Total E & P USA, Inc. v. Kerr-McGee Oil & Gas Corp.
711 F.3d 478
5th Cir.2013Background
- OCSLA lease issued in 1998 for offshore land near Louisiana; ORRI assignments in 1999 (Belcher Group) and 2001 (Kerr-McGee) carved out of lessee working interests
- Assignments stated ORRIs were payable out of all production from the lease and included a “calculate and pay” clause equating overriding royalties to the landowner’s royalty terms
- DWRRA authorized suspension of US landowner royalties until a production threshold (87.5 million barrels) was reached; later Fifth Circuit decisions clarified application to specific leases
- Production in 2009 led Chevron to pay ORRIs; Total and Statoil argued the ORRI payments were suspended with the landowner’s royalty under DWRRA, while Belcher Group and Kerr-McGee argued otherwise
- District court granted Summary Judgment for Total and Statoil, holding the “calculate and pay” clauses clearly suspended ORRIs during DWRRA suspension; Belcher/Kerr-McGee appealed
- Court held the ORRI contracts are ambiguous under Louisiana law and must be interpreted for common intent; remanded for further proceedings to determine contract intent
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do the “calculate and pay” clauses suspend ORRI payments during DWRRA royalty suspension? | Belcher Group/Kerr-McGee: clauses only set calculation method, not suspension | Total/Statoil: clauses clearly suspend during DWRRA suspension | Ambiguous; further interpretation required |
| Should extrinsic evidence be considered to determine common intent? | Extrinsic evidence supports intent to reference lease methods, not suspend | District court erred in excluding extrinsic evidence | Ambiguity persists; remand for evidence-based interpretation |
| Is footnote in underlying lease a clear term creating suspension for ORRI? | Footnote shows potential suspension applicability | Footnote indefinite; not clearly binding on ORRI parties not in lease | Not clearly explicit; ambiguity remains; remand |
Key Cases Cited
- Frey v. Amoco Prod. Co., 603 So.2d 166 (La. 1992) (contract interpretation; object, usages, and implied terms)
- Kerr-McGee Oil & Gas Corp. v. U.S. Dep’t of Interior, 554 F.3d 1082 (5th Cir. 2009) (DWRRA authority; royalty suspension limits)
- Santa Fe Snyder Corp. v. Norton, 385 F.3d 884 (5th Cir. 2004) (statutory royalty relief; field eligibility)
- EP Operating Ltd. P’ship v. Placid Oil Co., 26 F.3d 563 (5th Cir. 1994) (OCSLA framework; federal law governs outer shelf royalties)
- Transcont’l Gas Pipe Line Corp. v. Transp. Ins. Co., 953 F.2d 985 (5th Cir. 1992) (methodology for determining state-law questions under federal framework)
- CLK Co., LLC v. CXY Energy, Inc., 912 So.2d 1280 (La. Ct. App. 2007) (Louisiana contract interpretation; ambiguity standards)