC., Defendant-Appellee.

No. 09-31122.

United States Court of Appeals,Fifth Circuit.

Nov. 16, 2010.

Scott Allen O'Connor, Dana Erin Dupre, Gordon, Arata, McCollam, Duplantis & Eagan, L.L.P., New Orleans, LA, Roger Dale Townsend (argued), Jennifer R. Tillison, Alexander Dubose & Townsend, LLP, Christopher William Barnes, Apache Corp., Houston, TX, for Plaintiff-Appellant.

Philip Guy Eisenberg, Bankruptcy Counsel (argued), Locke, Lord, Bissell & Liddell, L.L.P., Houston, TX, Jason Marechal Cerise, Omer Frederick Kuebel, III, Locke, Lord, Bissell & Liddell, L.L.P., New Orleans, LA, for Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before STEWART, PRADO and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

Although the parties submitted over one-hundred pages of briefing, the issue on appeal is the same straightforward question of contract interpretation previously before the district court: Does the FarmoutAgreement ¹ require W & T to bear a proportionate share of the costs of decommissioning an oil platform located on the federal offshore oil and gas lease designated OCS-G 2951 Main Pass Block 151 (Block 151). Because we agree with the district court that the unambiguous language of the Agreement does not create any such obligation, we AFFIRM.

I.

W & T's predecessor in interest, the Atlantic Richfield Company (ARCO), and Apache's predecessor in interest, the Texoma Production Company (Texoma), executed the Farmout Agreement on October 31, 1979. Texoma then had thirty days to commence drilling a test well, which if successful, earned Texoma an assignment of ARCO's interest in the OCA-G 2950 Main Pass Block 148 (Block 148) lease subject to an overriding royalty interest. ARCO's relatively small overriding royalty interest was free of any obligation to contribute to the costs of production.

The Farmout Agreement, however, included two election points for ARCO to convert its 8.33 percent overriding royalty interest into a 33.3 percent cost-bearing working interest. Generally speaking, the first election point allowed ARCO to convert its royalty interest in the first well while the second election point allowed ARCO to convert its royalty interest in any subsequent wells. The first election point would occur after Texoma recovered "the proportionate costs of drilling, testing, completing, equipping, and operating the well, including that portion of the platform costs which shall be allocated to such well on the basis of the number of slots on the platform." The second election point would occur only if Texoma proposed to drill a second well prior to recovering its production costs in the first well. If Texoma proposed a second well, ARCO would have thirty days to convert its overriding royalty interest in the second well into a working interest and participate in the drilling of the second well. Upon conversion under the second election point, ARCO would be "responsible for the proportionate share of the platform costs allocated to the total number of wells to be drilled for production from said lease under the plan of exploration and development." ARCO exercised both options to convert its royalty interest to a working interest, and pursuant to the Farmout Agreement, the parties entered into a joint operating agreement (JOA) governing the operations of the Block 148 lease.

No drilling platform was ever constructed on Block 148. Apache, however, operated the Block 151 platform, which served both the Block 151 lease and the adjacent Block 148 lease until Hurricane Ivan damaged the platform in 2004, thereby ending its service life. Because federal regulations require leaseholders to remove and decommission oil and gas platforms at the end of their service life, Apache, as the platform operator, began the process of decommissioning the Block 151 platform. Apache sought reimbursement for such costs from W & T, contending that the Farmout Agreement requires W & T, which owns a 33.3 percent working interestin Block 148, to pay a proportionate share of the decommissioning expenses. W & T refused to pay.

Accordingly, on November 25, 2008, Apache filed a complaint in the United States District Court for the Eastern District of Louisiana (1) seeking a declaratory judgment that W & T must bear its proportionate share of the total costs of decommissioning and abandoning the Block 151 platform, (2) alleging that W & T's refusal to bear its proportionate share of the decommissioning costs constitutes a breach of the Farmout Agreement, and (3) alleging, in the alternative, that "W & T has enjoyed the use of the [Block 151 platform] to its enrichment without cause at the expense of Apache." W & T counterclaimed, seeking indemnity under the Farmout Agreement. Prior to completing discovery, Apache sought summary judgment "holding W & T liable for its proportionate share of [Block 151 platform] costs, including decommissioning costs," and dismissal of W & T's counterclaim with prejudice. W & T subsequently filed a cross-motion for summary judgment seeking dismissal of Apache's complaint, indemnification, and attorneys' fees. The district court concluded that

The Farmout Agreement could have required ARCO to agree to pay a share of the decommissioning costs of the platform located on Block 151 but it did not. Nowhere in either the Farmout Agreement or the subsequent JOA is an obligation expressed to pay for the decommissioning of that platform. Apache cannot meet its burden of proving such an obligation exists because the unambiguous language of the agreements does not create one.

Moreover, with respect to W & T's indemnity claim, the district court found that "[t]here is nothing in the text to suggest that ARCO was attempting to shift the costs of a subsequent litigation between the parties to the agreement." Accordingly, the district court denied Apache's summary judgment, granted W & T's summary judgment in part, and dismissed Apache's complaint and W & T's cross-claim for indemnification and attorneys' fees with prejudice.

II.

We review the district court's summary judgment de novo, applying the same legal standards used by the district court.² Moss v. BMC Software, Inc., 610 F.3d 917, 922 (5th Cir.2010) (citation omitted). "Summary judgment is proper 'if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.' " Id. (quoting Fed.R.Civ.P. 56(c)(2)). "[T]he court views all facts and evidence in the light most favorable to the non-moving party," and "[m]ere conclusory allegations are insufficient to defeat summary judgment." Id. (citations omitted). Furthermore, "where the non-moving party fails to establish 'the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial,' no genuine issue of material fact can exist." Nichols v. Enterasys Networks, Inc., 495 F.3d 185, 188 (5th Cir.2007) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

III.

A.

The Outer Continental Shelf Lands Act "vests the United States with jurisdiction over the soil and seabed of the oceans and artificial islands and fixed structures located thereon, and grants to the United States the mineral resources that are part of the [Outer Continental Shelf.]" Snyder Oil Corp. v. Samedan Oil Corp., 208 F.3d 521, 522 (5th Cir.2000). Furthermore, the Act provides:

To the extent that they are applicable ... the civil and criminal laws of each adjacent State ... are declared to be the law of the United States for that portion of the subsoil and seabed of the outer Continental Shelf ... and fixed structures erected thereon, which would be within the area of the State if its boundaries were extended seaward to the outer margin of the outer Continental Shelf ....

43 U.S.C. § 1333(a)(2)(A). Because both Blocks 148 and 151 are adjacent to Louisiana, the law of Louisiana controls this court's interpretation of the Farmout Agreement.

Under Louisiana law, "interpretation of a contract is the determination of the common intent of the parties." La. Civ.Code Ann. art. 2045. "In ascertaining the common intent, words and phrases in a [contract] are to be construed using their plain, ordinary and generally prevailing meaning, unless the words have acquired a technical meaning, in which case the words must be ascribed their technical meaning." Sims v. Mulhearn Funeral Home, Inc., 956 So.2d 583, 589 (La.2007) (internal quotation marks and citation omitted). Moreover, "[w]ords susceptible of different meanings must be interpreted as having the meaning that best conforms to the object of the contract," La. Civ.Code Ann. art. 2048, and "[e]ach provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole," La. Civ.Code Ann. art. 2050. In addition, "[w]hen 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." La. Civ.Code Ann. art. 2046. Thus, "[u]nder Louisiana law, the interpretation of an unambiguous contract is an issue of law for the court." Amoco Prod. Co. v. Tex. Meridian Res. Exploration Inc., 180 F.3d 664, 668 (5th Cir.1999) (citing Tex. E. Transmission Corp. v. Amerada Hess Corp., 145 F.3d 737, 741 (5th Cir.1998)). Accordingly, this case turns primarily on whether the Farmout Agreement unambiguously requires W & T to pay for its proportionate share of the costs of decommissioning the Block 151 platform.

B.

Both parties claim that the Farmout Agreement is unambiguous but reach opposite conclusions as to whether W & T is obligated to pay its proportionate share of the Block 151 platform decommissioning costs. This...