Justia Energy, Oil & Gas Law Opinion Summaries

Articles Posted in US Court of Appeals for the Fifth Circuit
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The Federal Energy Regulatory Commission (“FERC”), anticipating Petitioner Gulfport Energy Corporation’s (“Gulfport”) insolvency, issued four orders purporting to bind the petitioner to continue performing its gas transit contracts even if it rejected them during bankruptcy. Petitioner asked the Fifth Circuit to vacate those orders. The court granted the petitions and vacated the orders holding that FERC cannot countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.   Gulfport attacked attacks FERC’s orders on two fronts. Gulfport first says that FERC lacked authority to issue them. It then contends that the orders are unlawful because they violate the Bankruptcy Code and purport to restrain Gulfport’s bankruptcy-law rights and the powers of the bankruptcy court. The court explained that FERC did have authority to issue the orders. But because the orders rested on an inexplicable misunderstanding of rejection, the court must vacate them all. The court wrote that each order rests on the incorrect premise that rejecting a filed-rate contract in bankruptcy is something more than a breach of contract.   The court further wrote that FERC can decide whether actual modification or abrogation of a filed-rate contract would serve the public interest. It even may do so before a bankruptcy filing. But rejection is just a breach; it does not modify or abrogate the filed rate, which is used to calculate the counterparty’s damage. So FERC cannot prevent rejection. It cannot bind a debtor to continue paying the filed rate after rejection. And it cannot usurp the bankruptcy court’s power to decide Gulfport’s rejection motions. View "Gulfport Energy Corporation v. FERC" on Justia Law

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Plaintiffs, a group of individuals affected by power outages during Hurricane Ida, filed a state court class-action lawsuit against various energy companies. The energy companies removed the case to federal court. The district court then granted Plaintiff's motion to remand the case back to state court. The energy companies appealed on various grounds, including under the Class Action Fairness Act ("CAFA").The Fifth Circuit dismissed the portion of the energy companies' appeal that did not fall under CAFA, finding a lack of jurisdiction. However, CAFA permits a district court to review a district court's decision to remand a case. Thus, the court held that it had jurisdiction to review the CAFA-related bases for the energy companies' appeal. Upon a review of the proceedings below, the court held that the district court properly remanded the case back to state court. View "Stewart v. Entergy Corporation" on Justia Law

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Defendants, ERR, LLC; Evergreen Resource Recovery, LLC (collectively “ERR”), owns and operates a wastewater treatment facility. One of ERR’s spill contractors, Oil Mop, performed oil removal and soil remediation. Oil Mop submitted a claim to the National Pollution Funds Center (“NPFC”) for reimbursement of removal costs after ERR refused to pay. The NPFC reimbursed Oil Mop and billed ERR for what it paid Oil Mop.   ERR refused to pay and the Government then sued ERR for what it paid Oil Mop. The Government moved to strike ERR’s demand for a jury trial.  The district court held a bench trial after concluding that the Government’s Oil Pollution Act (“OPA”) claims sound not in law but in equity.   On appeal, the Fifth Circuit addressed ERR’s Seventh Amendment challenge and held that the Seventh Amendment guarantees ERR’s right to a jury trial of the Government’s OPA claims. The court explained that it must consider two factors when determining whether a right of action requires a jury trial. First, the court compared the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, the court examined the remedy sought and determined whether it is legal or equitable in nature.   Here, the court concluded that the Recoupment Claim sounds in law and hence triggers ERR’s Seventh Amendment right to a jury. Next, the court held that both the nature of the Government’s action and the type of remedy sound in law. View "USA v. E.R.R." on Justia Law

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The Fifth Circuit affirmed the district court's denial of partial summary judgment in an action brought by Vitol against the United States, seeking an $8.8 million tax refund. The court concluded that the plain language of the statute, taken in context, excludes butane from the definition of a liquefied petroleum gas (LPG) under 26 U.S.C. 6426(d)(2).In this case, the court applied the standard tools of statutory interpretation in their proper order, and the court need not consider legislative history or abstract congressional purpose. The court explained that, although the common meaning of LPG includes butane, section 6426(d)(2) is a subsidiary part of a broader statutory framework that treats a given fuel as either a taxable fuel or an alternative fuel, but not both. Therefore, the statutory context of section 6426 provides sound reason to depart from butane's common meaning. Furthermore, section 4083 defines butane as a taxable fuel for purposes of the excise tax imposed at section 4081. The court reasoned that, if butane is a taxable fuel, it cannot be an alternative fuel and thus it is not an LPG under section 6426(d)(2). View "Vitol, Inc. v. United States" on Justia Law

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The Fifth Circuit affirmed the bankruptcy court's judgment and held that, under the particular circumstances presented here, Ultra Resources is not subject to a separate public-law obligation to continue performance of its rejected contract, and that 11 U.S.C. 1129(a)(6) did not require the bankruptcy court to seek FERC's approval before it confirmed Ultra Resource's reorganization plan.Applying In re Mirant Corp., 378 F.3d 511 (5th Cir. 2004), the court concluded that the power of the bankruptcy court to authorize rejection of a filed-rate contract does not conflict with the authority given to FERC to regulate rates; rejection is not a collateral attack upon the contract's filed rate because that rate is given full effect when determining the breach of contract damages resulting from the rejection; and in ruling on a rejection motion, bankruptcy courts must consider whether rejection harms the public interest or disrupts the supply of energy, and must weigh those effects against the contract's burden on the bankrupt estate. Because Mirant clearly holds that rejection of a contract is not a collateral attack on the filed rate, the court concluded that FERC does not have the authority to compel continued performance and continued payment of the filed rate after a valid rejection. The court rejected any further arguments to the contrary. View "Federal Energy Regulatory Commission v. Ultra Resources" on Justia Law

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CP and Cimarex entered into the Master Service Agreement (MSA). Cimarex hired CP to work at Cimarex’s Oklahoma oil well. CP assigned Trent, an employee of one of its subcontractors, to work at the well. A flash fire occurred at the well. Trent was severely burned Trent sued Cimarex and CP. Cimarex and its insurers settled with Trent for $4.5 million. The Texas Oilfield Anti-Indemnity Act (TOAIA) voids indemnity agreements that pertain to wells for oil, gas, or water or to mineral mines unless the indemnity agreement is supported by liability insurance. The MSA's mutual indemnity provision required Cimarex and CP to indemnify each other; CP was obligated to obtain a minimum of $1 million in commercial general liability insurance and $2 million in excess liability insurance, Cimarex was required to obtain $1 million in general liability insurance and $25 million in excess liability insurance. CP obtained more coverage than the minimum required by the MSA, but its policy limited indemnity coverage. Cimarex sought indemnity from CP, which paid Cimarex $3 million, but refused to indemnify Cimarex for the remaining $1.5 million.The Fifth Circuit affirmed summary judgment for CP. TOAIA contemplates that mutual indemnity obligations will be enforceable only up to the limits of insurance each party has agreed to provide in equal amounts to the other party as indemnitee. CP did not breach the MSA because CP was only required to indemnify Cimarex up to $3 million. View "Cimarex Energy Co. v. CP Well Testing L.L.C." on Justia Law

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Kelly owns 160 acres within compulsory oil and gas drilling and production units established by the Louisiana Commissioner of Conservation. Aethon is the designated operator of the units which include 16 producing wells. Kelly’s land is not subject to a valid oil, gas or mineral lease to Aethon or to anyone else. Louisiana’s oil and gas conservation law provides that the Commissioner may establish a drilling unit even if all owners of oil and gas interests have not agreed to pool their interests. When the operator proposes to drill a well in a unit, owners may participate in the risk by contributing to the drilling costs. If an owner does not participate and the well produces, the operator may recover out of production the nonparticipating owner’s share of expenditures and, in certain cases, a “risk charge” of 200 percent of that expenditure share. Louisiana law requires operators to report information to unleased owners if requested.Kelly sought a declaration that Aethon failed to comply with disclosure and reporting obligations and had forfeited its right to demand contribution from Kelly. In two certified mail letters to Aethon, Kelly had informed Aethon that it was an unleased owner within the Units and requested information regarding the wells, and subsequently, cited Aethon’s failure to provide that information. The district court granted Aethon summary judgment. The Fifth Circuit vacated in part. The district court impermissibly imposed requirements on Kelly that are not present in the statutes. Kelly’s letters complied with the statute. View "B A Kelly Land Co., L.L.C. v. Aethon Energy Operating, L.L.C." on Justia Law

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Texas and Wyoming both regulate the use of indemnity agreements in their oilfields. Wyoming, concerned that indemnification disincentivizes safety, forbids oilfield indemnity agreements. Wyo. Stat. 30-1-131. Texas, concerned that large oil companies will use their leverage to demand indemnity from independent operators, also disfavors the agreements but does not ban them; it allows indemnification in limited situations including when the indemnity is mutual and backed by insurance. Tex. Civ. Prac. & Rem. 127.003, 127.005.Cannon, a Wyoming oil-and-gas exploration company, and Texas-based KLX entered into a “Master Equipment Rental Agreement,” providing that Texas law governs the agreement and that the parties must “protect, defend, [and] indemnify” each other against losses involving injuries sustained by the other’s employees, regardless of who is at fault “to the maximum extent permitted by applicable law.” Most of the work performed under the contract occurred in Wyoming with none in Texas. Indemnity was sought for a Wyoming lawsuit filed by a Wyoming resident injured in a Wyoming oilfield operated by a Wyoming business.The Fifth Circuit held that Wyoming law prevails and that the indemnity provision in the Agreement is unenforceable. Wyoming has a more significant relationship to the parties and a materially greater interest in applying its policy; its anti-indemnity policy is “fundamental.” View "Cannon Oil & Gas Well Services, Inc. v. KLX Energy Services, L.L.C." on Justia Law

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Defendants appealed the district court's judgment favoring Five Star in a quiet title action over oil-and-gas interests. Five Star, asserting itself as the grantee’s successor-in-interest, sought a declaration that it owns a "floating" royalty entitling it to a three-eighths share of any leased royalty. The district court declared that Five Star owns an undivided three-eighths mineral interest pursuant to a 1927 deed. The Fifth Circuit affirmed the judgment, but clarified that Five Star's three-eighths mineral interest includes solely a right to receive a proportionate share of royalties and does not include an executive right or right to develop the land. View "Five Star Royalty Partners, Ltd. v. Mauldin" on Justia Law

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Plaintiffs filed a citizen suit against Exxon, seeking to recover from more than 16,000 Clean Air Act violations arising from the Baytown, Texas complex.The Fifth Circuit held that Clean Air Act plaintiffs must prove standing for each violation in support of their claims. The court held that the evidence supports the district court's findings of injury, traceability, and redressability for a number of the violations. However, a limited remand is needed for the district court to determine what other violations could have contributed to plaintiffs' members' injuries and then to tabulate its findings. The court noted that it does not require line-by-line findings, but that the district court may group violations. Furthermore, plaintiffs have standing for at least some of the violations that Exxon asserts affirmative defenses against. The court remanded for findings on whether Exxon proved its Act of God defense for the relatively small number of violations occurring during Hurricane Ike. The court affirmed the district court's rejection of Exxon's Rule 52(b) motion, because Exxon failed to meet its burden in supporting its no-fault defenses by failing to identify evidence establishing that it met the relevant criteria for each individual emissions event. Because the court remanded for the district court to determine the number of violations for which plaintiffs have standing, as well as whether Exxon proved its Act of God defense for any violations, the court will also have to reassess the penalties. View "Environment Texas Citizen Lobby, Inc. v. ExxonMobil Corp." on Justia Law