Bopco, L.P. v. Charles R. Ward, Sr.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

12-316

BOPCO, L.P.

VERSUS

CHARLES R. WARD, SR., ET AL.

**********

APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF VERMILION, NO. 91269-B
HONORABLE JULES D. EDWARDS, DISTRICT JUDGE

**********

MARC T. AMY
JUDGE

**********

Court composed of Sylvia R. Cooks, Marc T. Amy, and Phyllis M. Keaty, Judges.

AFFIRMED.

Charles R. Ward, Jr.
71234 Hendry Avenue
Covington, LA 70433
(985) 892-1367
COUNSEL FOR DEFENDANTS/APPELLANTS:
Charles R. Ward, Sr.
Lenore R. Ward

Don R. Beard
Dennis, Bates & Bullen, L.L.P.
318 St. Charles Street
Baton Rouge, LA 70802
(225) 343-0100
COUNSEL FOR DEFENDANTS/APPELLANTS:
Frank A. Cormier
Vincent T. Mallette
James N. Reichard, Jr.
W. W. Rucks, III

Raymond A. Beyt
Beyt & Beyt
Post Office Box 52157
Lafayette, LA 70505
(337) 233-6771
COUNSEL FOR DEFENDANT/APPELLANT:
Donald J. Zadeck

Charles R. Minyard
Post Office Box 3642
Lafayette, LA 70502
(337) 266-2300
COUNSEL FOR PLAINTIFF/APPELLEE:
BOPCO, L.P.

AMY, Judge.

The plaintiff is the operator of an oil well in which the defendants are interest

owners. The defendants opted not to participate in the plaintiff’s proposal to

undertake certain workover repairs necessary for continued production, thereby

forfeiting their future interest in the well. Subsequently, the plaintiff sought judgment

declaring that, despite the forfeiture of the interests, the defendants will be liable for

future plugging and abandonment costs pursuant to the venture’s Operating

Agreement. Both the plaintiff and the defendants filed motions for summary

judgment on the issue of continuing obligation to the well costs. The trial court

granted the plaintiff’s motion and rejected that of the defendants. The defendants

have appealed. We affirm.

Factual and Procedural Background

The parties entered into an Operating Agreement in 2003 for the acquisition

and operation of a Vermilion Parish oil well. The plaintiff in this matter, Bass

Enterprises Production Company (hereinafter “BOPCO”), is the Operator of that well.

This matter arose in 2007 when BOPCO submitted an Authority for Expenditure to

the interest owners, proposing $1,256,000 in expenditures for a workover required in

order to return the well to production. The defendant interest owners rejected the

proposal, either failing to return the Authority for Expenditure or by expressly

denying the request.

This controversy arose when BOPCO filed a petition for declaratory judgment1

in which it asserted that the defendants had indicated that they “would not pay their

share of the costs to plug and abandon the well[.]” The plaintiff therefore sought a

declaration that the defendants “are obligated to pay their proportionate share of

1
The petition also sought reimbursement for other operational costs BOPCO alleges was
owed from the defendants per the Operating Agreement. That contractual demand is not now before
the court.

plugging and abandonment costs as and when same become due at the time the same

are incurred[.]” In answers and reconventional demands, the defendants denied the

plaintiff’s allegations and sought a declaration that they were not, in fact, responsible

for future plugging and abandonment costs given their “non-consent” to the workover

project. The parties ultimately filed motions for summary judgment on the issue of

liability of future plugging and abandonment costs under the terms of the Operating

Agreement.

Following a hearing on this limited issue, the trial court entered judgment in

favor of the plaintiff, declaring that the defendants “have remained obligated for their

proportionate shares of the plugging and abandonment costs of the Well, except for

any additional plugging and abandonment costs or expenses caused by the additional

operations in which said defendants elected not to participate.” The trial court denied

the defendants’ cross-motions for summary judgment. The judgment was made final

pursuant to La.Code Civ.P. art. 1915.

The defendants appeal, questioning the trial court’s interpretation of the

Operating Agreement.

Discussion

Summary Judgment

An appellate court reviews a trial court’s ruling on a motion for summary

judgment under the de novo standard of review. Louisiana Safety Ass’n of

Timbermen- Self Insurers Fund v. Louisiana Ins. Guar. Ass’n, 09-0023 (La. 6/26/09),

17 So.3d 350. It does so using the same criteria that governed the trial court’s

consideration of the motion, i.e., whether any genuine issues of material fact exist and

whether the moving party is entitled to judgment as a matter of law. Id. See La.Code

Civ.P. art. 966(B).

2

Contract Interpretation

The limited question before this court focuses only on the contents of the

Operating Agreement. Articles 2045 through 2057 of the Louisiana Civil Code guide

the interpretation of a contract. Particularly, Article 2046 instructs that: “When 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.” Additionally,

insofar as we review this case on appeal, we are mindful that, when a contract can be

construed from its four corners without resorting to consideration of extrinsic

evidence, contractual interpretation is a matter of law. Sims v. Mulhearn Funeral

Home, Inc., 07-0054 (La. 5/22/07), 956 So.2d 583. See also La.Civ.Code art. 2046.

Operating Agreement

The parties here rely on different portions of the 2003 Operating Agreement

now at issue in advancing their respective arguments regarding the prospective

liabilities of the defendants who, under the terms of the Operating Agreement, became

non-participating parties after they did not consent to the proposed workover

operations. We turn to consideration of the pertinent Articles, emphasizing those

portions of the Articles focused upon by the parties.

Article 10 of the Operating Agreement specifically addresses “non-consent

operations” and provides that:

10.1 NON-CONSENT OPERATIONS. Unless agreed to by all parties
hereto, the Unit Well shall not be abandoned, reworked or recompleted so long
as it is producing Unitized Substances in paying quantities. Upon cessation of
such production, OPERATOR shall immediately notify NON-OPERATOR.
Any party hereto desiring to rework or recomplete such well or to drill another
Unit Well must give the other parties hereto written notice of the proposed
operation, specifying the work to be performed (with sufficient details so the
other parties may properly evaluate such operation) and estimated cost thereof.
Each party receiving such notice shall inform the party proposing the operation
within twenty (20) days (or forty-eight (48) hours, exclusive of Saturdays and
Sundays, where a rig available and suitable for the proposed operation is on
location) after receipt thereof, whether or not the party receiving such notice
elects to participate therein. If all parties hereto elect to participate,
3

OPERATOR shall conduct such operation at the cost and expense of the joint
account under the provisions hereof. If operations are necessary at an early
date to maintain any interest covered hereby, the owner thereof shall notify
OPERATOR. Bona fide efforts shall be made to maintain such interest but no
party hereto shall incur any liability to any other party hereto if such interest is
lost by failure to conduct such operations in time to prevent such loss. If less
than all the parties hereto elect to participate (failure to reply within the period
above fixed shall constitute an election not to participate) the party which
proposed the operation shall notify the parties, if any, which elected to
participate. Such parties must agree within five (5) days after receipt of such
notice (or forty-eight (48) hours, exclusive of Saturdays and Sundays, where a
rig available and suitable for the proposed operation is on location) to assume
the entire risk, cost and expense of such operation in proportion to their
interest therein or in any other proportion to which they agree, or such
operation shall not be undertaken and all parties hereto shall be governed by
this Article 10 as though such proposal had never been made. If such parties so
agree, the proposed operation shall thereupon be conducted under the
provisions of this Article 10 as a non-consent operation. All parties
participating in such operation shall hereinafter be referred to as participating
party whether one or more. All parties not participating in such operation shall
hereinafter be referred to as non-participating party, whether one or more.

(Emphasis added.) Thereafter, Article 10 sets forth a reimbursement schedule by

which the parties participating in the proposed operation recoup the expenses

associated with the expenditure for the non-consent operation. In this regard, Article

10.4 provides:

10.4 REIMBURSEMENT. In addition to the Operating Rights previously
relinquished to participating party, non-participating party shall assign,
effective as of first production resulting from such non-consent operation, its
share of Unit Production (as set forth in Article 3) to participating party in the
proportions agreed to as provided in Section 10.1. Participating party shall
deduct from such share and pay or account for, or cause to be paid or accounted
for, all applicable taxes, royalty, overriding royalty and other burdens (except
excess burdens as referred to in Section 8.2) payable out of or measured by
such share until it reverts as herein provided. Participating party shall own such
share until it receives from the proceeds calculated at the well of the sale of
such share, or market value thereof if such share is not sold, an amount equal to
(after making the foregoing deductions) the total of the following:

(a) 100% of each such non-participating party’s share of the cost of any
newly acquired surface equipment beyond the wellhead connections
(including, but not limited to, stock tanks, separators, treaters,
pumping equipment and piping), plus 100% of any shut-in gas
payments tendered by participating party to maintain Operating
Rights relinquished by each such non-participating party, plus 100%
of each such non-participating party’s share of the cost of operating
the well, including operations to improve, maintain or restore such
4

production, commencing with the first production after completion
of such non-consent operation and continuing until each such non-
participating party’s relinquished interest reverts to it as herein
provided (each non-participating party’s share of such cost being
that share which would have been chargeable to such party if all
parties hereto had participated from the beginning of the non-
consent operation), and

(b) 400% of that portion of the costs and expenses of drilling, testing and
completing (if an additional Unit Well), or reworking or
recompleting (if the existing Unit Well) and of that portion of the
cost of newly acquired equipment in the well to and including the
wellhead connections, which would have been chargeable to each
such non-participating party if all parties hereto had participated
from the beginning of the non-consent operation.

During reimbursement, participating party and non-participating party shall
continue to own their interest hereunder in all equipment and material in and on
the Unit Well and Unit Area placed or installed prior to commencement of such
non-consent operation. OPERATOR shall furnish non-participating party, each
month, with a statement of all costs and expenses incurred in operating
hereunder during the preceding month, the quantity of Unitized Substances
produced during the preceding month and, based on information furnished by
participating party, proceeds realized from the sale thereof.

After the participating party’s receipt of the above sums, the non-participating party’s

operating rights are returned pursuant to Article 10.5, which provides:

10.5 REVERSION. Upon receipt of the above provided amounts, all
Operating Rights owned and relinquished by non-participating party shall
automatically revert to it, with no written assignment being required unless
requested. Participating party shall reassign to non-participating party,
effective as of the date of such receipt, such non-participating party’s right to
share in Unit Production and an equivalent interest in all equipment and
material placed or installed by participating party in and on the Unit Well or
additional Unit Well and Unit Area during such non-consent operation.

In the event that only partial reimbursement is possible, Article 10.6 further instructs

that:

10.6 PARTIAL REIMBURSEMENT. If production of Unitized Substances
in paying quantities ceases before participating party receives the above
provided amounts and the well is not restored to production by said party,
participating party shall give notice of its intent to plug such well. If no new
joint account or non-consent operation is proposed and undertaken in such
well, in the manner provided in Section 10.1, participating party shall plug and
abandon such well at its sole risk, cost and expense, subject to the rights of
well-site owner set forth in Article 18 (regarding abandonment). Upon
completion of plugging operations or the acceptance of the tendered well for
5

another operation, as the case may be, all Operating Rights owned and
relinquished by non-participating party shall automatically revert to it, with no
written assignment being required unless requested, and participating party
shall reassign to non-participating party such non-participating party’s right to
share in Unit Production. Participating party shall be entitled to the salvage
value of any equipment and material it placed in or on the Unit Well, additional
Unit Well or Unit Area; provided, however, if such equipment and material has
a salvage value in excess of the unrecovered amounts to which it was entitled
from non-participating party’s share of Unit Production, such excess shall be
credited to the joint account.

(Emphasis added.)

Notwithstanding this provision regarding the plugging and abandoning costs in

the event of partial reimbursement, Article 21.7 provides that:

If any provision contained in this Article 21.7 is inconsistent with any
portion of the printed form of this Operating Agreement, the provisions in this
Article 21.7 shall govern and control.

....

A. EARNING WELLS. If the additional operations proposed pursuant to
Article 10 are necessary to retain leasehold interests, any party who elects not
to participate in such additional operations shall release, relinquish and
quitclaim to the parties who participate therein all the rights, titles and interests
of such Non-Consenting party in and to the interests which would be retained
by such operations. For purposes of this Agreement, operations are considered
necessary to retain leasehold interests if those interests would be forfeited
within 120 days of the commencement of said operations.

....

D. CERTAIN PLUGGING AND ABANDONMENT COSTS. If pursuant to
Article 10 hereto, less than all of the parties elect to participate in a proposed
reworking, or recompletion operation, and if such operation does not result in
the production of hydrocarbons in commercial quantities, or results in a
completion that ceases to produce in commercial quantities prior to the time at
which the consenting parties are fully reimbursed as provided in Article 10,
then, notwithstanding the printed provisions of this Agreement, the party or
parties who elected not to participate in such reworking, or recompletion
operation shall nevertheless be responsible for their proportionate part (Exhibit
“A” percentage after casing point) of the cost to plug and abandon such well,
and salvage the equipment therefrom, except for the additional plugging and
abandonment of salvage costs that are caused by the non-consent reworking,
recompletion operation; the consenting parties shall be solely responsible for
such additional costs.

(Emphasis added.)

6

The plaintiff argues that Article 21.7(D) is controlling in this scenario and that

it dictates that the defendants, as non-participating parties, will “nevertheless be

responsible for their proportionate part of the cost to plug and abandon such well . . .

except for the additional plugging and abandonment of salvage costs that are caused

by the non-consent reworking, recompletion operation[.]” However, the defendants

reject the assertion that Paragraph (D) is applicable and argue that this case is not

covered by the contingencies of Article 10.

Rather, the defendants assert that the Operating Agreement provides for their

release from future plugging and abandonment costs given the wording of Article

21.7(A). Specifically, the defendants rely on Paragraph (A)’s statement that: “If the

additional operations proposed pursuant to Article 10 are necessary to retain leasehold

interests,[2] any party who elects not to participate in such additional operations shall

release, relinquish and quitclaim to the parties who participate therein all the rights,

titles and interests of such Non-Consenting party in and to the interests which would

be retained by such operations.” The defendants assert in their brief that, given that

they did not participate in the workover and that the operations were necessary for the

retention of the leasehold interests, Article 21.7(A) indicates that they “now have no

interest in the well, nor any liability in connection therewith.”

After review of the Operating Agreement in light of the interpretation tools of

Civil Code Articles 2045 through 2057, we find no merit in either party’s reliance on

the respective provisions they contend expressly control this situation. Article

21.7(D), relied upon by the plaintiff, does, in fact, expressly provide that non-

participating parties remain liable for plugging and abandonment costs. However, by

its express phraseology, that provision is contingent upon Paragraph 10.

2
It is uncontested that the operations at issue were necessary to retain the leasehold interests.
7

While Article 21.7(A), relied upon by the defendants, does, in fact, indicate

that non-participating parties will release, relinquish and quitclaim all “rights, titles

and interests of such Non-Consenting party in and to the interests which would be

retained by such operations,” this provision only relates to rights, titles and interests.

As recognized by the trial court, it does not relieve them of their obligations otherwise

applicable.

Instead, we conclude that the Operating Agreement does not expressly address

the instant situation presented by the parties. Neither have the parties framed their

arguments and their submissions to the court in light of La.Civ.Code art. 2054. 3

Rather, we are mindful that: “Each 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 art. 2050. In this instance, the parties entered into the

Operating Agreement, which very clearly provided for non-participating parties to

divest themselves of their future interests and related revenues. However, only in

Article 21.7(D) does the contract provide for a release of the plugging and

abandonment costs and it does so for an occurrence not now present. Instead, the

Operating Agreement generally accounts for the defendants’ continued involvement,

designating them, in fact, as non-participating parties, and anticipating the possible

reversion of their interests. The defendants do not show by which Article they can no

longer be considered a “party” 4 to the Operating Agreement, at least by some

3
Louisiana Civil Code Article 2054 provides:

When the parties made no provision for a particular situation, it must be
assumed that they intended to bind themselves not only to the express provisions of
the contract, but also to whatever the law, equity, or usage regards as implied in a
contract of that kind or necessary for the contract to achieve its purpose.
4
We note, as illustration, that Article 20, which pertains to the term of the Operating
Agreement, provides that:

Unless terminated earlier by consent of all parties hereto, this agreement shall
remain in force during the period that the Unit Well is producing (or capable of
8

description. Accordingly, we find no error in the trial court’s judgment reflecting that

the defendants “remained obligated for their proportionate shares of the plugging and

abandonment costs of the Well, except for any additional plugging and abandonment

costs or expenses caused by the additional operations in which said defendants elected

not to participate.”

We leave the trial court’s judgment undisturbed.

DECREE

For the foregoing reasons, the summary judgment entered by the trial court is

affirmed. All costs of this appeal are assessed to the appellants-defendants.

AFFIRMED.

producing) Unitized Substances from the Unitized Sand, but shall terminate as to the
right of any party hereto to operate the Unit Area, under the provisions hereof, for the
exploration, development or production of Unitized Substances from the Unitized
Sand at the end of a period of ninety (90) days during which the Unit Well is
incapable of producing Unitized Substances from the Unitized Sand or during which
a joint account or non-consent operation has not been commenced in an effort to
restore Unit Production; provided, however, the applicable provisions of this
agreement shall remain in force as long thereafter as necessary until all equipment
and material in and on the Unit Well and on the Unit Area have been salvaged and
disposed of and a final settlement has been made between the parties hereto, subject
to the rights of well-site owner, as provided in Article 18, and the continuing rights of
the parties hereto in the event of subsequent unitization as provided in Section 18.4.
9