Gulf Production Company, Inc. v. Hoover Oilfield Supply, Inc. et al

Filing 511

ORDER & REASONS denying 173 Motion for Partial Summary Judgment. Signed by Judge Ivan L.R. Lemelle on 7/19/2011. (Reference: All cases)(lag, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
GULF PRODUCTION COMPANY INC., ET AL
VERSUS

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*
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HOOVER OILFIELD SUPPLY, INC., ET AL
“B”(4)

CIVIL ACTION
NO. 08-5016
C/W 09-104, 09-2779
*

SECTION

ORDER AND REASONS
Before the Court is Defendant Polyflow, Inc. (“Polyflow”)’s
Motion for Partial Summary Judgment on Deferred Production Claims.
(Rec. Doc. No. 173).

Opposition memoranda have been filed at

Rec. Doc. Nos. 182 and 190; Polyflow has filed its reply thereto
at Rec. Doc. No. 241.

For the reasons articulated below,

IT IS ORDERED that Defendant Polyflow’s Motion for Partial
Summary Judgment (Rec. Doc. No. 173) be and is hereby DENIED.
Law and Analysis
A.

Summary Judgment Standard
Summary judgment is proper if the pleadings, depositions,

interrogatory

answers,

and

admissions,

together

with

any

affidavits, show that there is no genuine issue as to any material
fact and that the moving party is entitled to judgment as a matter
of law.

Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett,

477 U.S. 317, 327 (1986).
would

allow

nonmovant.

a

reasonable

A genuine issue exists if the evidence
jury

to

return

a

verdict

for

the

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248,
1

(1986).

Although the Court must consider the evidence with all

reasonable inferences in the light most favorable to the nonmoving
party, the nonmovant must produce specific facts to demonstrate
that a genuine issue exists for trial.

Webb v. Cardiothoracic

Surgery Assocs. of N. Texas, 139 F.3d 532, 536 (5th Cir. 1998).
The nonmovant must go beyond the pleadings and use affidavits,
depositions,
evidence

to

interrogatory
establish

a

responses,
genuine

admissions,

issue.

Id.

or

other

Accordingly,

conclusory rebuttals of the pleadings are insufficient to avoid
summary judgment.

Travelers Ins. Co. v. Liljeberg Enter., Inc. 7

F.3d 1203, 1207 (5th Cir. 1993).
B.

Nerco Oil & Gas, Inc. v. Otto Candies, Inc., et al.
The claims in Nerco Oil & Gas, Inc. v. Otto Candies, Inc., et

al., 74 F.3d 667 (5th Cir. 1996), arose from an allision between
a vessel and an offshore oil and gas platform; thereafter the
owners of the platform sued the vessel owner for damages.

Due to

the allision, three of the wells on the platform were “shut-in for
between 31 and 50 days.”
the

platform

were

Id. at 668.

settled

leaving

The claims for damage to

the

issue

of

damages

resulting from the delay while repairs were carried out.1

1

due

Id. at

Some cases in this district and secondary sources have discussed the
holding of Nerco, although without directly addressing the opinion’s ruling on
the issue of royalties owed the MMS. See Mobil Exploration & Producing v.
A-Z/Grant Intern. Co., No. 91-3124, 1996 WL 204431 at *6 (E.D. La. Apr. 24,
1996) (denying Plaintiffs’ Motion in Limine to Exclude Evidence of Damage
Calculations); See also Symposium, Fifth Circuit Symposium, Admiralty, 42 Loy.
L. Rev. 417, 441-42 (1996) (discussing Nerco’s revisiting methods of measuring
“economic loss resulting from delayed production of oil and gas reservoirs.”)

2

668.
The Fifth Circuit affirmed the District Court’s method of
calculation of damages, specifically a calculation for the “fair
return on investment.”

Id. at 670.

The court noted that a prior

decision employing a “lost profit” calculation did so as the
parties there presented only evidence of lost profits, and thus
the “court did not have to consider whether a fair return on
investment would be a better measure of damages.”2

Id. (citing

Continental Oil Co. v. SS ELECTRA, 431 F.2d 391, 393 n.3 (5th Cir.
1970).

The calculation formulated by the Nerco Defendant’s expert

witness, adopted by the District Court and affirmed on appeal
calculated “monthly net revenue of the platform over the life of
production had no accident occurred” and the “monthly net revenue
of the platform during the life of production after the shutdown
due to the accident.”

74 F.3d at 669.

Those “estimations were

discounted to present value” the difference between which, the
expert determined, was the “loss to the platform owners as a
result of the allision.”

Id.

This method of calculation,

according to the Fifth Circuit accounts for “the additional time
necessary to recover all oil and gas[,] . . . the loss of cash

2
The Nerco court, comparing Continental Oil Co. v. SS ELECTRA, 431 F.2d
391 (5th Cir. 1970), noted that the platform owners in Nerco, although unable
to produce oil from other wells to compensate for the loss from the three
shut-in wells, “lost no oil or gas because of the accident. The true damage to
platform owners [in Nerco] as acknowledged in Electra is that they will be
required to remain at the site longer than expected to recover the oil and
gas.” Nerco, 431 F.3d at 669.

3

flow during the shut-in period, and the monthly delay in receiving
revenue over the life of the well as a result of the accident.”
Id. at 669-70.

The court also found the trial court was not

clearly erroneous in its adoption of several of the same experts
assumptions.

Id. at 670.

However, the Fifth Circuit did find that the District Court
had been clearly erroneous in including a royalty payment possibly
due the United States Mineral and Mining Service (“M.M.S.”) in the
calculation of monthly revenue during the shut-in.

Id.

In Candies' cross-appeal, it asserts that the district
court was clearly erroneous in not deducting the
[M.M.S.] royalty in its computation of monthly revenue
during the shutdown. In his original net revenue
estimate, Hise deducted as an expense the M.M.S.
royalty. The district court, however, required Hise to
recalculate those figures without the expense deduction.
The district court's reasoning for not including this
expense was based on the premise that after the suit the
platform owners may be forced to pay the M.M.S. royalty
on the award. The district court's decision was based
upon speculative testimony. Hise testified that he had
heard of one case in which the M.M.S. had sought royalty
payments on a court recovery for shut-in time. He was
unaware of whether the M.M.S. actually recovered.
The platform owner's oil and gas lease requires them to
pay a royalty of 16 2/3% in amount or value of
“production saved, removed or sold from the lease area.”
We have defined the word “production,” as “the actual
physical severance of minerals from the formation.”
Diamond Shamrock Exploration Co., v. Hodel, 853 F.2d
1159, 1168 (5th Cir.1988). Therefore, under this lease,
the M.M.S. would not be entitled to a royalty until
“production.” No physical severance of oil or gas
occurred during the “shut-in” period. Because the
testimony concerning the M.M.S.'s desire to seek royalty
in the “shut-in” case is speculative, and because the
lease indicates the M.M.S. would not be entitled to such
a royalty, we believe the district court was clearly
4

erroneous in including the royalty payments in its
award. The lease between the platform owners and the
M.M.S. does require a minimum royalty payment of $3.00
per acre per year to maintain the lease. We presume that
the actual royalty payments paid during the year of the
accident were in excess of the minimum royalty due, but
if not, Candies will be responsible for a portion of
that cost. Therefore, we remand the case to the district
court to modify the award to correct the M.M.S. royalty
reimbursement.
74 F.3d at 670-71.
The holding of the Nerco court is inapplicable to the instant
case.

In Nerco, the M.M.S. had not filed suit against the vessel

owner; in fact, the M.M.S. was not a party to the litigation.
Here, and unlike the M.M.S in Nerco, the State has filed a claim
and although Movant “is not seeking relief against the State at
this time” the State opposes the instant motion “for the sake of
judicial economy.”

(Rec. Doc. Nos. 173-2 at 2; 190 at 2).

Nerco involved the claims of platform owners against a third
party tortfeasor for damage sustained to the platform and those
resulting from an allision borne shut-in.

The case at bar

involves no third party tortfeasor; Respondents interest here is
100%

of

the

mineral

interests

here

involved.

Although

the

measurement of damages in Nerco, discussed supra and slightly
different from the “fair return on investment” method may here be
appropriate rather than the “lost profits” method discussed in the
Nerco opinion regarding the Electra court’s opinion.
The Fifth Circuit’s holding in Nerco regarding royalties does
not, as Movant suggests, “mandate[] dismissal of the deferred
5

production claims asserted . . . by parties whose entitlement to
royalties depends on production.”
New Orleans, Louisiana, this 19TH day of July, 2011.

____________________________
UNITED STATES DISTRICT JUDGE

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