IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 09-31122

APACHE CORPORATION,

Plaintiff - Appellant,

v.

W & T OFFSHORE, INC.,

Defendant - Appellee.

Appeal from the United States District Court

for the Eastern District of Louisiana

Before STEWART, PRADO, and ELROD, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

Although the parties submitted over one-hundred pages of briefing, the

issue on appeal is the same straightforward question of contract interpretation

previously before the district court: Does the Farmout Agreement require W&T

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to bear a proportionate share of the costs of decommissioning an oil platform

United States Court of Appeals

Fifth Circuit

F I L E D

November 16, 2010

Lyle W. Cayce

Clerk

A farmout agreement is “[a] very common form of agreement between operators,

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whereby a lease owner not desirous of drilling at the time agrees to assign the lease, or some

portion of it (in common or in severalty) to another operator who is desirous of drilling the

tract. The assignor in such a deal may or may not retain an overriding royalty or production

payment. The primary characteristic of the farmout is the obligation of the assignee to drill

one or more wells on the assigned acreage as a prerequisite to completion of the transfer to

him.” Howard R. Williams & Charles J. Meyers, Manual of Oil & Gas Terms 389 (9th

ed. 1994).

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located on the federal offshore oil and gas lease designated OCS-G 2951 Main

Pass Block 151 (Block 151). Because we agree with the district court that the

unambiguous language of the Agreement does not create any such obligation, we

AFFIRM.

I.

W&T’s predecessor in interest, the Atlantic Richfield Company (ARCO),

and Apache’s predecessor in interest, the Texoma Production Company

(Texoma), executed the Farmout Agreement on October 31, 1979. Texoma then

had thirty days to commence drilling a test well, which if successful, earned

Texoma an assignment of ARCO’s interest in the OCA-G 2950 Main Pass Block

148 (Block 148) lease subject to an overriding royalty interest. ARCO’s relatively

small overriding royalty interest was free of any obligation to contribute to the

costs of production.

The Farmout Agreement, however, included two election points for ARCO

to convert its 8.33 percent overriding royalty interest into a 33.3 percent costbearing working interest. Generally speaking, the first election point allowed

ARCO to convert its royalty interest in the first well while the second election

point allowed ARCO to convert its royalty interest in any subsequent wells. The

first election point would occur after Texoma recovered “the proportionate costs

of drilling, testing, completing, equipping, and operating the well, including that

portion of the platform costs which shall be allocated to such well on the basis

of the number of slots on the platform.” The second election point would occur

only if Texoma proposed to drill a second well prior to recovering its production

costs in the first well. If Texoma proposed a second well, ARCO would have

thirty days to convert its overriding royalty interest in the second well into a

working interest and participate in the drilling of the second well. Upon

conversion under the second election point, ARCO would be “responsible for the

proportionate share of the platform costs allocated to the total number of wells

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to be drilled for production from said lease under the plan of exploration and

development.” ARCO exercised both options to convert its royalty interest to a

working interest, and pursuant to the Farmout Agreement, the parties entered

into a joint operating agreement (JOA) governing the operations of the Block 148

lease.

No drilling platform was ever constructed on Block 148. Apache, however,

operated the Block 151 platform, which served both the Block 151 lease and the

adjacent Block 148 lease until Hurricane Ivan damaged the platform in 2004,

thereby ending its service life. Because federal regulations require leaseholders

to remove and decommission oil and gas platforms at the end of their service life,

Apache, as the platform operator, began the process of decommissioning the

Block 151 platform. Apache sought reimbursement for such costs from W&T,

contending that the Farmout Agreement requires W&T, which owns a 33.3

percent working interest in Block 148, to pay a proportionate share of the

decommissioning expenses. W&T refused to pay.

Accordingly, on November 25, 2008, Apache filed a complaint in the United

States District Court for the Eastern District of Louisiana (1) seeking a

declaratory judgment that W&T must bear its proportionate share of the total

costs of decommissioning and abandoning the Block 151 platform, (2) alleging

that W&T’s refusal to bear its proportionate share of the decommissioning costs

constitutes a breach of the Farmout Agreement, and (3) alleging, in the

alternative, that “W&T has enjoyed the use of the [Block 151 platform] to its

enrichment without cause at the expense of Apache.” W&T counterclaimed,

seeking indemnity under the Farmout Agreement. Prior to completing

discovery, Apache sought summary judgment “holding W&T liable for its

proportionate share of [Block 151 platform] costs, including decommissioning

costs,” and dismissal of W&T’s counterclaim with prejudice. W&T subsequently

filed a cross-motion for summary judgment seeking dismissal of Apache’s

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complaint, indemnification, and attorneys’ fees. The district court concluded

that

The Farmout Agreement could have required ARCO to agree to pay

a share of the decommissioning costs of the platform located on

Block 151 but it did not. Nowhere in either the Farmout Agreement

or the subsequent JOA is an obligation expressed to pay for the

decommissioning of that platform. Apache cannot meet its burden

of proving such an obligation exists because the unambiguous

language of the agreements does not create one.

Moreover, with respect to W&T’s indemnity claim, the district court found that

“[t]here is nothing in the text to suggest that ARCO was attempting to shift the

costs of a subsequent litigation between the parties to the agreement.”

Accordingly, the district court denied Apache’s summary judgment, granted

W&T’s summary judgment in part, and dismissed Apache’s complaint and

W&T’s cross-claim for indemnification and attorneys’ fees with prejudice.

II.

We review the district court’s summary judgment de novo, applying the

same legal standards used by the district court. Moss v. BMC Software, Inc.,

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610 F.3d 917, 922 (5th Cir. 2010) (citation omitted). “Summary judgment is

proper ‘if the pleadings, the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any material fact and that

the movant is entitled to judgment as a matter of law.’” Id. (quoting Fed. R. Civ.

P. 56(c)(2)). “[T]he court views all facts and evidence in the light most favorable

to the non-moving party,” and “[m]ere conclusory allegations are insufficient to

defeat summary judgment.” Id. (citations omitted). Furthermore, “where the

non-moving party fails 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,’ no

The parties dispute the appropriate standard of review but are both incorrect because 2

they ignore the procedural posture of this case, which is a review of the district court’s

summary judgment.

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genuine issue of material fact can exist. Nichols v. Enterasys Networks, Inc., 495

F.3d 185, 188 (5th Cir. 2008) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-

23 (1986)).

III.

A.

The Outer Continental Shelf Lands Act “vests the United States with

jurisdiction over the soil and seabed of the oceans and artificial islands and fixed

structures located thereon, and grants to the United States the mineral

resources that are part of the [Outer Continental Shelf.]” Snyder Oil Corp. v.

Samedan Oil Corp., 208 F.3d 521, 522 (5th Cir. 2000). Furthermore, the Act

provides:

To the extent that they are applicable . . . the civil and criminal laws

of each adjacent State . . . are declared to be the law of the United

States for that portion of the subsoil and seabed of the outer

Continental Shelf . . . and fixed structures erected thereon, which

would be within the area of the State if its boundaries were

extended seaward to the outer margin of the outer Continental

Shelf . . . .

43 U.S.C. § 1333(a)(2)(A). Because both Blocks 148 and 151 are adjacent to

Louisiana, the law of Louisiana controls this court’s interpretation of the

Farmout Agreement.

Under Louisiana law, “interpretation of a contract is the determination of

the common intent of the parties.” La. Civ. Code Ann. art. 2045. “In ascertaining

the common intent, words and phrases in a [contract] are to be construed using

their plain, ordinary and generally prevailing meaning, unless the words have

acquired a technical meaning, in which case the words must be ascribed their

technical meaning.” Sims v. Mulhearn Funeral Home, Inc., 956 So. 2d 583, 589

(La. 2007)) (internal quotation marks and citation omitted). Moreover, “[w]ords

susceptible of different meanings must be interpreted as having the meaning

that best conforms to the object of the contract,” La. Civ. Code Ann. art. 2048,

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and “[e]ach provision in a contract must be interpreted in light of the other

provisions so that each is given the meaning suggested by the contract as a

whole,” La. Civ. Code Ann. art. 2050. In addition, “[w]hen the words of a

contract are clear and explicit and lead to no absurd consequences, no further

interpretation may be made in search of the parties’ intent.” La. Civ. Code Ann.

art. 2046. Thus, “[u]nder Louisiana law, the interpretation of an unambiguous

contract is an issue of law for the court.” Amoco Prod. Co. v. Tex. Meridian Res.

Exploration Inc., 180 F.3d 664, 668 (5th Cir. 1999) (citing Tex. E. Transmission

Corp. v. Amerada Hess Corp., 145 F.3d 737, 741 (5th Cir. 1998)). Accordingly,

this case turns primarily on whether the Farmout Agreement unambiguously

requires W&T to pay for its proportionate share of the costs of decommissioning

the Block 151 platform.

B.

Both parties claim that the Farmout Agrement is unambiguous but reach

opposite conclusions as to whether W&T is obligated to pay its proportionate

share of the Block 151 platform decommissioning costs. This discrepancy does

not, by itself, indicate that the contract is ambiguous. See Amoco Prod. Co., 180

F.3d at 668-69 (holding that “[a] contract provision is not ambiguous where only

one of two competing interpretations is reasonable or merely because one party

can create a dispute in hindsight” (citation omitted)). “In the context of contract

interpretation, only when there is a choice of reasonable interpretations of the

contract is there a material fact issue concerning the parties’ intent that would

preclude summary judgment.” Id. at 669.

Here, the Farmout Agreement is silent about decommissioning costs.

Nevertheless, Apache contends that the term “platform costs” encompasses the

costs of decommissioning the Block 151 platform. “Platform costs” is used twice

in Section VII, which governs ARCO’s (W&T’s predecessor) two election points

for converting its overriding royalty interest into a working interest. The first

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use of the term is in the description of the first election point, which allows

conversion of ARCO’s royalty interest in the first well:

The overriding royalty herein provided for shall be paid until such

time as you have recovered out of the proceeds of production from

the producing well after deducting the royalty, overriding royalty

and taxes paid by you on production, as applicable to ARCO’s

contributed interest, the proportionate costs of drilling, testing,

completing, equipping and operating the well, including that portion

of the platform costs which shall be allocated to such well on the

basis of the number of slots on the platform. The operating costs to

be recovered shall be determined in accordance with the accounting

procedure attached hereto as Exhibit “A”. At such time as you have

recovered the costs therein provided for, ARCO shall have 30 days,

from the receipt of such notice of your recovery of said cost, within

which to elect to convert its overriding royalty interest to a

proportionate 33 1/3 percent working interest in the initial well,

equipment in and on same, production from such well, and that

portion of said lands included in any units.

Two paragraphs later, “platform costs” is used again in the description of the

second election point, which allows conversion of ARCO’s royalty interest in the

second and subsequent wells:

If prior to the payout of the first producing well, as hereinabove

provided, you propose to drill the first development well provided for

under the plan of exploration and development . . . you shall so

notify ARCO in writing. . . . Should ARCO elect to participate in the

drilling of such well it shall convert its overriding royalty to a 33 1/3

percent working interest in said lease and shall join in the

hereinbefore described joint operating agreement and shall be

responsible for its proportionate share of platform costs allocated to

the total number of wells to be drilled for production from said lease

under the plan of exploration and development. However, ARCO’s

election to participate as is set forth, shall not be deemed an election

to convert its overriding royalty in the first producing well, which

election, if so made, shall be as hereinbefore provided, i.e., at the

time of payout of such first producing well.

Both election points can only occur upon the completion of certain

preconditions. For example, the second election point can occur only if Texoma

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elects to drill a second well (i.e., the first development well). If Texoma, for

instance, had elected not to drill any development wells, this election point

would never occur. Similarly, the first election point can occur only when ARCO

has recouped certain expenses, including “platform costs,” related to the initial

producing well. Given this precondition, the term “platform costs” must refer to

the costs of constructing the well platform and not to future decommissioning

expenses that the operator may incur at some unknown time in the future.

Stated differently, if the term “platform costs” included the future

expenses of decommissioning the Block 151 platform, W&T’s election point to

convert its royalty interest in the first well would not occur until after Apache

had decommissioned the well. That is, under Apache’s construction,

decommission costs would not be recoverable until after the platform had been

decommissioned, and once the platform had been decommissioned, it would be

impossible to recover such expenses out of the proceeds of a well that is no longer

operational. This construction is nonsensical. It would be pointless for ARCO

to convert its overriding royalty interest into a working interest following the

decommissioning of the Block 151 platform. Where there is no production, there

are no royalties, regardless of the percentage.

Granted, it would be possible for this election point never to occur. For

example, if the first production well failed to produce in sufficient quantities,

this election point would never occur because Texoma would be unable to recoup

its costs associated with this well. We will not, however, interpret a contract to

render one of its provisions altogether meaningless. Here, the object of the

elections is to provide ARCO with two opportunities to convert its overriding

royalty interest into a working interest, and words “must be interpreted as

having the meaning that best conforms to the object of the contract.” La. Civ.

Code Ann. art. 2048. Therefore, we find that the term “platform costs,” as used

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with reference to the first election point, refers only to the costs of constructing

the platform.

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Under Louisiana law, we interpret the second usage of the term “platform

costs” in light of the preceding use. See La. Civ. Code. Ann. art. 2050. Here, the

two usages occur in the same section of the contract (Section VII), in the same

context (election points), and mere paragraphs apart. Moreover, there are no

modifiers attached to the second usage of “platform costs” to indicate a different

meaning. Accordingly, we agree with the district court that “[i]n both instances,

the term platform costs is in reference to the costs of constructing a well,” and

that “[n]either instance purports to control the management of expenses into the

future.”

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Furthermore, in that same section, the Farmout Agreement requires the

parties to enter into a joint operating agreement (JOA) providing “provisions as

may be necessary for the operation of the affected properties” upon the exercise

of either election. This is further evidence that the term “platform costs”

includes only fixed, startup costs of constructing a well, not speculative

operational expenses, which are outside the scope of costs contemplated by the

Although federal regulations specify that decommissioning obligations accrue when 3

the platform is installed, 30 C.F.R. § 250.1702, this does not mean that the cost of such

obligations is also realized at this time. The operator accruing the decommissioning

obligations might never incur the costs. For example, the operator might have entered into

a joint operating agreement with another party where that second party agreed to pay the

entire costs of decommissioning.

Apache concedes thatthe term “‘platform costs’ means the same thing in both election

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clauses,” but nevertheless maintains that the Farmout Agreement uses the term in two

different contexts in order to achieve two different results. According to Apache, the first

election point, unlike the second, reflects a “snapshot in time.” That is, the first election point

is triggered when Texoma achieves a “payout”—“a time when the value of the production from

the well catches up with the well as defined by the parties.” Apache, however, has abandoned

this argument by failing to raise it in its initial brief on appeal. Accordingly, we need not

consider it. See Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994).

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election-point provisions. Simply put, Apache’s construction of the term

5

“platform costs”—that it includes “all costs attributable to the platform from

cradle to grave, construction to dismantlement”—is unsupported by the Farmout

Agreement.

Similarly, the JOA is silent as to the Block 151 platform, and neither

party contends otherwise. The Block 148 JOA specifically defines the extent of

the parties’ obligations for regulatory decommissioning and platform removal,

including hypothetical future platforms on Block 148, but does not even

mention the Block 151 platform. Accordingly, the JOA does not require W&T

to pay to decommission the Block 151 platform. Therefore, we find that neither

the Farmout Agreement nor the JOA requires W&T to pay to decommission the

Block 151 platform.

Moreover, to the extent Apache argues that W&T owns an interest in the

Block 151 platform such that the law requires payment for decommissioning

costs, this argument fails as contrary to Louisiana law. Apache avers that W&T

acquired an interest in Block 151 from its predecessor, Vastar, because the

Apache also asserts that (1) “W&T’s obligation to pay its proportionate share of 5

platform costs was expressly made dependent on Texoma’s development plan, so the provisions

of that plan became part of the agreement between the parties,” and (2) the plan of

development and exploration “‘called for Texoma to jointly develop and produce [the Block 148

and 151 leases] from a single drilling and production platform located on Block 151.’” 

Accordingly, Apache argues that W&T, as a party to the plan of exploration and development,

is contractually required to pay for the costs to remove the Block 151 platform. This argument

is unpersuasive. First, the parties dispute whether the Farmout Agreement actually

incorporated the plan of development by reference, and indeed, an inspection of the Agreement

indicates that it was not expressly included. See, e.g., Russellville Steel Co. v. A&R

Excavating, Inc., 624 So. 2d 11 (La. App. 5th Cir. 1993); Action Fin. Corp. v. Nichols, 180

So. 2d 81 (La. App. 2d Cir. 1965). Second, as W&T notes, Texoma’s plan of exploration and

development “is not an agreement, and it creates no rights or obligations.” The plan of

exploration and development was “nothing more than a report which Texoma was required to

submit to the U.S. Geological Survey as the ‘Operator.’” So even if the parties fully

incorporated the plan of exploration and development into the Farmout Agreement, it does not

independently give rise to an obligation to pay for decommissioning costs.

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assignment from Vastar to W&T specifically included all of Vastar’s working

interest in the Block 151 platform. This phrase, however, does not necessarily

mean that Vastar actually owned rights in the Block 151 platform. Rather, it

means that Vastar assigned whatever rights it happened to have in the Block

151 platform out of an abundance of caution. A party cannot assign what it

does not own. See Town of Homer v. United Healthcare of La., Inc., 948 So. 2d

1163, 1169 (La. App. 2d Cir. 2007) (“An assignor cannot assign any rights

greater than that which he held.” (citations omitted)).

In addition, the Block 151 platform, which was a drilling platform

permanently affixed to the seabed, was an immovable under Louisiana law, 

Bruyninckx v. Bratten, 554 So. 2d 247, 249 (La. App. 3d Cir. 1989), and

ownership of an immovable can be conveyed only by a written act translative

of title. See Oak Harbor Prop. Owners’ Ass’n v. Millennium Grp. I, L.L.C., 934

So. 2d 814, 818 (La. App. 1st Cir. 2006). Here, neither the Farmout Agreement,

nor the Block 148 JOA mention the Block 151 platform. Because neither

document conveyed ownership of any interest in the platform to ARCO, such

interest could not have passed to W&T. Because W&T owned no interest the

Block 151 platform, federal law does not require W&T to pay decommissioning

costs of the Block 151 platform. 30 C.F.R. § 250.1701(a) (“Lessees and owners

of operating rights are jointly and severally responsible for meeting

decommissioning obligations for facilities on leases, including the obligations

related to lease-term pipelines, as the obligations accrue and until each

obligation is met.”).6

6 Apache argues that the consequence of the district court’s interpretation of the term

“platform costs” “is that W&T has no obligation to pay any share of the millions of dollars it

cost[s] to comply with the government regulations requiring the removal of the [Block 151

platform]. Although Appellant correctly notes that “[a]n outer boundary in interpretation is

to avoid unreasonable consequences or inequitable or absurd results even when the words used

in the contract are fairly explicit,” Dore Energy Corp. v. Prospective Inv. & Trading Co., 570

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Because Apache seeks to enforce a contractual obligation against W&T,

it must first prove that the obligation exists. See Suire v. Lafayette City-Parish

Consol. Gov’t, 907 So. 2d 37, 58 (La. 2005); see also La. Civ. Code Ann. art. 1831

(“A party who demands performance of an obligation must prove the existence

of the obligation.”). Here, Apache has failed to meet its burden. We agree with

the district court: “Apache cannot meet its burden of proving an obligation

exists because the unambiguous language of the agreements does not create

one.” There is no choice of reasonable interpretations presenting a genuine

issue of material fact that precludes summary judgment. See Amoco Prod. Co.,

180 F.3d at 669. Accordingly, we affirm the district court’s summary judgment.

C.

Apache also argues that the district court lacked authority to enter a final

judgment dismissing all of Apache’s claims. Apache contends that it moved for

summary judgment only on its breach-of-contract claims and W&T’s

counterclaim for indemnity, and that “[n]either party moved for summary

judgment on Apache’s declaratory-judgment or enrichment-without-cause

claims.” Apache, however, misconstrues the record. W&T’s cross-motion for

summary judgment prayed for judgment “Dismissing Apache Corporation’s

Complaint” (as opposed to just the contractual claim). Moreover, W&T’s

F.3d 219, 225 (5th Cir. 2009) (internal quotation marks and citation omitted), this is not such

a case. In Dore, the court avoided interpreting a settlement agreement as a “well-forfeiture

agreement.” Id. at 229.

Here, however, the narrower construction of the term “platform costs” merely forces

Apache to pay for decommissioning costs that federal law already obligated it to pay. Had

ARCO never elected to convert its interest, Apache would have faced the decommissioning

obligations alone. Thus, Texoma, Apache’s predecessor, recognized the risk of paying

decommissioning costs when it entered into the Farmout Agreement. When ARCO elected to

convert its overriding royalty interest into a working interest, Texoma became obligated to pay

a greater royalty (33 1/3% as opposed to 8.333%). This increased royalty, however, was

balanced by ARCO’s agreement to enter into a JOA and to pay certain operational expenses

under the JOA. Although Texoma might have negotiated for decommissioning costs, it did not,

and the deal struck hardly results in “unreasonable consequences or inequitable or absurd

results.” Id. at 229.

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memorandum in support of its cross-motion asserted that “W&T is entitled to

summary judgment on all counts as a matter of law.” In addition, the

memorandum further clarified the scope of the motion, stating that “Apache’s

position rests entirely upon its attempts to liberally expand the meaning of the

term ‘platform costs’ as used in a 30-year-old Farmout Agreement.”

Given these statements, Apache had ample notice and opportunity to

object to the scope of relief prayed for in W&T’s motion, but it did not do so.

Unlike the cases cited by Apache, where the parties “were not on notice to

present arguments,” Lozano v. Ocwen Federal Bank, FSB, 489 F.3d 636, 641 (5th

Cir. 2007), W&T affirmatively requested dismissal of the complaint as a whole,

and Apache had two opportunities over twenty-one days to respond.

Accordingly, the district court properly entered a final judgment dismissing

Apache’s complaint with prejudice.

D.

W&T contends that it is “entitled to full immunity from Apache to the

extent that the Farmout Agreement controls.” The indemnity provision of the

Farmout Agreement provides:

In all operations hereunder you shall keep ARCO free and clear of,

and indemnify them against, any loss or liability arising as a result

of your operations involving said lease. The cost and risk of all

operations conducted hereunder shall be solely yours and ARCO

shall never be liable for any portion of the same.

This provision does not indemnify W&T for costs of litigation between the

parties. Rather, as the district court correctly found, “the intent of the parties

as evident from the text was to limit ARCO’s liability for operations occurring

on the lease. There is nothing in the text to suggest that ARCO was attempting

to shift the costs of a subsequent litigation between the parties to the

agreement.” We therefore affirm the district court’s partial denial of W&T’s

summary judgment on the indemnity ground.

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IV.

For the foregoing reasons, we AFFIRM the district court’s final judgment

granting, in part, W&T’s cross-motion for summary judgment and dismissing

Apache’s complaint and W&T’s cross-claim for indemnification and attorneys’

fees with prejudice.

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