Rooster Petroleum, LLC et al v. Fairways Offshore Exploration, Inc. et al
Filing
152
ORDER & REASONS that Fairways Offshore Explorations, Inc.'s #122 Motion for Summary Judgment and Rooster Petroleum, LLC's and Rooster Oil and Gas, LLC's #124 Motion for Partial Summary Judgment are DENIED. Signed by Judge Eldon E. Fallon on 12/2/13. (dno, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ROOSTER PETROLEUM, LLC, ET AL.
CIVIL ACTION
VERSUS
NO. 12-1322
FAIRWAYS OFFSHORE EXPLORATION, INC., ET AL.
SECTION "L" (1)
ORDER & REASONS
Previously, the Court considered Defendant Fairways Offshore Exploration, Inc.'s
("Fairways") and Plaintiffs Rooster Petroleum, LLC's and Rooster Oil and Gas, LLC's
(collectively "Rooster") cross-motions for summary judgment (Rec. Docs. 39, 48), resolving all
but one of the issues raised (Rec. Doc. 62). On October 4, 2013, the Court heard argument on
that remaining issue: namely, whether Fairways breached the parties' platform use agreement
("PUA") when it objected to Rooster's December 12, 2011, right-of-use and easement ("RUE")
request. The Court withheld ruling on that issue after the parties filed additional cross-motions
for summary judgment. (Rec. Docs. 122, 124). On October 31, 2013, the Court heard argument
on the new motions. Having considered the briefs and the applicable law, the Court now issues
this order.
I.
BACKGROUND
This case involves a conflict over oil and gas processing facilities on High Island 154
("HI 154"), a fixed offshore platform located in the Gulf of Mexico on the Outer Continental
Shelf. Fairways owned the lease covering HI 154 for several years. Fairways still owns the HI
154 platform and associated facilities on HI 154. Rooster is a co-owner of the lease covering
High Island 141 ("HI 141") and the designated operator of HI 154. A pipeline connects HI 141 to
HI 154, such that all HI 141 production flows to HI 154 for processing.
In 2007, Fairways and Rooster entered into a PUA designating Rooster as the operator of
the HI 154 facilities and granting it the right to use and the right to access the HI 154 facilities to
process production from both HI 141 and HI 154. (Rec. Doc. 39-4). Production from Fairways'
HI 154 lease stopped on August 14, 2011, and its lease was scheduled to expire on February 20,
2012, 180 days after the cessation of production. (Rec. Doc. 48-2 at 11-17). Because HI 141 was
still producing, Rooster wanted to preserve access to the HI 154 facilities so that it could
continue to process the product from HI 141. Therefore, on December 12, 2011, Rooster
requested a RUE from now-dismissed Defendant Bureau of Ocean Energy Management
(ABOEM") for the purpose of maintaining the HI 154 facilities. (Doc. 39-5 at 1). Rooster's RUE
request stated: AThe expiration of [Fairways' lease] will cause the currently [sic] authority for the
use of [the HI 154 facilities] to expire." (Id.).
Pursuant to 30 C.F.R. § 550.160(d), Rooster was required to notify Fairways of its RUE
request and provide Fairways an opportunity to comment on it. Fairways claims that it did not
receive proper notice or an opportunity to comment. On February 10, 2012, Fairways sent a letter
to BOEM summarizing its concerns with the request and requesting Aproper notice, a copy of
[Rooster's RUE] request, and an opportunity to comment thereon." (Rec. Doc. 39-7 at 3). On
March 30, 2012, Fairways sent another letter to BOEM formally objecting to Rooster's request.
(Rec. Doc. 39-8). That letter cited Fairways' obligation to decommission the HI 154 facilities
within one year of the lease's expiration and the financial risk of delaying this process until after
the 2012 storm season. (Id. at 2-3). Additionally, Fairways' letter stated: AThe effect of lease
expiration is that Fairways no longer has any authority to allow Rooster to operate the Platform
on the former leased area, and Lease expiration also terminates the [PUA]." (Id. at 3).
2
On April 16, 2012, BOEM denied the RUE request. (Rec. Doc. 39-10). BOEM's letter
stated: AThe former lessee and facility owner, Fairways . . . , refuses to consent to your access
and use of its property . . . [t]herefore, there is no basis upon which BOEM can grant a [RUE]."
(Id. at 1). Rooster then commenced an administrative appeal of this denial (Rec. Doc. 48-2 at 4667), and BOEM filed an answer to Rooster's statement of reasons (Id. at 86-104). The answer
stated that BOEM denied Rooster's RUE request because Ait [sought] relief that is outside the
scope of BOEM's authority under governing regulations"Cspecifically, "BOEM's authority to
issue RUEs does not encompass the power to authorize Rooster to co-opt the private property of
a third party against that party's will." (Id. at 88). On May 15, 2012, the Bureau of Safety and
Environmental Enforcement (ABSEE") ordered that HI 141 production be shut in. It appears that
no production from HI 141 has taken place since that date.
Rooster brought suit against Fairways, as well as BOEM and its regional director
(collectively "BOEM"). In its first amended complaint, Rooster alleges that Fairways breached
the PUA when it objected to the RUE request and when it declared the PUA to be terminated in
its letter to BOEM. (Rec. Doc. 23). Rooster asks for declaratory and permanent injunctive relief,
or alternatively damages, or alternatively specific performance.1 (Id.). Fairways' answer denies
liability and also submits a counterclaim for unjust enrichment. (Rec. Doc. 26). Fairways alleges
that "the PUA terminated by operation of law" when Fairways' lease expired on February 10,
2012, and as a result, Rooster knew or should have known that Fairways would have expected to
be compensated for Rooster's continued use of the platform beyond that date.2 (Id. at 12-13).
1
Rooster also sought injunctive relief against BOEM, alleging that BOEM violated both its governing
regulations and the Administrative Procedure Act ("APA") when it denied Rooster=s RUE request. However, those
claims have since been dismissed.
2
On August 17, 2012, Rooster moved for the dismissal of Fairways= counterclaim for unjust enrichment on
the grounds that it fails to state a claim upon which relief can be granted. In a separate order, the Court granted
Rooster=s motion, but gave Fairways leave to amend its counterclaim within 30 days.
3
On June 5, 2012, Rooster moved for a preliminary injunction against both Fairways and
BOEM. (Rec. Doc. 5). Rooster sought to preserve its ability to produce from HI 141 using the HI
154 facilities during the pendency of this action; otherwise, its lease would have expired after six
months of nonproduction. Rooster and the BOEM reached a stipulation that resolved part of
Rooster's motion. (Rec. Doc. 20). On August 8, 2012, this Court denied the remainder of
Rooster's motion on the grounds that the loss of Rooster's OCS lease would not constitute
irreparable harm, because Rooster could be fully compensated by an award of money damages
after final judgment. (Rec. Doc. 36).
In its October 15, 2013, order, out of which the present issue arises, the Court addressed
largely overlapping motions for summary judgment by Rooster and Fairways. (Rec. Doc. 62).
The main issues in dispute were (1) whether the PUA remained in effect when Fairways' OCS
lease expired, (2) whether Fairways' objection to Rooster's RUE request constituted a breach of
the PUA, and (3) whether Fairways' objection caused Rooster's damages. Fairways also moved
for summary judgment on Rooster's claims for specific performance and injunctive relief,
arguing that they cannot be sustained because Rooster has an adequate remedy at law for any
harm resulting from the alleged breach of the PUA.
In its order, the Court held that the PUA remained in effect following the termination of
Fairways' lease and granted summary judgment to Rooster on that issue. It further noted:
Having found that the PUA did not terminate upon the
termination of Fairways' OCS lease, the Court now addresses
whether Fairways' conduct constituted breach of the PUA. In the
First Amended Complaint, Rooster claims that Fairways breached
the PUA in two separate ways: by filing an objection to Rooster's
RUE request and by prematurely declaring the PUA to have
terminated. Fairways' primary argument in opposition to Rooster's
first theory is that Rooster's RUE request was itself defective. The
Court understands that this issue is the subject of an administrative
proceeding currently pending before the Interior Board of Land
4
Appeals. (Rec. Doc. 48-2 at 46-67). Based on the various briefs
and evidence submitted thus far, it does appear to this Court that
Rooster's RUE request incorrectly asked BOEM for permission to
use both the platform and the seabed. Nonetheless, it would be
inappropriate for this Court to rule on that issue at this time due to
the pending administrative appeal.
(Id. at 9-10). In a footnote, it also indicated:
Because this issue may be fully resolved by the substance
of the administrative appeal, the Court also does not decide at this
time whether REO Industries v. Natural Gas Pipeline Co. of Am.,
932 F.2d 447 (5th Cir. 1991), controls the resolution of this issue.
(Id. at 10 n.7).
While the Court also held that Fairways had breached the PUA when it prematurely
declared that the PUA had terminated, that holding was later withdrawn after Fairways moved
for partial reconsideration. (Rec. Doc. 82). Rooster has since settled with BOEM and voluntarily
dismissed any claims against it in both this proceeding and that which was before the Interior
Board of Land Appeals. (Rec. Doc. 116).
II.
PRESENT MOTIONS
As discussed previously, the Court now considers the remaining issue from Fairways' and
Rooster's earlier cross-motions for summary judgment (that is, whether Fairways breached the
PUA by objecting to Rooster's RUE request) and the issues raised by the latter cross-motions for
summary judgment (those are, whether Rooster breached the PUA prior to the RUE request and
whether the PUA terminated prior to the RUE request).
A.
Fairways' Latter Motion for Summary Judgment
Fairways now moves for summary judgment on issues predating its objection to Rooster's
RUE request. (Rec. Doc. 122). First, it argues that Rooster materially breached the PUA by
failing to comply with applicable statutes and regulations, by failing to conduct its operations in
a good and workmanlike manner, and by failing to keep Fairways appraised of its conduct.
5
Additionally, it argues that Rooster's material breach excused any subsequent breach by Fairways
(specifically, when Fairways objected to Rooster's RUE request). Second, it argues that the PUA
terminated when Rooster's production fell below the levels specified in the contract because
there were months in which it was not producing anything. Last, Fairways alleges that Rooster's
use of Fairways' platform following the PUA's termination resulted in Rooster's unjust
enrichment.
Rooster responds that Fairways' motion should be denied. (Rec. Doc. 127). First, it argues
that it did not materially breach the PUA because it substantially complied with its terms, thus
any subsequent breach by Fairways was not excused. It also argues that the testimony of
Fairways' expert stating that Rooster received 70 regulatory violations should be excluded
because the testimony provides the only basis for that number, which is inconsistent with
Fairways' own pleadings and publically available information and because the testimony
regarding the meaning of that number is not based on any methodology. Second, Rooster argues
that the PUA has not terminated by its own terms because the well remains capable of producing
at certain levels, even if there were months in which it was not producing at all. Last, Rooster
argues that it was not unjustly enriched because the PUA remains in effect.
Fairways replies that there is no genuine dispute of material fact that would preclude
summary judgment. (Rec. Doc. 138). First, Fairways asserts that Rooster has acknowledged that
it breached the PUA by failing to comply with applicable regulations and statutes and failing to
inform Fairways of its noncompliance. It further argues that the lack of severity of the breaches
do not alter the fact that a breach occurred because the substantial compliance doctrine is
inapplicable in this type of case (and because Rooster failed to plead it). Second, Fairways
6
reemphasizes that its own interpretation of the requirement that the well produce in paying
quantities should be used.
B.
Rooster's Latter Motion for Partial Summary Judgment
In turn, Rooster has moved for partial summary judgment on Fairways' excuse-ofperformance defense. (Rec. Doc. 124). As above, Rooster asserts that it did not materially breach
the PUA and therefore Fairways may not be excused from any subsequent breach. Fairways
reiterates that the PUA was no longer in effect because Rooster materially breached the PUA and
because the PUA terminated by its own terms when Rooster failed to produce in paying
quantities. (Rec. Doc. 128). It also notes that Rooster's failure to comply with applicable
regulations and statutes exposed it to the possibility of increased decommissioning costs and
possible regulatory liability. Rooster replies that because Fairways has failed to demonstrate that
it was prejudiced by Rooster's breach, its performance may not be excused.
C.
Fairways' & Rooster's Earlier Cross-Motions for Summary Judgment
The unresolved issue from Fairways' and Rooster's earlier cross-motions for summary
judgment is whether Fairways breached the PUA when it objected to Rooster's December 12,
2011, RUE request.3 (See Rec. Doc. 113). Such a breach would have occurred subsequently to
the alleged breaches or the alleged termination addressed in the parties' latter cross-motions for
summary judgment addressed above.
Rooster argues that Fairways breached the PUA by objecting to its RUE request. First,
Rooster asserts that its RUE request was not deficient because federal regulations required that it
reference Fairways' platform in its RUE request. (Rec. Doc. 116 at 2-3 (citing 30 C.F.R.
§ 550.160(a) ("You must need the right-of-use and easement to construct and maintain platforms,
artificial islands, and installations and other devices at an OCS site other than an OCS lease you
3
This issue became ripe following the dismissal of BOEM. (See Rec. Doc. 113).
7
own . . . .")). Further, it reasserts that it did not seek permission from BOEM to use Fairways'
facilities, it only requested authority to maintain the platform at its current location following the
termination of Fairways' lease. (Id.). Second, Rooster argues that BOEM denied its RUE request
solely because Fairways refused to recognize Rooster's rights under the PUA, not because the
request was deficient. (Id. at 3). Rooster references the April 16, 2012, letter from the BOEM:
The former lessee and facility owner, Fairways Offshore
Exploration, refuses to consent to your access and use of its
property. Therefore, there is no basis upon which BOEM can grant
a right-of-use and easement. Based upon the foregoing, your
request for a right-of-use and easement is hereby denied.
(Rec. Doc. 1-5). It also notes:
BOEM denied Rooster's application because the former lessee and
facility owner, Fairways Offshore Exploration, Inc., refused to
consent to Rooster's continued access to and use of its platforms.
(Rec. Doc. 1-6). As a further indication that BOEM's denial turned on Fairways' repudiation of
Rooster's rights under the PUA, Rooster references the Court-endorsed stipulation between
Fairways and the BOEM, which provides that the BOEM will grant Rooster's RUE request if
Fairways recognizes Rooster's rights. (Rec. Doc. 116 at 4). It also notes that if the RUE request
had been technically deficient, Rooster could and would have cured it by filing a modified
request. (Id. at 5).
Fairways, in turn, argues that it did not breach the PUA by objecting to Rooster's
December 12, 2011, RUE request. First, Fairways asserts that the RUE request sought
permission from BOEM to use Fairways' platform, which rendered it defective because BOEM
was not authorized to provide such permission. It notes that "BOEM has consistently made clear
that it could not grant the RUE request because [it] was outside the scope of BOEM's authority to
grant access only to the seabed." (Rec. Doc. 117 at 3). Accordingly, Fairways contends that its
8
objection to the RUE could not constitute breach because it had no legal effect. (Id. at 3).
Second, Fairways argues that even if its objection had effect, it was an "exercise[e of] its legal
rights under valid, applicable regulations" and was therefore compliant with the PUA, which
expressly subordinated itself to any federal, state, and local regulations. (Id. at 4). Third, it argues
that the PUA did not impose any affirmative obligation on Fairways to refrain from exercising its
right to object. (Id.). Last, even if Fairways' objection constituted a breach, the PUA had already
terminated by the time that breach occurred (for reasons it addresses in its later motion for
summary judgment, discussed below). (Id. at 5). The Court will address each of these motions in
chronological order.
III.
LAW & ANALYSIS
A.
Standard
Summary judgment is appropriate if the moving party can show "there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R.
CIV. P. 56(a). Under Federal Rule of Civil Procedure 56(c), the moving party bears the initial
burden of "informing the district court of the basis for its motion, and identifying those portions
of [the record] which it believes demonstrate the absence of a genuine issue of material fact."
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). When the moving party has met its Rule
56(c) burden, the nonmovant cannot survive a motion for summary judgment by resting on the
mere allegations of its pleadings. See Prejean v. Foster, 227 F.3d 504, 508 (5th Cir. 2000). "The
mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient;
there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 253 (1986). Furthermore, "[t]he non-movant cannot avoid
summary judgment . . . by merely making 'conclusory allegations' or 'unsubstantiated
assertions.'" Calbillo v. Cavender Oldsmobile, Inc., 288 F.3d 721, 725 (5th Cir. 2002) (quoting
9
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)). In deciding a summary judgment
motion, the court reviews the facts drawing all reasonable inferences in the light most favorable
to the nonmovant. Id. at 255. This dispute is governed by Texas law. (Rec. Doc. 61 at 6).
B.
Breach of the PUA by Rooster
Before reaching the issue of whether the PUA terminated on its own and whether
Fairways breached the PUA when it objected to Rooster's RUE request, it is necessary to
determine whether Rooster breached the PUA by failing to comply with applicable statutes and
regulations, by failing to conduct its operations in a good and workmanlike manner, or by failing
to keep Fairways appraised of its conduct. Under Texas law, breach of contract requires (1) a
valid contract, (2) performance or tender of performance by a party under that contract, (3) a
breach of that contract by another party, and (4) damage to the non-breaching party. Triton 88,
L.P. v. Star Elec., L.L.C., No. 01–10–00601–CV, 2013 WL 4080738 ), at *10 (Tex. Ct. App. Aug.
13, 2013). The parties do not dispute that a valid contract existed, nor do they dispute that there
was performance or tender of performance under that contract. Further, "Fairways [has]
reserve[d] for trial a determination of its damages." (Rec. Doc. 122-1 at 8). Accordingly, the only
issue before the Court is whether a breach occurred.
"A breach of contract occurs when a party fails or refuses to perform an act that it
expressly promised to do." Methodist Hosps. of Dallas v. Corporate Communicators, Inc., 806
S.W.2d 879, 882 (Tex. Ct. App. 1991). However, the breach must be material for the remaining
obligations under the contract to be destroyed. Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691,
692 (Tex. 1994); see also Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196
(Tex. 2004); Tenn. Gas Pipeline Co. v. Technip USA Corp., No. 01–06–00535–CV, 2008 WL
3876141, at *22 (Tex. Ct. App. Aug. 21, 2008). In Texas, the following factors should
10
be considered in determining whether a breach is material:
(a) the extent to which the injured party will be deprived of
the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately
compensated for the part of that benefit of which he will be
deprived;
(c) the extent to which the party failing to perform or to
offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to
offer to perform will cure his failure, taking account of all the
circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to
perform or to offer to perform comports with standards of good
faith and fair dealing.
RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981); see Hernandez, 875 S.W.2d at 693 & n.2
(Tex. 1994); Mustang Pipeline Co., 134 S.W.3d at 199; see also Prodigy Commc'ns Corp. v.
Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374, 378 (Tex. 2009). Generally, "[t]he less the
non-breaching party is deprived of the expected benefit, the less material the breach."
Hernandez, 875 S.W.2d at 693. For instance, in Hernandez v. Gulf Group Lloyds, the Texas
Supreme Court held that where a party had been deprived of a benefit under a contract and had
also stipulated that it had not incurred any financial loss as a result of that deprivation, the breach
was not material and the non-breaching party was not prejudiced. Id. at 693-94. "However, if the
non-breaching party elects to treat the contract as continuing and insists that the party in default
continue its performance, the previous breach constitutes no excuse for non-performance on the
part of the non-breaching party, and the contract continues in force for the benefit of both
parties." Tenn. Gas Pipeline Co., 2008 WL 3876141, at *22. Here, it is necessary to determine
whether Rooster committed a material breach of the PUA by failing to comply with applicable
statutes and regulations, by failing to conduct its operations in a good and workmanlike manner,
and by failing to keep Fairways appraised of its conduct.
11
1.
Statutory & Regulatory Noncompliance
First, it is necessary to determine whether Rooster breached the PUA's requirement that
Rooster "comply with . . . all applicable laws, rules, regulations, and orders of any governmental
agency having jurisdiction." (Rec. Doc. 122-4 at 57). Specifically, Fairways provides expert
testimony indicating that between 2008 and 2010, the BSEE and its predecessors issued 70
incidents of noncompliance ("INCs") to Rooster as operator of Fairways' platform and that the
BSEE ordered a shut in on June 11, 2012. However, Rooster notes that, according to publically
available data from the BSEE, it was only issued 28 INCs for the HI 154 facilities between 2007
and 2012.4 (See Rec. Doc. 127-7). Rooster notes that it "has addressed all . . . INCs in accordance
with the requirements of and to the satisfaction of the BSEE." (Rec. Doc. 127-8 at 2). Further, it
appears that the only unresolved INC is being addressed by a BSEE-approved program. (Rec.
Docs. 127-8, 127-9). Not only is the number of INCs Rooster received disputed, but also whether
receipt of an INC is, in and of itself, a failure to comply with the applicable statutes and
regulations. Further, even if receipt of an INC constituted a breach, it is not clear whether this
would constitute a material breach of the PUA, especially given the fact that thousands of INCs
have been issued each year in the Gulf of Mexico. (See Rec. Doc. 127-5). It seems possible, if
not likely, that receiving and responding to INCs may be a common industry practice.
Regardless, a determination as to whether the receipt of a certain number and type of INCs
constitutes a material breach is an issue of fact that precludes summary judgment.
However, Fairways also states that the United States Coast Guard issued notices of
violation to Rooster on May 11, 2009, and September 6, 2009, in violation of the Clean Water
Act, 22 U.S.C. § 1321(b)(3). These violations, which Rooster indicates were self-reported, each
4
The Court takes judicial notice of the data provided from the BSEE's website. See FED. R. EVID. 201(b)
("The court may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and
readily determined from sources whose accuracy cannot reasonably be questioned.").
12
involved the accidental discharge of less than one gallon of oil. (See Rec. Doc. 127-10 at 3).
Further, Rooster was not fined for the first incident and paid only a $250 fine for the second.
(Id.). Rooster notes that "[b]oth incidents were fully addressed and resolved to the Coast Guard's
satisfaction." (Id.). Although it appears that Rooster may have violated a statutory requirement,
this does not seem to rise to the level of a material breach. Here, Rooster appears to have
complied with the statute by self-reporting the accidental spills, and Fairways does not seem to
have been deprived of any benefit. Therefore, as above, the significance of Rooster's violation of
the Clean Water Act is an issue of fact that precludes summary judgment. Accordingly, it is not
possible to decide as whether these violations of statutory and regulatory requirements
constituted a material breach of the PUA.
2.
Perform in a Good & Workmanlike Manner
Second, it is necessary to determine whether Rooster breached the PUA's requirement
that it "conduct all operations in a good and workmanlike manner, as would a prudent operator
under the same or similar circumstances." (Rec. Doc. 122-4 at 57). Fairways provides expert
testimony which indicates that 70 INCs is "an unusually high number " and that "operations
. . . were not conducted in a safe and workmanlike manner, as evidenced by the number and
severe nature of the INCs." (Rec. Doc. 122-2 at 7). As noted previously, the parties dispute the
number of INCs that Rooster received. The expert's assertion that an operator's conduct is not
workmanlike by virtue of its receipt of a certain number of INCs is only significant if the number
of INCs the operator received is known. Further, as noted above, it appears possible that
receiving and responding to INCs may be a common industry practice. If so, Rooster may have
operated exactly as a prudent operator would have. Nor is it clear the extent to which a prudent
operator would be required to provide notice of such INCs to the owner. Accordingly, it appears
that any conclusion as to whether Rooster materially breached the PUA's requirement that it
13
conduct its operation in a workmanlike manner is an issue of material fact precluding summary
judgment.
3.
Failure to Keep Fairways Appraised of Its Conduct
Third, it is necessary to determine whether Rooster breached the PUA by failing to notify
Fairways of its statutory and regulatory "violations, or any responsive reports, submissions, or
corrective actions," as well as any changes in its production levels. (Rec. Doc. 122-1 at 7). The
PUA provides:
3.2 Workmanlike Conduct. Unless otherwise provided,
Operator shall consult with the Parties and keep them informed of
all important matters.
....
3.8 Reports. Operator shall make reports to governmental
authorities that it has a duty to make as Operator and shall furnish
copies of such reports to Participating Parties. Operator shall give
timely written notice to the Parties of all litigation and hearings
affecting the Lease or operations hereunder.
....
8.1 [Rooster] agrees to notify [t]he [HI] 154 Owners as
soon as reasonably possible of . . . changes in [Rooster] HI . . . 141
Well(s) Production, or any other possible changes . . . include[ing],
but not limited to, shut in of well, re-opening of well, . . . .
(Rec. Doc. 122-4 at 57, 59). Not only does the extent to which Fairways and Rooster
communicated appear to be shrouded in fact, but so also is the nature of the obligations these
provisions imposed on Rooster. Accordingly, a determination as to whether Rooster materially
breached any of the requirements of the PUA is an issue of fact that precludes summary
judgment.
C.
Termination of the PUA on Its Own
Having concluded that it is not possible at this stage of the proceedings to determine
whether Rooster materially breached the PUA, it is necessary to determine whether the PUA
terminated on its own after Rooster failed to produce from its wells during certain periods. By its
14
terms, the PUA "remain[s] in full force and effect" provided that (1) HI 141 is "determined to be
producing in paying quantities in accordance with [30] C.F.R. [§] 250.11" and that HI 141 "is
producing to [HI 154]." (Rec. Doc. 122-4 at 61).
The parties dispute the significance and meaning of "in accordance with [30] C.F.R.
[§] 250.11," because the PUA was signed on November 18, 2001, and 1997 was the last year that
§ 250.11 existed. In 1998, the section entitled "Determination of well producibility" was moved
to § 250.111, where it remained in 1999, and § 250.11 was removed completely.5 In 2000, the
section was bifurcated, again relocated, and renamed, becoming § 250.115, entitled "How do I
determine well producibility?," and § 250.116, entitled "How do I determine producibility if my
well is in the Gulf of Mexico?" Meanwhile, § 250.111 became a new section, entitled "Who
oversees operations under my welding plan?" There were no additional changes to these sections
in 2001. Rooster asserts that the parties intended to rely on the 1997 version of the Code of
Federal Regulations; Fairways contends that the parties' reference to § 250.11 was a "drafting
error." (Rec. Doc. 122-1 at 16). Accordingly, it is necessary to determine the significance of
§ 250.11's inclusion in the PUA.
Under Texas law, whether a contract is ambiguous is a matter of law. R & P Enters. v.
LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980). "[T]he primary concern . . . is
to ascertain and to give effect to the intentions of the parties as expressed in the instrument." Id.
"To achieve this object the [c]ourt will examine and consider the entire instrument so that none
of the provisions will be rendered meaningless." Id. at 519. "No single provision taken alone will
be given controlling effect; rather, all the provisions must be considered with reference to the
whole instrument" Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Further, "the
circumstances present when the contract was entered" may be considered. Id. at 394.
5
30 C.F.R. § 250.1 through 30 C.F.R. § 250.99 were also removed.
15
Specifically, a contract should be construed with reference to the "'ordinary terms, customs and
usages then in effect as these are evidence of the intent of the parties.'" Intratex Gas Co. v.
Puckett, 886 S.W.2d 274, 278 (Tex. Ct. App. 1994) (quoting Atwood v. Rodman, 355 S.W.2d
206, 216 (Tex. Civ. App. 1962)). Applying these considerations, a contract is unambiguous when
it may be given "a certain or definite legal meaning or interpretation" and is ambiguous "only
when the application of the applicable rules of interpretation to the instrument leave it genuinely
uncertain which one of the two meanings ins the proper meaning." R & P Enters., 596 S.W.2d at
519. An ambiguous contract raises issues of fact, which preclude summary judgment. See id.
Here, the reference to § 250.11 would be "rendered meaningless" if it were treated as a
drafting error. It must be assumed that sophisticated parties, such as these, closely scrutinized the
PUA's language before executing it, especially language pertaining to termination. Thus, the
reference to § 250.11 must have been intentional. Because that section did not exist at the time
the PUA was drafted, the parties could only have meant to reference the outdated § 250.11,
which was codified in the Code of Federal Regulations until 1997. That section provided:
Determination of well producibility.
Upon receiving a written request from the lessee, the
District Supervisor will determine whether a well is capable of
producing in paying quantities (production of oil, gas, or both in
quantities sufficient to yield a return in excess of the costs, after
completion of the well, of producing the hydrocarbons at the
wellhead.) Such a determination shall be based upon the following:
(a) A production test for oil wells shall be of at least 2
hours' duration following stabilization of flow. A deliverability test
for gas wells shall be of at least 2 hours' duration following
stabilization of flow or a four-point back-pressure test. The lessee
shall provide the District Supervisor a reasonable opportunity to
witness all tests. Test data accompanied by the lessee's affidavit, or
third-party test data, may be accepted in lieu of a witnessed test,
provided prior approval is obtained from the District Supervisor.
(b) In the Gulf of Mexico OCS Region, the following shall
also be considered collectively as reliable evidence that a well is
capable of producing oil or gas in paying quantities:
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(1) A resistivity or induction electric log of the well
showing a minimum of 15 feet of producible sand in one section
that does not include any interval which appears to be watersaturated. In some cases, wells with less than 15 feet of producible
sand in one section may be approved by the District Supervisor.
All of the section counted as producible shall exhibit the following
properties:
(i) Electrical spontaneous potential exceeding 20-negative
millivolts beyond the shale base line. If mud conditions prevent a
20-negative millivolt reading beyond the shale base line, a gamma
ray log deflection of at least 70 percent of the maximum gamma
ray deflection in the nearest clean water-bearing sand may be
substituted.
(ii) A minimum true resistivity ratio of the producible
section to the nearest clean water-bearing sand of at least 5:1.
(2) A log indicating sufficient porosity in the producible
section.
(3) Sidewall cores and core analyses which indicate that the
section is capable of producing oil or gas or evidence that an
attempt was made to obtain such cores.
(4) A wireline formation test and/or mud-logging analysis
which indicates that the section is capable of producing oil or gas,
or evidence that an attempt was made to obtain such tests.
30 C.F.R. § 250.11 (1997).
The language of the PUA does states that HI 141 is "determined to be producing in
paying quantities in accordance with [§] 250.11," not simply that it is "producing in paying
quantities." (Rec. Doc. 122-4 at 61 (emphasis added)). Thus, for the PUA to have terminated, it
is not enough that Rooster simply failed to "produc[e] in quantities sufficient to yield a return in
excess of the costs"; it must have done so in the manner "determined" by § 250.11. See 30 C.F.R.
§ 250.11 (1997).
Fairways asserts that between July 1, 2008, and November 30, 2009, Rooster operated HI
141 at an economic loss for each 180-day period and that Rooster did not produce oil or gas from
HI 141 to HI 154 platform for two months in 2008, three months in 2009, and six months during
2012. (See Rec. Doc. 122-3 at 13-14). However, Fairways has not demonstrated that HI 141 was
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not "producing in paying quantities," as "determined" in accordance with the procedure outlined
in § 250.11. For this reason, Fairways has not met its burden in demonstrating that the PUA
terminated on its own.
D.
Breach of the PUA by Fairways
Having concluded that the determination as to whether Rooster materially breached the
PUA is an issue of fact and that Fairways has failed to prove that the PUA terminated on its own,
the Court briefly considers the issue of whether Fairways breached the PUA by objecting to
Rooster's RUE request. As a preliminary matter, it is necessary to determine whether Rooster's
RUE request was defective because it sought permission from BOEM to use Fairways' platform.
30 C.F.R. § 550.160 allows BOEM to grant "a [RUE] on leased and unleased lands" to an
operator if that operator "must need [it] to construct and maintain platforms, artificial islands,
and installations and other devices at an OCS site other than an OCS lease you own . . . ." 30
C.F.R. § 550.160. Rooster's December 12, 2011 request stated that it needed a RUE "for the
purposes of maintaining [certain platforms] at the surface locations of . . . [HI] 154." (Rec. Doc.
39-5 at 1). It is apparent that Rooster's RUE request did not need to seek BOEM's permission to
use Fairways' facilities; that permission had been granted by Fairways itself through the PUA.
Instead, Rooster's RUE request mentioned Fairways' facilities for the purpose of satisfying the
§ 550.160's requirement that it explain why it was seeking the RUE. As BOEM itself has stated,
"when you apply for a [RUE], you must submit a description of all facilities for which you are
seeking authorization . . . ." (Rec. Doc. 39-10 at 1). In denying Rooster's RUE request, BOEM
explained that Fairways "refuse[d] to consent to [its] access and use of its property . . .
[t]herefore, there is no basis upon which BOEM can grant a [RUE]." (Id.). It is apparent that
Fairways' objection to the RUE request, not any inherent defect in the RUE request itself, was
the reason it was denied. However, any determination as to whether Fairways' objection was
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itself a breach of the PUA is premature until a determination is made as to whether the contract
remained in effect at the time. Likewise, the issue of whether Fairways' further performance was
excused cannot be decided without determining that Rooster has breached.
IV.
CONCLUSION
For the forgoing reasons, IT IS ORDERED that Fairways' motion for summary
judgment (Rec. Doc. 122) and Rooster's motion for partial summary judgment (Rec. Doc. 124)
are DENIED.
New Orleans, Louisiana, this 2nd day of December, 2013.
UNITED STATES DISTRICT JUDGE
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