In re Legacy Reserves Operating LP
| Decision Date | 12 April 2021 |
| Docket Number | Case No: 19-33401 Jointly Administered |
| Citation | 630 B.R. 787 |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
| Parties | IN RE: LEGACY RESERVES OPERATING LP, Debtors. |
Michael Fishel, Duston K. McFaul, Hannah Leigh Rozow Owolabi, Maegan Quejada, Sidley Austin LLP, Houston, TX, Tyler L. Weidlich, Beatty and Wozniak PC, Denver, CO, for Debtors.
Legacy, the reorganized debtor, owns interests in various natural gas wells operated by Terra. A Joint Operating Agreement ("JOA") allows Terra to charge Legacy for costs associated with production, while a Production Election and Marketing Agreement ("PEMA") governs gathering charges. Downstream from the wellheads, Terra runs compressors along its gathering system that increase gas production by lowering pressure at the wellheads. The compressors achieve this by forcing gas through pipelines into higher pressure environments. During its bankruptcy case, Legacy assumed the JOA and PEMA. Because the compressors serve to increase production, Terra argues that Legacy must pay the compression costs in order to cure the assumed JOA. However, the PEMA, not the JOA, dictates whether Terra may charge Legacy for these compression costs. Because the PEMA only permits Terra to charge flat fees, Terra may not seek reimbursement for compression. Legacy does not owe cure payments under either the JOA or the PEMA.
TEP Rocky Mountain LLC, Terra Energy Partners LLC, and Terra Energy Holdings LLC (collectively, "Terra") own more than 5,500 natural gas wells in Colorado's Piceance Basin. (ECF No. 491 at 3). Legacy Reserves Operating LP ("Legacy") owns non-operating interests in approximately 2,600 of those wells. (ECF No. 491 at 3).
Legacy acquired its interests in the wells from WPX Energy Rocky Mountain, LLC ("WPX") on June 6, 2014. (ECF No. 491 at 5). Terra acquired WPX in 2016. (ECF No. 491 at 2). In conjunction with its acquisition of the non-operating well interests, Legacy entered into the JOA and PEMA with WPX. (ECF No. 491 at 7). The JOA governs operation and production, while the PEMA governs gathering and marketing. (ECF No. 491 at 7). Colorado law governs both agreements. (ECF No. 491 at 7). Terra is the successor-in-interest to WPX under both the JOA and PEMA.
Under the JOA, Terra is the "Operator" of the wells and Legacy is the "Non-Operator." (ECF No. 495 at 5). The JOA makes Terra and Legacy liable for their proportionate shares of development and operating costs. (ECF No. 495 at 15). Terra is required to pay operating expenses incurred in the production and operation of the wells, but Legacy must reimburse Terra for its proportionate share of the expenses. (ECF No. 495 at 15). The JOA is "limited to operation and production of the Wellbores." (ECF No. 495 at 23). Further, the JOA acknowledges that (ECF No. 495 at 23).
The parties recognize that the PEMA governs Legacy's responsibility to pay marketing and gathering fees. (ECF No. 491 at 8). The PEMA expressly supersedes the JOA with respect to marketing. (ECF No. 495 at 91). Like the JOA, Terra is the "Operator" under the PEMA. (ECF No. 495 at 79). However, Legacy is referred to as the "Owner," as opposed to the "Non-Operator." (ECF No. 495 at 79). The PEMA lets Legacy elect to either take its gas in kind or have Terra market the gas. (ECF No. 495 at 79). Legacy has always elected to have Terra market the gas. (ECF No. 491 at 9). The PEMA requires that Terra market gas consistent with an attached Marketing Agreement and Gas Gathering Agreement. (ECF No. 495 at 79).
The Gas Gathering Agreement defines a number of key terms. "Gather, Gathered or Gathering" means "the movement of Gas through the Gathering System, equipment, devices, or pipeline from the Receipt Point(s) to the Delivery Point(s)." (ECF No. 495 at 104). "Gathering System" is defined as "Gas gathering facilities owned and operated by Gatherer, from the Receipt Point(s) to the Delivery Point(s), including but not limited to piping, compression facilities , dehydration and meters." (ECF No. 495 at 104 (emphasis added)). Terra is the "Gatherer" under the Gas Gathering Agreement. (ECF No. 495 at 98). In exchange for Terra's gathering services, Legacy agreed to pay flat-rate marketing and infrastructure fees. (ECF No. 495 at 99). Those fees were the "only fees to be charged to the Owner under this Agreement or otherwise for the services provided." (ECF No. 495 at 99 (emphasis in original)).
WPX, and then Terra, owned working interests and leaseholds in the wells, as well as a Gathering System. (ECF No. 491 at 6). The Gathering System moves gas production from the wells to third-party gathering systems. (ECF No. 491 at 6). The Gathering System includes both a low-pressure pipeline and a medium-pressure pipeline. (ECF No. 491 at 6). The majority of the wells are connected to the medium-pressure pipeline, which ultimately flows into a third-party gathering system owned by Williams Field Services, LLC. (ECF No. 492 at 8). Terra has no compressors along the medium-pressure pipeline. (ECF No. 492 at 8).
A minority of the wells in which Legacy owns interests are connected to the low-pressure pipeline. Along the low-pressure pipeline are five compressors operated by Terra.2 The compressors "receive gas at low pressure and exert energy on the gas to raise it to a higher pressure." (ECF No. 492 at 8). Terra's compressors are located at centralized facilities in order to service numerous wells. (ECF No. 492 at 9).
In April 2019, Terra began billing Legacy for the costs of those five compressors, which Terra classified as operating expenses under the JOA. (ECF No. 491 at 11). Terra also billed Legacy retroactively for compression fees during the two prior years, dating back to January 2017. (ECF No. 491 at 11). WPX never billed Legacy for compression costs under the JOA. (ECF No. 491 at 14-15). Terra has also continued to bill Legacy for the flat-rate marketing and infrastructure fees under the PEMA.
Legacy and its affiliates filed voluntary petitions under chapter 11 of the Bankruptcy Code on June 18, 2019. On November 15, 2019, the Court entered its "Order Confirming the Joint Chapter 11 Plan of Reorganization for Legacy Reserves Inc. and its Debtor Affiliates." (Case No. 19-33395; ECF No. 838). The confirmed plan became effective on December 11, 2019. (Case No. 19-33395; ECF No. 929). Both the JOA and the PEMA were executory contracts assumed by the confirmed plan.
Legacy sent Terra a Cure Notice indicating that Legacy had satisfied all obligations under the JOA and PEMA. On January 31, 2020, Terra filed the present Objection to Legacy's Cure Notice ("Objection"), which asserts that Legacy has failed to pay compression costs under the JOA. Following discovery, both Legacy and Terra moved for summary judgment and the Court took the motions under advisement.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. The determination of a cure payment due under an assumed executory contract is a core matter pursuant to 28 U.S.C. § 157(b)(2)(A) and (b)(2)(B). Venue is proper in this District consistent with 28 U.S.C. §§ 1408 and 1409.
"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). A party seeking summary judgment must demonstrate the absence of a genuine dispute of material fact by establishing the absence of evidence supporting an essential element of the non-movant's case. Sossamon v. Lone Star State of Tex. , 560 F.3d 316, 326 (5th Cir. 2009). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Gorman v. Verizon Wireless Tex., L.L.C. , 753 F.3d 165, 170 (5th Cir. 2014) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).
A court views the facts and evidence in the light most favorable to the non-moving party at all times. Plumhoff v. Rickard , 572 U.S. 765, 768, 134 S.Ct. 2012, 188 L.Ed.2d 1056 (2014). Nevertheless, the Court is not obligated to search the record for the non-moving party's evidence. Keen v. Miller Envtl. Grp., Inc. , 702 F.3d 239, 249 (5th Cir. 2012). "Summary judgment may not be thwarted by conclusional allegations, unsupported assertions, or presentation of only a scintilla of evidence." Hemphill v. State Farm Mut. Auto. Ins. Co. , 805 F.3d 535, 538 (5th Cir. 2015).
A party asserting that a fact cannot be or is genuinely disputed must support that assertion by citing to particular parts of materials in the record, showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support that fact. FED. R. CIV. P. 56(c)(1). The Court need consider only the cited materials, but it may consider other materials in the record. FED. R. CIV. P. 56(c)(3). The Court should not weigh the evidence. Wheat v. Fla. Par. Juvenile Justice Comm'n , 811 F.3d 702, 713 (5th Cir. 2016). A credibility determination may not be part of the summary judgment analysis. E.E.O.C. v. LHC Grp., Inc. , 773 F.3d 688, 694 (5th Cir. 2014). However, a party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence. FED. R. CIV. P. 56(c)(2). Moreover, the Court is not bound to search the record for the non-moving party's evidence of material issues. Willis v. Cleco Corp. , 749 F.3d 314, 317 (5th Cir. 2014).
"The moving party bears the initial responsibility of informing the ...
To continue reading
Request your trial
-
Demory v. Martin (In re Martin)
...for Attorney's Fees") (Adv. Dkt. 56), and Martin filed the Earnest L. Martin Answer to Motion for Award of Attorney's Fees and Expenses. 630 B.R. 787 (Adv. Dkt. 57). The issue of attorneys' fees will be addressed in a separate order.ConclusionCertain types of liabilities are excepted from t......