Opinion ID: 622859
Heading Depth: 1
Heading Rank: 5

Heading: Whether the work done was for the purpose of abandoning a well

Text: In their briefs, Eni and TBS have presented divergent views of the statutory phrase every activity . . . for the purpose of . . . abandoning a well. Id. As noted above, Eni argues that the process of abandoning wells does not encompass the removal of the platform to which the wells were connected. Eni contends that once the wells are plugged and the conductors are cut, any additional work that is performed on the former site of production is not work that involves abandoning a well within the meaning of LOWLA. TBS advances a different view of the statutory phrase. TBS notes that once the wells that are connected to a production platform are depleted, lessees are required by federal regulations to implement a number of decommissioning obligations, including plugging the wells, cutting the conductors, removing the platform, and clearing the site. TBS asserts that in light of these requirements, work done to remove a platform is in fact part and parcel of the process of abandoning the wells that were connected to the platform. This is a close question, one that appears to be res nova, and both parties have presented strong arguments. The Court, however, is persuaded that TBS has the correct view of the statute. As one commentator has observed, [t]he definition of `operations' has been drafted broadly. Chicoine, supra, at 1137. Indeed, the statutory phrase is aimed at encompassing all typical well site activities, including [w]ork associated with the abandonment of wells. Id. at 1137-38. As further explained below, it is clear that in light of the applicable federal regulations, the removal of a platform after the depletion of the wells that are connected to that platform is a common well site activity, one that is, in effect, part of the process of abandoning the wells. Accordingly, the Court concludes that work done to remove a platform following the depletion of wells properly falls within the ambit of the statutory term operations. Federal regulations have long indicated that following well depletion, the removal of a platform is a typical well site activity and that it is integral to the process of abandoning the depleted wells connected to the platform. In particular, the federal regulations that have been in effect since 2002and that were thus applicable at the time that TBS participated in the project at issueprovide that [w]hen [the] facilities are no longer useful for operations, the lessee must, among other things, [p]ermanently plug all wells and [r]emove all platforms and other facilities. 30 C.F.R. § 250.1703. [9] The predecessor regulationswhich took effect in 1997 and were thus applicable in 1999 when the wells attached to Platform 313-A were pluggeddelineated, in a similar fashion, the decommissioning obligations of a lessee. [10] Under the heading Abandonment of Wells, the regulation provided that [l]essees must plug and abandon all well bores [and] remove all platforms or other facilities. Surety Bonds for Outer Continental Shelf Leases, 62 Fed. Reg. 27948, 27955 (1997) (codified at 30 C.F.R. § 250.110(b)). [11] These provisions demonstrate that, notwithstanding revisions over time, the applicable regulations have carried forward a longstanding requirement that idle platforms be removed once oil and gas production ceases. See, e.g., Interpretation Concerning Authority to Depart from OCS Requirements, 48 Fed. Reg. 31397, 31397 (1983) (noting that the rules governing OCS operations require the removal of platforms and other structures no longer in use for oil and gas recovery). A variety of reasons underlie the requirement that lessees remove a platform once the wells to which it is connected are depleted. The Bureau of Energy Management, Regulation and Enforcement (BOEMRE), which was spun off from the now-defunct Minerals Management Service (MMS), has made the general observation that idle infrastructure poses a potential threat to the OCS environment. BOEMRE, Notice to Lessees and Operators No. 2010-G05, Decommissioning Guidance for Wells and Platform 1 (2010) [hereinafter BOEMRE, NTL]. In particular, the presence of idle platforms may harm navigation safety. See, e.g., National Research Council, Disposal of Offshore Platforms 53 (1985) (The Coast Guard is especially concerned about the threat to navigation safety of permitting offshore platforms to remain in place when they are no longer actively being used to produce oil and gas.). BOEMRE has also observed that if not removed in a timely manner, an idle platform can become a financial liability . . . if subsequently destroyed or damaged in a future event such as a hurricane. BOEMRE, NTL, supra, at 1. Under the federal regulations, platform removal has become a common activity on the Gulf of Mexico OCS. The official statistics compiled by BOEMRE underscore this reality. See BOEMRE, Installation and RemovalsOffshore Production Facilities in Federal Waters, available at http:// www.boemre.gov/stats/PDFs/OCSPlatform Activity.pdf (accessed March 22, 2011) [hereinafter BOEMRE, Statistics]. The statistics show that while the number of platform installations dwarfed the number of platform removals for several decades, platforms removals eventually increased such that they outnumbered platform installations in 1992 and 1993. See id. at 1. Those were the years when the Louisiana State Law Institute began to update LOWLA in order to make it compatible with the ever changing character of oil and gas operations. Chicoine, supra, at 1134. From 1991 to 2000, there were sufficient platforms removed from the Gulf of Mexico OCS to largely stabilize the number of platforms in the region. See BOEMRE, Statistics, supra, at 1. And over the last decade, platform removal has substantially outpaced platform installation, causing the number of platforms on the Gulf of Mexico OCS to drop from a peak of 4,045 in 2001 to 3,409 in 2010. Id. Thus, the story of Platform 313-A is, at its core, the typical story of a platform removed in accordance federal regulations following the end of oil and gas production. The record indicates that by April 1999, the wells that were connected to the production platform were plugged and the associated conductors cut. Eni's Ex. 1 (Rec. Doc. No. 75-5). Soon thereafter, in May 1999, a proposed plan to remove Platform 313-A, which had been first installed in 1975, was submitted to MMS. See TBS's Ex. 9 (Rec. Doc. No. 98-2). The proposal suggested that well depletion was the reason for the removal of the platform. See id. [12] Although a delay subsequently ensued, another proposed plan to remove the platform was submitted to MMS in March 2005, see TBS's Ex. 5 (Rec. Doc. No. 98-2). That proposal also specified that the platform was to be removed because the [w]ells are depleted. Id. While Hurricane Rita caused yet another delay, TBS's Ex. 3 (Rec. Doc. No. 98-2), in 2008, after permission to leave the platform as an artificial reef was denied, see Eni's Ex. 2 (Rec. Doc. No. 75-6), a proposal to remove the platform was once again submitted, see TBS's Ex. H (Rec. Doc. No. 83-3). Thus, the record demonstrates that before the platform was eventually removed, the successive lessees of Vermilion Block 313 remained aware of and repeatedly sought to meet their obligation to remove the platform given that the wells that were connected to it had been depleted. See, e.g., Eni's Ex. 2 (Rec. Doc. No. 75-6) (The Platform had been scheduled to be decommissioned as required by [MMS]. . . .); TBS's Ex. A (Rec. Doc. No. 83-3) (acknowledging that BOEMRE require[s] the removal of platforms when wells are depleted). What may perhaps make the story of Platform 313-A somewhat unusual is the substantial amount of time that lapsed between the plugging of the wells and the removal of the platform that was connected to them. As noted above, the plugging of the wells took place in 1999, but it was not until 2008 that the platform was removed. The intervention of Hurricane Rita in 2005 may also distinguish the story of Platform 313-A from those of others. Neither of these, however, changes the fact that under the applicable federal regulations, the removal of a platform following the depletion of the wells that are connected to it is a typical well site activity, one that is largely inseparable from the plugging of the wells and thus, in effect, part and parcel of the process of abandoning the depleted wells. In its brief, Eni argues that the wells that were connected to the platform were plugged and abandoned in 1999, and it contends that any further work on the former site of production cannot be considered part of the process of abandoning a well. Eni thus suggests that the term abandoning a well should be equated with the term plugging and abandoning. This argument does not take Eni very far, however, because the contours of the term plug and abandon are unclear. As the record demonstrates, plug and abandon, on the one hand, may entail only the placing of cement plugs in a well and the cutting of the conductors. See Eni's Ex. 11 (Rec. Doc. No. 96-25). On the other hand, as evidenced by a host of documents prepared by Eni itself, the term may also be used to encompass a broader swath of decommissioning activities, such as the disposal of a platform. See, e.g., TBS's Ex. 3 (Rec. Doc. No. 98-2) (The platform was secured for P & A prior to Rita.); TBS's Ex. 4 (Rec. Doc. No. 98-2) ([T]he platform. . . was planned for P&A but was not removed due to the hurricane.). The inconsistent use of the term plug and abandon is evident elsewhere. For instance, other industry players have used the term to denote the full range of decommissioning activities mandated by federal regulations. See, e.g., TBS's Ex. 12 (Rec. Doc. No. 98-2) (If CNGP were to P&A the Vermilion 313 `A' platform); Mariner Energy, Inc. v. Devon Energy Prod. Co., 690 F.Supp.2d 558, 570 (S.D.Tex.2010) (considering a contract that defined plugging and abandonment costs as including. . . removal and abandonment of platforms [and] wells). Courts too have sometimes used the term to refer to the package of decommissioning obligations that OCS lessees must satisfy. See, e.g., In re Tri-Union Dev. Corp., 314 B.R. 611, 615 (Bankr.S.D.Tex.2004) (using the term Offshore P & A Obligations to denote the obligations to plug and abandon [the] offshore wells, remove offshore oil and gas platforms, pipelines, facilities, conduct site clearance operations, and perform additional decommissioning activities). Ultimately, the elusive nature, and potentially expansive scope, of the term plug and abandon is perhaps most clearly demonstrated by the definition supplied in a leading reference for this area of law. That reference defines plug and abandon as the placing of a plug in a dry hole, then abandoning the well. Howard R. Williams & Charles J. Meyers, Manual of Oil and Gas Terms (14th ed. 2009). What it means to place a plug in a dry hole is, of course, fairly clear. See id. (defining dry hole as [a] completed well which is not productive of oil and/or gas or which is not productive of oil and/or gas in paying quantities). The definition, however, begs the question of what it then means to abandon[ ] the well. Id. It, in effect, brings us back to the very initial question. Given the lack of clarity that surrounds the term plug and abandon, the Court is reluctant to simply equate the statutory phrase abandoning a well with that somewhat elusive term. Moreover, it should be noted, to the extent that plugging and abandoning does denote the full range of decommissioning activities, it indicates that platform removal does fall within the ambit of the statute. In its brief, Eni sets forth a related, but distinct argument. Eni notes that after the wells were plugged and the conductors cut, the wells connected to Platform 313-A were deemed to be permanently abandoned. Eni contends that having thus carried out its obligations under what is now 30 C.F.R. §§ 250.1710-.1717, any additional work that is performed cannot be considered as part of abandoning a well within the meaning of LOWLA. Eni thus argues that the phrase abandoning a well is limited to the work that is required under those sections of the Code of Federal Regulations. This argument appears to have some force. Like the Court's analysis above, it recognizes that LOWLA is applied in this case as surrogate federal law, and it seeks to construct LOWLA in the light of the surrounding body of federal law. See, e.g., La. Civ. Code art. 13 (Laws on the same subject matter must be interpreted in reference to each other); Branch v. Smith, 538 U.S. 254, 281, 123 S.Ct. 1429, 155 L.Ed.2d 407 (2003) (plurality opinion) (noting that it is the most rudimentary rule of statutory construction . . . that courts do not interpret statutes in isolation, but in the context of the corpus juris of which they are a part, including later-enacted statutes). But the weakness in Eni's argument is that it does not take into account the shift in terminology that has occurred in the applicable federal regulations. It is true that previously, the Code of Federal Regulations had used the term permanent abandonment. See Oil and Gas and Sulphur Operations in the Outer Continental Shelf, 53 Fed. Reg. 10596, 10733 (1988) (codified at 30 C.F.R. § 250.112). [13] The regulations had even used the phrase plug and abandon. See Surety Bonds for Outer Continental Shelf Leases, 62 Fed. Reg. 27948, 27955 (1997) (codified at 30 C.F.R. § 250.110(b)). [14] But in 2002, the federal regulations were revised, and both of these terms were discarded. See Oil and Gas and Sulphur Operations in the Outer Continental ShelfDecommissioning Activities, 67 Fed. Reg. 35398, 35406-35409 (2002). Since then, the applicable regulations, including those to which Eni has drawn the Court's attention, simply use the phrase permanently plug instead of permanently abandon or plug and abandon. See, e.g., 30 C.F.R. § 250.1703 (noting that the lessee must [p]ermanently plug all wells); see also id. §§ 250.1710-.1717 (same). This shift in terminology is telling. Indeed, it appears to reflect the recognition that depleted wells that are attached to a production platform are not properly abandoned until the full range of decommissioning activitiesincluding the plugging of the wells and the removal of the platformis carried out and that, accordingly, it would be inaccurate and confusing to use the term permanent abandonment to denote only one aspect of the decommissioning process. Eni's attempt to find significance in the term permanent abandonment is therefore not persuasive. The federal regulations have evolved to make it clear that the abandonment of wells attached to a platform consists of more than just the plugging of the wells. While there are discrete decommissioning tasks that a lessee must perform, they are largely inseparable and, in effect, constitute a single process by which lessees are to abandon the wells once they are depleted. Finally, in its brief, Eni invokes the principle that lien statutes are, in general, subject to strict construction, and it argues that a fundamental distinction must therefore be made between the plugging of wells and the subsequent removal of a platform. Once again, this argument has some force, but ultimately, it is also unavailing. The Louisiana Supreme Court has indeed acknowledged that [a]s a general rule, lien statutes are stricti juris and should thus be strictly construed. Guichard Drilling, 657 So.2d at 1313. But, in the same breadth, it has also indicated that courts should interpret LOWLA in a manner which will effectuate its purposes and that the courts should not erect artificial barriers to its enforcement. Id.; cf. Phillips Petroleum Co. v. Best Oilfield Servs., Inc., 48 F.3d 913, 916 (5th Cir.1995) (noting that a reasonable construction must be considered before adopting a strict construction). The court has thus cautioned that the narrowest construction of the statute is not invariably the correct one. While LOWLA may not be a model of clarity, Ogden Oil Co. v. Servco, Div. of Smith Int'l, Inc., 611 F.Supp. 572, 576 (M.D.La.1985), it is aimed at encompassing all typical well site activities, including [w]ork associated with the abandonment of wells, Chicoine, supra, at 1137. As discussed above, the applicable federal regulations that govern oil and gas operations on the OCS clearly indicate that the removal of a platform following the depletion of the wells that are connected to it is a typical well site activity that it is, in effect, part and parcel of the process of abandoning the depleted wells. In light of this regulatory scheme, it is clear that to accept Eni's contention that LOWLA does not encompass any work that is performed subsequent to the plugging of the wells would be to establish the sort of artificial barrier against which the Louisiana Supreme Court has warned. Guichard Drilling, 657 So.2d at 1313. In light of the foregoing, the Court therefore concludes that work performed to remove a platform following the depletion of the wells connected to that platform constitutes work done to abandon[ ] a well under LOWLA. La.Rev.Stat. Ann. § 9:4861(4)(a)(i). The application of this statutory phrase to the facts of this case is straightforward. Here, the undisputed facts show that along with several other subcontractors, TBS took part in a project to remove Platform 313-A after the wells to which it was connected had become depleted. See, e.g., TBS's Ex. D-A (Rec. Doc. No. 83-3). The Court therefore concludes that the work performed by TBS is done for the purpose of . . . abandoning a well within the meaning of LOWLA. La. Rev.Stat. Ann. § 9:4861(4)(a)(i).