Davis Oil Co. v. Ts, Inc.

• Decision Date: 21 January 1997
• Docket Number: Civil Action No. 93-587.
• Citation: 962 F.Supp. 872
• Parties: DAVIS OIL COMPANY v. TS, INC.
• Court: U.S. District Court — Eastern District of Louisiana

962 F.Supp. 872

DAVIS OIL COMPANY v. TS, INC.

Civil Action No. 93-587.

United States District Court, E.D. Louisiana.

January 21, 1997.

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Felix Henri Lapeyre, Jr., Matthew J. Randazzo, III, Lapeyre, Terrell & Randazzo, New Orleans, LA, for Davis Oil Co.

Blake G. Arata, Marcy V. Massengale, Gordon, Arata, McCollam & Duplantis, LLP, New Orleans, LA, William B. Monk, William E. Shaddock, Stockwell, Sievert, Viccellio, Clements & Shaddock, LLP, Lake Charles, LA, for TS, Inc.

John Y. Pearce, Brett A. North, Montgomery, Barnett, Brown, Read, Hammond & Mintz, New Orleans, LA, Alan H. Katz, Entergy

Services, Inc., New Orleans, LA, for Presidio Exploration, Inc.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

FALLON, District Judge.

Pursuant to stipulation, in lieu of presenting live witnesses at trial, the parties have submitted the above-entitled action to the Court via joint stipulations, stipulated exhibits, and trial memoranda. This court, having heard the matter on this basis, now makes the following findings.¹

I. FINDINGS OF FACT:

Plaintiff, Davis Oil Company ("Davis Oil") brings this action seeking, among other things, judgment in its favor declaring that defendant, TS, Inc., has assumed the obligations of Lessee under that certain Oil, Gas and Mineral Lease, dated August 16, 1976, granted by the State of Louisiana (the "State") through the State Mineral Board to Davis Oil, covering certain property located offshore Louisiana in Block 26, West Delta Area, Plaquemines Parish ("State Lease 7027" or the "Lease" or the "Lease Agreement"). In particular, plaintiff asserts that defendant has assumed the obligation to plug and abandon all wells on the leased premises, to remove all structures and facilities serving the wells, and to retrieve and properly dispose of surface contamination.

A. History of State Lease 7027:

On August 16, 1976, the State, by and through the Mineral Board, as "Lessor," granted State Lease 7027 in favor of Davis Oil, as "Lessee."² On October 18, 1976, Davis Oil assigned 7.5% of its interest in the Lease to ENI Oil & Gas Drilling Program 1976-A ("ENI"), which assignment was approved by the State Mineral Board.³ On January 1, 1981, Davis Oil entered into an agreement of sale and purchase (the "Purchase Agreement"),⁴ whereby Davis Oil assigned to HPC, Inc. ("HPC") all of its rights in certain assets, including all of Davis Oil's remaining interest (92.5%) in the Lease.⁵ As assignee, HPC expressly assumed the obligations of lessee under the Lease.⁶ The State Mineral Board approved this assignment by resolution dated April 8, 1981.⁷ On June 16, 1981, the Louisiana Department of Conservation authorized the change of operator from Davis Oil to HPC's subsidiary, Home Petroleum Corporation ("Home Petroleum").⁸

On December 1, 1982, Home Petroleum and ENI assigned to Davis Fuel Inc. ("Davis Fuel")⁹ all of their right, title, and interest in and to the Lease, which assignment was approved by resolution of the State Mineral Board.¹⁰ On April 25, 1983, the Department of Conservation authorized the change of operator from Home Petroleum to Davis Fuel.¹¹

On October 18, 1983, Davis Fuel assigned all of its right, title, and interest in and to the Lease to Spartan Minerals, Inc. ("Spartan"), which assignment was approved by resolution of the State Mineral Board.¹² On November 8, 1983, the Department of Conservation authorized the change of operator from Davis Fuel to Spartan.¹³ Also in 1983, Spartan assigned certain of its interests in the Lease to 1) Davis Fuel (a Louisiana partnership), 2) Great Central Texas Oil & Gas, Inc., 3) Spartan Minerals West-Delta, Inc., and 4) Davis Fuel, Inc. ("Davis Fuel"), which assignments were each approved by the State Mineral Board.¹⁴

In June 1985, production of oil and gas from the Lease ceased, and the Lease expired according to its own terms in September 1985 for failure to conduct operations or produce oil, gas, or other minerals on the leased property or lands pooled or unitized therewith.¹⁵ The owners of the Lease at the time of its termination did not plug and abandon the wells on the leased premises or remove the structures and facilities serving the wells as required under the Lease.¹⁶

B. The 1988 Asset Sale:

HPC, to whom Davis Oil assigned the remainder of its interests in the Lease in 1981, was an indirect subsidiary of Hiram Walker-Gooderham & Worts Limited ("HW-GW"),¹⁷ a Canadian liquor company, which was an indirect subsidiary of Hiram Walker Resources Ltd. ("HWR").¹⁸ On March 31, 1986, HWR and two of its affiliates entered into a Share Purchase Agreement with Allied-Lyons PLC ("Allied-Lyons"), arranging for Allied-Lyons to purchase all of the issued and outstanding stock in HW-GW.¹⁹ This agreement provided that the "natural resource assets" of HPC were to be sold prior to the closing of the share purchase transaction.²⁰ Subsequent to the March 31, 1986 agreement, however, it appears that Gulf Canada Corporation, later known as Gulf Canada Resources Limited, ("Gulf Canada") acquired control of HWR, and certain aspects of the agreement were renegotiated, including the provision dealing with the natural resource assets of HPC.²¹

On September 5, 1986, the parties entered into a Supplemental Share Purchase Agreement.²² Under the terms of this new agreement, if the "Oil and Gas Assets and Liabilities"²³ were not sold prior to the closing of the share purchase transaction, then Gulf Canada would enter into an agreement with HPC prior to the closing, granting HPC the option to sell the "Oil and Gas Assets and Liabilities" to Gulf Canada or to a subsidiary or designee of Gulf Canada. The option would be exercisable for a period of 24 months at HPC's sole discretion.

The "Oil and Gas Assets and Liabilities" were not sold prior to closing of the share purchase transaction, and, on December 9, 1986, the Oil and Gas Sale Option Agreement (the "Option Agreement") was entered into among Gulf Canada, HPC, Allied-Lyons, and 678756 Ontario Inc., the subsidiary of Allied-Lyons that was to be the successor to HW-GW ("new HW-GW").²⁴ The Option Agreement granted to HPC the "put" option described above. On October 1, 1988, Gulf Canada, Allied-Lyons, HPC, and new HW-GW entered into a Memorandum of Understanding (the "Memorandum of Understanding"), which constituted notice to Gulf Canada that HPC was exercising the option and which provided that the closing of the asset sale would occur on December 15, 1988.²⁵ Gulf Canada designated TS Inc. ("TS"), as the subsidiary that would purchase the Oil and Gas Assets and Liabilities.²⁶ Prior to or simultaneous with the closing, HPC merged with its subsidiary, Home Petroleum, with HPC as the surviving corporation,²⁷ and TS changed its name to Home Petroleum Corporation ("TS/Home").²⁸ On December 15, 1988, HPC and TS/Home entered into a General Assignment, Bill of Sale and Conveyance (the "Sale Agreement"), whereby HPC assigned to TS/Home the assets of HPC and TS/Home assumed certain obligations and liabilities of HPC (the "Asset Sale").²⁹

C. Office of Conservation Order No. 738-2:

In July 1992, the Commissioner of Conservation for the State of Louisiana (the "Commissioner") gave legal notice that a public hearing would be held on August 5, 1992, whereby the Commissioner would afford all interested persons the opportunity to present evidence bearing upon the determination of the owner or owners responsible for plugging and abandonment in accordance with the provisions of Statewide Order No. 29-B, Section XIX (LAC 43:XIX.137), of the wells located on West Delta Block 27, the removal of all equipment, structures, and trash, and general site cleanup as required by section 30:4(C)(1) and (J) of the Louisiana Revised Statutes. The Commissioner sent notices of the hearing to all persons who had been operators of record of the wells on State Lease 7027 — namely, Spartan, Davis Fuel, Home Petroleum, and Davis Oil.³⁰ Apparently, no one other than Davis Oil attended the hearing.³¹

On August 31, 1992, the Commissioner issued Office of Conservation Order No. 738-2, finding that Davis Oil was an operator of record with respect to the wells in question and is an "owner" as defined in section 30:3 of the Louisiana Revised Statutes.³² Based upon these findings, the Commissioner found that Davis Oil was a responsible party and that any contracts that Davis Oil might have with third parties regarding liability for clean-up or regulatory matters did not affect the Commissioner's authority and duty to carry out his responsibilities under section 30 of the Louisiana Revised Statutes.³³ In accordance with these findings, the Commissioner ordered Davis Oil to plug and abandon the wells on the Lease in accordance with Statewide Order No. 29-B, Section XIX (LAC 43:XIX.137), to remove all equipment, structures, and trash associated with the Lease, to retrieve all surface contamination in existence at the time of well and platform abandonment, and to properly dispose of all such surface contamination, in accordance with Statewide Order No. 29-B, Section VIII.E & F (LAC 43:XIX.115.E & F) and section 30:4(C)(1) of the Louisiana Revised Statutes, not later than February 5, 1993.³⁴

On October 27, 1992, Davis Oil filed suit against the Commissioner in the 19th Judicial District Court, for the Parish of East Baton Rouge, seeking, among other things, judgment declaring Order 738-2 invalid and enjoining the Commissioner from enforcing the Order.³⁵ According to the parties' trial briefs, that proceeding has been stayed. Davis Oil filed the instant action on February 19, 1993.

II. CONCLUSIONS OF LAW:

Plaintiff asserts that, in 1981, HPC assumed all obligations of Davis Oil under the Lease, including the obligations to plug and abandon the wells on the leased premises and to remove the structures and facilities serving the wells, and that these obligations were transferred to TS/Home...