In re Memorial Production Partners, L.P., 011420 FED5, 18-20794

• Opinion Judge: PER CURIAM
• Party Name: In the Matter of: MEMORIAL PRODUCTION PARTNERS, L.P., Debtor v. BETA OPERATING COMPANY, L.L.C., Appellee AERA ENERGY LLC; NOBLE ENERGY INC.; SWEPI LP, Appellants
• Judge Panel: Before STEWART, CLEMENT, and HO, Circuit Judges.
• Case Date: January 14, 2020
• Court: United States Courts of Appeals, U.S. Court of Appeals — Fifth Circuit

In the Matter of: MEMORIAL PRODUCTION PARTNERS, L.P., Debtor

AERA ENERGY LLC; NOBLE ENERGY INC.; SWEPI LP, Appellants

v.

BETA OPERATING COMPANY, L.L.C., Appellee

No. 18-20794

United States Court of Appeals, Fifth Circuit

January 14, 2020

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:18-CV-412

Before STEWART, CLEMENT, and HO, Circuit Judges.

PER CURIAM ^[*]

Appellants Aera Energy LLC's, Noble Energy, Inc.'s, and SWEPI LP's (the Previous Owners) appeal the district court's affirmance of a bankruptcy court's grant of summary judgment to appellee Beta Operating Co., approving Beta's bankruptcy plan. For the following reasons, we affirm.¹

I.

This case has its origins in the Previous Owners' 2007 sale of their interest in a lease of certain offshore oil and gas fields-the Beta Interests-to Pacific Energy Resources Ltd. (PERL). Inherent in offshore oil and gas production is the potential of significant future liabilities. One of those liabilities is the cost of ending production. Operators must decommission offshore oil and gas wells-colloquially, plug and abandon them-at the end of their life. 30 C.F.R. § 250.1703. Every lessee of an offshore oil and gas field- past and present-is jointly and severally liable for decommissioning the wells in their field. Id. § 556.604(d).

It is logical, then, for a seller of an offshore oil and gas lease interest to ensure that the buyer covers decommissioning costs. One of the mechanisms the Previous Owners used to do that here is a trust. When the Previous Owners sold the Beta Interests to PERL in 2007, PERL set up a trust-with it as the Settlor, the federal government as the beneficiary, and the Previous Owners as third-party beneficiaries-to hold assets to cover the cost of decommissioning the Beta Interests. The Trust Agreement-the document at issue in this case-set out the trust's terms. After PERL went bankrupt, Beta purchased the Beta Interests from PERL. When it did, it assumed PERL's obligations-including those under the Trust Agreement.

Prior to this controversy, the trust contained about $150 million of assets, comprised of cash and a $90 million Treasury Note. However, Beta wanted to substitute performance bonds-or sureties-for the securities in the trust. The government consented to the substitution; the Previous Owners did not. Beta tried again after it went bankrupt, asking the bankruptcy court to approve the substitution as part of its reorganization plan. The bankruptcy court did so, concluding that the Trust Agreement permitted the substitution regardless of the Previous Owners' objections and that, therefore, the reorganization plan did not impair any of the Previous Owners' rights. Beta Operating Co. v. Aera Energy, LLC (In re Mem'l Prod. Partners, L.P.), 581 B.R. 206, 217-18 (Bankr.S.D.Tex. 2018). The district court affirmed, though its reasoning differed. Beta Operating Co. v. Aera Energy, LLC (In re Mem'l Prod. Partners, L.P.), 2018 WL 5634142, at *2-4, *6 (S.D. Tex. Oct. 31, 2018).

II.

On appeal, the Previous Owners argue that the Trust Agreement limits the assets Beta can put into the trust to cash or cash equivalents. California contract law governs the interpretation of the Trust Agreement. Since the Trust Agreement is a document-and since extrinsic evidence is unnecessary to interpret it-we do not defer to the district court's analysis. See ExxonMobil Corp. v. Elec. Reliability Servs., Inc., 868 F.3d 408, 415 (5th Cir. 2017).

That...