Pennzoil Exploration and Production Co. v. Ramco Energy Ltd.
| Citation | 139 F.3d 1061 |
| Decision Date | 13 May 1998 |
| Docket Number | No. 96-20497,96-20497 |
| Parties | PENNZOIL EXPLORATION AND PRODUCTION COMPANY; Pennzoil International Inc.; Pennzoil Caspian Development Corporation; Pennzoil Caspian Corporation, Plaintiffs-Appellees- Cross-Appellants, v. RAMCO ENERGY LIMITED; Ramco Hazar Energy Limited, Defendants-Appellants-Cross-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
G. Irvin Terrell, Karen Leah Chisholm, Paul Lee Mitchell, Baker & Botts, Houston, TX, for Plaintifffs-Appellees-Cross-Appellants.
Richard H. Caldwell, Thomas Miles Farrell, Mayor, Day, Caldwell & Keeton, H. Lee Godfrey, Houston TX, F. Eric Fryar, Fryar & Fryar, Houston, TX, for Defendants-Appellants-Cross-Appellees.
Appeals from the United States District Court for the Southern District of Texas.
Before GIBSON, * JOLLY and EMILIO M. GARZA, Circuit Judges.
The issue before us is whether Ramco's 1 dispute with Pennzoil over development rights in the Karabakh Prospect, granted to Pennzoil by the Azerbaijan Government to satisfy obligations arising from work performed on a gas utilization project, is subject to binding arbitration. The district court held that the dispute is arbitrable under a Joint Operating Agreement entered into by Ramco, Pennzoil, and various other energy companies. Ramco appeals, arguing that the dispute does not arise under or relate to the Joint Agreement, but rather is governed by a June 7, 1993 letter agreement between Ramco and Pennzoil that does not contain an arbitration clause. We affirm the district court's judgment.
Ramco and Pennzoil are parties to numerous agreements relating to the development of oil and gas in the Apsheron Trend, an area located in the Caspian Sea offshore Azerbaijan.
Ramco and Pennzoil's contractual relationship originated in a February 13, 1992 letter agreement, referred to as the "Letter of Intent." In the Letter of Intent, Ramco and Pennzoil agreed to conduct a feasibility study for the development of the Guneshli 2 and Chirag 3 Fields, two fields located in the Apsheron Trend. The Letter of Intent outlined Ramco and Pennzoil's financial relationship and allocated any potential development rights the Azerbaijan Government may award the parties in the two fields.
On May 22, 1992, Pennzoil, Ramco, and Kaspmorneftegas (KMNG), the negotiating representative of the Azerbaijan Government, entered into an "Agreement To Construct A Geological Model of the Guneshli Field in the Azerbaijan Sector of the Caspian Sea." This agreement, expressing "a view to enhancing development ... from Guneshli Field," was referred to as the "Guneshli Agreement." It contains an arbitration clause stating that "[a]ny disputes between the parties will be settled, exclusively and finally, by arbitration."
After constructing the geological model, and as a development contract for the Guneshli Field became more imminent, Pennzoil By October of 1992, the State Oil Company of the Azerbaijan Republic (SOCAR), the new negotiating representative of the Azerbaijan Government, had not granted Ramco and Pennzoil development rights in the Guneshli Field. To secure development rights in the Guneshli Field, Pennzoil entered into a "Gas Utilization Agreement for Guneshli and Neft Dashlary Fields" with SOCAR on October 1, 1992. In this agreement, later referred to as GUP 1, Pennzoil agreed to build an offshore natural gas compressor station to capture the natural gas being vented from the Guneshli and Neft Dashlary Fields and to transport the gas to energy-starved Azerbaijan.
and Ramco executed a second letter agreement dated August 18, 1992. This agreement amended the parties' financial relationship and the allocation of potential development rights in the Guneshli Field as set out in the February 13 Letter of Intent.
In conjunction with GUP 1, and on the same date, Pennzoil and Ramco, collectively as "Contractor," entered into a "General Agreement On Terms and Principles for Concluding the Guneshli Field Development Contract" with SOCAR and the Azerbaijan Government to implement a program for gathering and transporting natural gas from the Guneshli and Neft Dashlary Fields to shore. The agreement, later referred to as the "General Agreement," also provided that the parties immediately set up a committee to prepare an acceptable Production Sharing Contract (PSC) for the Guneshli Field.
In May of 1993, before Ramco and Pennzoil could secure development rights in the Guneshli Field, SOCAR announced its intent to "unitize" the development of the Apsheron Trend, consisting of the Azeri, Chirag, and Guneshli Fields (the "ACG Unit"). In light of this decision, Ramco and Pennzoil executed the third letter agreement of June 7, 1993, defining the terms of their relationship in light of SOCAR's decision to include the Guneshli Field in the unitized development of the Apsheron Trend. This agreement, which specifically superseded the two previous letter agreements, states:
For the purposes of this Letter Agreement, the Gunashli, Chirag and Azeri Fields, and any other areas which shall be developed pursuant to any joint development, field management or other contract or agreement (the "Contract") granting rights to explore for, develop, produce, transport and/or market hydrocarbons from said fields, whether pursuant to Unitisation or otherwise, within the jurisdiction of the Azerbaijan Republic shall be deemed the "Contract Area."
The parties agreed that any interests in any contract relating to the "Contract Area" acquired by Pennzoil and/or Ramco shall be subject to the June 7, 1993 letter agreement. Like the other two letter agreements, this agreement does not contain an arbitration provision.
Because of SOCAR's decision to unitize, Ramco, Pennzoil, and six other petroleum companies that had been negotiating with SOCAR for development rights in the Azeri, Chirag, or Guneshli Fields, entered into the Azerbaijan-Apsheron Trend Agreement, otherwise referred to as the "AMI Agreement." The AMI Agreement, dated October 19, 1993, set out the parties participating interests in the potential development rights in the unitized development of the Apsheron Trend (later referred to as the AMI area on an attached map). 4 The costs incurred by Pennzoil and Ramco under the GUP agreement, and the obligations of the other parties for such costs, are treated specifically and in detail in the AMI agreement. The AMI Agreement provides that "any dispute or difference arising out of or in connection with the Agreement, including any question regarding its existence, validity or termination, shall be ... resolved exclusively by arbitration."
SOCAR's decision to unitize the Guneshli, Chirag, and Azeri Fields necessarily meant that Ramco and Pennzoil would not obtain On September 20, 1994, SOCAR, the eight parties to the AMI Agreement, and two additional companies entered into an "Agreement on the Joint Development and Production Sharing for the Azeri and Chirag Fields and the Deep Water Portion of the Gunashli Field in the Azerbaijan Sector of the Caspian Sea." In this agreement, referred to as the "PSC," "Production Sharing Contract," or "Unit Agreement," SOCAR awarded participating interests to the contractor parties in the unitized Apsheron Trend, including Pennzoil and Ramco. The agreement contains references to the gas utilization agreement, and contains an arbitration clause for disputes arising between SOCAR and any or all of the contractor parties.
exclusive development rights in the Guneshli Field as GUP 1 and the General Agreement had contemplated. As a result, on January 17, 1994, Pennzoil, on behalf of itself and Ramco, entered into an agreement with SOCAR entitled "Additional Agreement On The Gas Utilization Project From Guneshli and Neft Dashlary Fields," referred to as GUP 2. GUP 2 set forth alternative methods for SOCAR reimbursing Pennzoil and Ramco for costs incurred in constructing the gas utilization facilities, including payment in currency, delivery of crude oil or hydrocarbon products, credit toward the total signature bonus for the first Development Agreement covering all or any part of the Azerbaijani territory to which the Pennzoil Group is a party, or any other equitable method or mechanism. The agreement contains an arbitration clause.
On November 4, 1994, the signatories to the PSC, except SOCAR, executed a Joint Operating Agreement which regulated the relation of the parties in the exercise of their rights and obligations under the PSC.
The JOA contains an arbitration clause stating:
Any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement or the operations carried out under this Agreement, including without limitation any dispute as to the validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any Party may submit such a dispute, controversy or claim to arbitration.
On December 3, 1994, SOCAR and Pennzoil signed a "Payment Agreement for Costs Related to the Guneshli and Neft Dashlari Gas Utilization Project," to satisfy SOCAR's obligations pursuant to GUP 2. SOCAR and Pennzoil agreed that SOCAR would satisfy the costs incurred by Pennzoil in connection with the Gas Utilization Project by, among other things, granting Pennzoil a thirty percent equity interest in the Karabakh Prospect, an area outside the Apsheron Trend. This agreement specifically refers to the paragraph of GUP 2 setting forth the alternative methods of reimbursement, and also to Pennzoil's share of the bonus payable under the PSC or Unit Agreement.
Soon after learning that Pennzoil and SOCAR had entered the December 3, 1994 Payment Agreement, Ramco sought assurances from Pennzoil that it would share in the equity interest in the Karabakh Prospect under the terms of the June 7 letter agreement. Pennzoil refused, and repeated its refusal to a Ramco letter demand. Pennzoil then filed a ...
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