Fite Oil & Gas Inc v. S W E P I L P

Filing 33

MEMORANDUM RULING re 24 MOTION for Summary Judgment filed by S W E P I L P, 26 MOTION for Summary Judgment filed by Fite Oil & Gas Inc. Signed by Judge S Maurice Hicks on 11/05/2013. (crt,McDonnell, D)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
FITE OIL & GAS, INC.

CIVIL ACTION NO. 5:11-CV-1621

VERSUS

JUDGE S. MAURICE HICKS, JR.

SWEPI, LP

MAGISTRATE JUDGE HORNSBY
MEMORANDUM RULING

Before the Court is a Motion for Summary Judgment (Record Document 24) filed by
Defendant SWEPI, LP (“SWEPI”), and a Motion for Partial Summary Judgment (Record
Document 26) filed by Fite Oil & Gas, Inc. (“Fite”). SWEPI seeks for this Court to grant its
motion for summary judgment dismissing the claims of Fite, and declaring that SWEPI is
bound to pay royalty owners under lease with Fite. See Record Document 24-1 at 1. Fite
seeks for this Court to grant its motion for partial summary judgment and declare that
“Louisiana Revised Statutes Section 30:10, as enacted prior to the 2012 amendment,
unambiguously requires Swepi to remit out of production from the Well ‘that portion of
production’ owned to Fite’s royalty and overriding royalty owners.” See Record Document
26 at 5. For the following reasons, Swepi’s Motion for Summary Judgment is GRANTED
and Fite’s Motion for Summary Judgment is DENIED.
I.

Background
This dispute arises out of an oil and gas production interests in DeSoto Parish.1 Fite

acquired the following mineral leases through an assignment from the J.L. Schoalmire
Operating Company, Inc. effective March 1, 2007:

1

Specifically, the property is located in Section 23 in Township 13 North, Range
12 West, DeSoto Parish.

Oil, Gas and Mineral Lease dated September 9, 1960 from Edward H. Laffitte
to W.C. Nabors, recorded in Book 244, Page 395, under Registry No. 281340
of the DeSoto Parish Records (the “Ed H. Laffitte Lease”); and
Oil, Gas and Mineral Lease dated January 25, 1961 from E.A. Laffitte to W.C.
Nabors, recorded in Book 248, Page 144, under Registry No. 283774 of the
DeSoto Parish Records (the “E.A. Laffitte Lease”).
(collectively, the “Laffitte Leases”).
The Laffitte Leases involve acreage in Section 22, 23, 26 and 27 in Township 13 North,
Range 12 West in DeSoto Parish. Approximately 170 acres are within Section 23. Swepi
LP (“Swepi”) was named the designated operator for the acreage within Section 23,
including the portion of the Laffitte Leases within that Section, by the Louisiana
Commissioner of Conservation who designated the unit as “HA RC SUK.”2
In the midst of the oil and gas boom related to the Haynesville Shale, Swepi decided
to drill a well on the property. Pursuant to Louisiana Revised Statute 30:10(A)(2)(a), as
enacted prior to the 2012 amendment, Swepi sent Fite a letter on October 9, 2009 to notify
Fite of the plans to drill the Don Robertson 23 Well #001 (the “Well”) in Section 23,
Township 13 North, Range 12 West. Shortly after receiving the letter, Fite and Swepi began
negotiations concerning the Laffitte Leases within Sections 22 and 23, approximately
346.64 acres. A written agreement between the parties was never signed, and negotiations
between the parties were terminated on September 10, 2010.
During the negotiations between the parties, however, work on the Well began. The
spud date was October 23, 2009 and it was completed on March 28, 2010. The Well never

2

This is a shorthand designation used by the Louisiana Comissioner of
Conservation for the created unit: Haynesville, Reservoir C, Sand Unit K.
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paid out, and production ceased in November 2011.3 At the time that this lawsuit was filed
by Fite, the Well was scheduled to be plugged and abandoned.
II.

Law and Analysis
A. Legal Standard
Summary judgment is proper pursuant to Rule 56 of the Federal Rules of Civil

Procedure when “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Quality Infusion Care, Inc. v. Health Care Serv.
Corp., 628 F.3d 725, 728 (5th Cir.2010).4 “Rule 56[(a)] mandates the entry of summary
judgment, after adequate time for discovery and upon motion, against a party who fails to
make a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Patrick v. Ridge, 394
F.3d 311, 315 (5th Cir.2004).
“A party seeking summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and identifying those portions of the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, which it believes demonstrate the absence of a genuine issue of material
fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986).
If the moving party fails to meet this initial burden, the motion must be denied, regardless

3

There is a dispute between the parties in the uncontested statements of fact
regarding whether the production ceased in November or December 2011.
4

The Court notes that Rule 56 now employs the phrase “genuine dispute,” rather
than “genuine issue.” This 2010 amendment does not alter the Court’s analysis, as
there was not a substantive change to the summary judgment standard. See F.R.C.P.
56(a) and advisory committee’s note.
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of the nonmovant’s response. See Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th
Cir.1995).
If the movant demonstrates the absence of a genuine dispute of material fact, “the
nonmovant must go beyond the pleadings and designate specific facts showing that there
is a genuine [dispute] for trial.” Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 141 (5th
Cir.2004). Where critical evidence is so weak or tenuous on an essential fact that it could
not support a judgment in favor of the nonmovant, then summary judgment should be
granted. See Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir.2005). Where the
parties dispute the facts, the Court must view the facts and draw reasonable inferences in
the light most favorable to the plaintiff. See Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct.
1769 (2007). In sum, the motion for summary judgment “should be granted so long as
whatever is before the district court demonstrates that the standard for the entry of
summary judgment, as set forth in Rule 56(c), is satisfied.” Celotex Corp., 477 U.S. at 323,
106 S.Ct. at 2553.
B.

Analysis

In order to determine if either summary judgment motion should be granted, two
main legal questions must be evaluated by this Court: (1) which of the two companies, Fite
or SWEPI, is required to pay Fite’s lessors, and (2) whether Fite is subject to the risk/fee
penalty established under Louisiana Revised Statute 30:10A (“Risk/Fee Statute”).
Louisiana courts have provided guiding precedent on both of these matters, which this
Court, while not bound to do so, chooses to follow.

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(1) Which of the two companies, Fite or SWEPI, is required to pay Fite’s
lessors?
The key contention between the parties is which should be required to pay Fite’s
Lessors. SWEPI (the unit operator) contends that Fite (the lessee) is required to pay all
royalties due under Fite’s Leases.
In asserting this point, SWEPI guides the Court to a Louisiana First Circuit Court of
Appeal case, Gulf Explorer, LLC v. Clayton Williams Energy, Inc., 964 So.2d 1042 (La.App.
1st Cir. 2007). In its Gulf Explorer ruling, the First Circuit cited Willis v. International Oil and
Gas Corporation, 541 So.2d 332 (La.App. 2nd Cir. 1989), which, as SWEPI points out, is
also directly applicable to the instant case. On the other hand, Fite fails to guide the Court
to any precedent case law adopting its argument. Rather, Fite attempts to deemphasize
the cited Louisiana case law by stating that Louisiana case law on point is not binding in
the federal system, and therefore SWEPI should be the party forced to pay the lessors.
While acknowledging the fact that this Court is not bound by the decisions of the
Louisiana appellate courts, the Court chooses to follow the reasoning and results of those
cases. Additionally, this Court finds the Gulf Explorer decision by the state appellate court
applicable to the facts before the court. In Gulf Explorer, the Louisiana First Circuit
reviewed substantially similar facts as are at issue in this case, and held that the lessee
maintains the obligation to pay its lessors. The facts of that case, which are strikingly similar
to the instant case, are as follows:
Defendant, Clayton Williams Energy, Inc. (Clayton Williams), was the
operator of an oil and gas producing unit in Plaquemines Parish, Louisiana,
known as the 8300 RA SUA, Raphael Pass Field. The unit was formed by
order of the state Commissioner of Conservation effective June 18, 2002.
Plaintiff, Gulf Explorer, LLC (Gulf), owned certain minerals within the
geographical confines of the unit.
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In September 2002, Clayton Williams sent notice to Gulf of its intention to drill
SL 16901 No. 1 as the unit well for 8300 RA SUA Unit and offered Gulf the
opportunity to participate in the risk and expense of the well. Gulf failed to
respond to the notice; thus, pursuant to LSA-R.S. 30:10, it was deemed to
have chosen not to participate. Id. at 1042-1043.
The facts of the instant case provide that SWEPI was the operator of the oil and gas
producing unit in DeSoto Parish, Louisiana, within the Haynesville Shale formation,
designated as HA RC SUK, created by order the state Commissioner of Conservation.
Plaintiff, Fite, owned certain minerals within the geographical confines of the unit. Prior to
drilling the unit well, SWEPI notified Fite and offered the opportunity for Fite to participate
in the risk and expense of the well. Fite and SWEPI failed to contractually agree to Fite
sharing in the risk and expense of the well. Accordingly, pursuant to LSA-R.S. 30:10, Fite
did not participate. Based on the law as written, and the legal precedent provided by the
state courts on this issue, this Court finds that Fite is required to maintain its obligation to
its lessees. The burden does not shift to SWEPI under the facts in this case.
(2) Whether Fite is subject to the risk/fee penalty established under Louisiana
Revised Statute 30:10A?
The second question that must be answered by this Court is whether the Risk/Fee
Statute is applicable to the instant facts. To determine this matter, the Court must review
the language of the Louisiana Revised Statute at issue. Louisiana Revised Statute
30:10A(b)(I) provides:
Should a notified owner elect not to participate in the risk and expense of the
unit well...the owner drilling same shall, in addition to any other available
legal remendies to enforce collection of such expenses, be entilted to own
and recover out of production from such unit well allocable to the tract
belonging to the nonparticipating owner such tract’s allocated share of the
actual reasonable expenditures incurred in drilling, testing, completing,
equipping, and operating the unit well, including a charge for supervision,
together with a risk charge, which risk charge shall be one hundred percent
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of such tract’s allocated share of the cost of drilling, testing, and completing
the unit well.
The plain language of the statute clearly indicates that SWEPI is entitled to recover its
expenses and a “risk charge” prior to paying Fite. The Louisiana First Circuit previously
ruled upon the question of whether the Risk/Fee Statute enables the operator to recover
expenses as well. There, the court held:
Clayton Williams is entitled to recover its costs out of the production
attributable to Gulf’s tract or “continuous expanse of land” and not merely the
amounts attributable to that tract minus the royalties and overriding royalties
Gulf is obligated to pay pursuant to its contracts with third parties. See Willis
v. International Oil and Gas Corp., 541 So.2d 332, 336 (La. App. 2 Cir. 1989)
(holding that the unit operator was entitled to retain 100 percent of the
proceeds from the production of the unit well until such time as the expenses
of drilling, completing and operating the well were recovered). Gulf Explorer,
964 So.2d at 1045 (citations within).
Based upon the plain reading of the statute, along with the legal precedent provided by a
Louisiana Appellate Court, this Court finds that the Risk/Fee Statute is applicable to the
facts here. Therefore, SWEPI is entitled to recover its costs and up to 100 percent of the
proceeds from the production of the unit well prior to Fite being paid.
III.

CONCLUSION
Based on the foregoing analysis, the Motion for Partial Summary Judgment filed by

Fite is DENIED, and the Motion for Summary Judgment filed by Swepi is GRANTED. This
Court finds that: (1) Fite is required to pay its lessees with respect to the production
at issue here, including the section of the Haynesville Shale formation, designated
as HA RC SUK; and (2) Fite is subject to the risk/fee penalty established under
Louisiana Revised Statute 30:10A. No genuine disputes of material fact exist that prevent
this Court from finding that SWEPI is not liable to Fite.
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THUS DONE AND SIGNED, in Shreveport, Louisiana, this 5th day of November,
2013.

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