Apache Corp. v. W & T OFFSHORE, INC.
626 F.3d 789
| 5th Cir. | 2010Background
- Apache and W & T trace back to a 1979 Farmout Agreement between Texoma (Apache's predecessor) and ARCO (W & T's predecessor) governing Block 148 and adjacent Block 151.
- ARCO could convert its overriding royalty to a 33 1/3 percent working interest via two election points tied to recovery of costs, including platform costs, allocated by platform slots.
- ARCO exercised both conversion elections; a Joint Operating Agreement (JOA) was formed for Block 148 operations, while Block 151 platform operated by Apache served both Block 151 and Block 148 until Ivan damaged it in 2004.
- Federal decommissioning obligations attach to platforms on offshore leases; Apache sought reimbursement from W & T for decommissioning Block 151, which W & T refused.
- District court held there was no contract obligation for W & T to pay decommissioning costs, and dismissed Apache’s complaint while granting partial indemnity relief to W & T.
- On appeal, Fifth Circuit agrees contract language is unambiguous and that neither Farmout nor JOA requires W & T to fund Block 151 decommissioning.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Farmout Agreement obligate W & T to pay decommissioning costs? | Apache: platform costs include decommissioning costs under 'platform costs'. | W & T: platform costs cover only construction costs; decommissioning is not included. | No; unambiguous language does not require payment. |
| Does the Farmout Agreement or JOA require payment of decommissioning costs despite federal law? | Apache asserts contractual duty exists via platform-cost interpretation. | W & T argues no contractual duty; decommissioning governed by federal law. | No contractual duty; obligations are not imposed by the agreement. |
| Was the district court's final judgment proper in dismissing Apache's claims? | Apache contends scope of relief was mischaracterized. | W & T sought dismissal of Apache's complaint in full; Apache had notice to object. | Yes; district court properly entered final judgment dismissing Apache's complaint. |
| Does indemnity provision shield W & T from litigation costs of Apache’s claims? | Apache would have sought to shift litigation costs under indemnity. | Indemnity covers operations liabilities, not costs of separate litigation. | Yes; indemnity does not extend to litigation costs between the parties. |
Key Cases Cited
- Snyder Oil Corp. v. Samedan Oil Corp., 208 F.3d 521 (5th Cir. 2000) (federal control of OCS and state law integration for offshore rights)
- Amoco Prod. Co. v. Tex. Meridian Res. Exploration Inc., 180 F.3d 664 (5th Cir. 1999) (unambiguous contract interpreted as law for court)
- Tex. E. Transmission Corp. v. Amerada Hess Corp., 145 F.3d 737 (5th Cir. 1998) (contract interpretation under Louisiana law governs ambiguities)
- Suire v. Lafayette City-Parish Consol. Gov't, 907 So.2d 37 (La. 2005) (burden to prove obligations exists under Louisiana civil code)
- Dore Energy Corp. v. Prospective Inv. & Trading Co., 570 F.3d 219 (5th Cir. 2009) (unreasonable consequences in contract interpretation)