Justia Energy, Oil & Gas Law Opinion SummariesArticles Posted in Delaware Supreme Court
Gulf LNG Energy v. ENI USA Gas Marketing
Gulf LNG Energy, LLC owned and operated a liquefied natural gas (“LNG”) terminal in Mississippi (the “Pascagoula Facility”). Gulf LNG Pipeline, LLC (collectively with Gulf LNG Energy, LLC, “Gulf”), owned and operated a five-mile long pipeline that distributed LNG from the Pascagoula Facility to downstream inland pipelines. Eni USA Gas Marketing LLC (“Eni”), marketed natural gas products and offered related services to customers in the U.S. In 2007, Gulf and Eni entered into a Terminal Use Agreement (the “TUA”), whereby Gulf would construct the Pascagoula Facility, and Eni would use the Facility to receive, store, regasify, and deliver imported LNG to downstream businesses. Under the TUA, Eni agreed to pay Gulf fees for using the Facility, including monthly Reservation Fees and Operating Fees. In 2016, Eni filed for arbitration, alleging the U.S. natural gas market had undergone a “radical change” due to “unforeseen, vast new production and supply of shale gas in the United States [that] made import of LNG into the United States economically irrational and unsustainable.” Eni alleged the essential purpose of the TUA had been frustrated and thus terminated because of “fundamental and unforeseeable change in the United States natural gas/LNG market,” and sought a declaration that Eni could terminate the TUA at any time because Gulf breached warranties and covenants. After the first arbitration, the panel order Eni to pay Gulf "just compensation ...for the value their partial performance of the TUA conferred upon Eni." Gulf subsequently sued Eni to collect the arbitration award; judgment was entered in Gulf's favor. Eni initiated a second arbitration, again asserting breaches of the TUA. Gulf moved to dismiss the second arbitration. The Court of Chancery ruled the issues raised in the second arbitration were already decided in the first (and subsequent court case). The Delaware Supreme Court, after its review of these proceedings, determined: (1) the Court of Chancery had jurisidction to enjoin a collateral attack on the first arbitration award; and (2) the Court of Chancery should have enjoined all claims in the second arbitration between the parties, because the admitted goal of the second arbitration was to "raise irregularities and revisit the financial award in the first arbitration." The Court, therefore, affirmed part of the Court of Chancery's judgment affirming dismissal of the second arbitration, and reversed any part of the lower court's judgment allowing certain issues in the second arbitration to be considered. View "Gulf LNG Energy v. ENI USA Gas Marketing" on Justia Law
Sunline Commercial Carriers, Inc. v. Citgo Petroleum Corporation
In early 2013, CITGO Petroleum Corp. Sunline Commercial Carriers, Inc., to ship its product through a Master Agreement, which was to be implemented by another agreement, a Term Agreement. The Master was set to expire on December 31, 2014, but could be terminated by either party on 60 days’ notice. The Term “remain[ed] in effect until the Master Agreement is expired or terminated” but also contained another sentence stating that it was a “1 Year agreement with a start date of April 1, 2013.” The Term required that CITGO ship a monthly minimum to Sunline, or compensate Sunline for failing to do so. Not long into their relationship, CITGO breached the agreement by failing to ship the monthly minimum, creating a “shortfall.” After breaching, CITGO used its leverage to obtain concessions that allowed it to make up the shortfall at the end of the parties’ contractual relationship. On March 31, 2014, CITGO sent Sunline a termination notice. Over the next two months, all of the Term Agreement’s specific provisions seemed to govern the parties’ relationship. During this time, CITGO shipped enough product to Sunline to meet its previously accrued shortfalls. But if the Term Agreement’s minimum monthly requirement remained in place, CITGO failed meet the minimum and generated additional shortfalls. At the end of May, CITGO stopped using Sunline to ship oil. Sunline sued and eventually moved for summary judgment, arguing that the Term Agreement remained in effect until May 31, 2014; CITGO was therefore still liable for the shortfalls generated before the termination notice; and CITGO generated shortfalls in April and May. In response, CITGO argued that the Term Agreement ended on March 31, 2014, the day CITGO sent its termination notice; that only the Master Agreement continued through May 31, 2014; and as a result, CITGO had no obligation to meet the Term Agreement’s minimum barrel requirements. The Superior Court held, as a matter of law, that the Term Agreement ended on March 31, 2014. Sunline appealed, arguing that the Superior Court’s contractual interpretation was inconsistent with the Term Agreement’s text, and that, in the alternative, the Term Agreement was ambiguous and parol evidence had to be considered. The Delaware Supreme Court reversed, finding the Term Agreement was meant to continue in force as long as the Master Agreement did. The Term Agreement contained conceivably conflicting terms, which could not be indisputably reconciled on the face of the contract, and was therefore ambiguous. The Court also reversed the Superior Court holding the oil shipped in April and May satisfied CITGO’s shortfall liability. The Superior Court failed to consider parol evidence because of its earlier finding that the Term Agreement expired, as a matter of law, on March 31, 2014. The parol evidence made summary judgment inappropriate as it supported the reasonableness of Sunline’s interpretation. View "Sunline Commercial Carriers, Inc. v. Citgo Petroleum Corporation" on Justia Law
Williams Companies, Inc. v. Energy Transfer Equity, L.P.
This appeal arose from a merger agreement under which two companies involved in the gas pipeline business, Energy Transfer Equity, L.P. (“ETE”), agreed to acquire the assets of The Williams Companies, Inc., (“Williams”). The Merger Agreement signed by Williams and ETE contemplated two steps: (1) Williams would merge into a new entity, Energy Transfer Corp LP (“ETC”); and (2) the transfer of Williams’ assets to ETE in exchange for Class E partnership units “would” be a tax-free exchange of a partnership interest for assets under Section 721(a) of the Internal Revenue Code. After the parties entered into the Agreement, the energy market suffered a severe decline which caused a significant loss in the value of assets of the type held by Williams and ETE. This caused the transaction to become financially undesirable to ETE. This issue ultimately led to ETE’s tax counsel, Latham & Watkins, LLP (Latham) being unwilling to issue the 721 opinion. Since the 721 opinion was a condition of the transaction, ETE indicated that it would not proceed with the merger. Williams then sought to enjoin ETE from terminating the Merger Agreement. The Court of Chancery rejected Williams’ arguments. After review, the Supreme Court found the Court of Chancery adopted an unduly narrow view of the obligations imposed by the covenants in the Agreement. The Supreme Court agreed with Williams that if a proper analysis of ETE’s covenants led to a conclusion that ETE breached those covenants, the burden would have shifted to ETE to prove that its breaches did not materially contribute to the failure of the closing condition. Since the facts as found by the Court of Chancery were that ETE’s lack of conduct did not contribute to Latham’s decision not to issue the 721 opinion, the Supreme Court was satisfied that when the burden of proving that ETE’s alleged breach of covenants is properly placed on it, ETE did meet its burden of proving that any alleged breach of covenant did not materially contribute to the failure of the Latham condition. The Court also agrees with the Court of Chancery’s finding that ETE was not estopped from terminating the Agreement. Accordingly, the judgment of the Court of Chancery was affirmed. View "Williams Companies, Inc. v. Energy Transfer Equity, L.P." on Justia Law