Fifth Circuit Upholds Louisiana Mineral Lien (Privilege) of Subcontractors Against Subsequent Mineral Owner for Offshore Platform Removal

17 February 2012 Publication

In a case of first impression, the Fifth Circuit ruled that the Louisiana Oil Well Lien Act allowed subcontractors to assert and enforce a lien against a mineral lease on the Outer Continental Shelf for platform decommissioning and removal work on a well that had been plugged years earlier, and before the current owner acquired the lease.

The Louisiana statutory lien arises for unpaid "operations," which includes "every activity conducted by or for a lessee on a well site for the purpose of: drilling, completing, testing, producing, reworking or abandoning a well." The issue before the court was whether removal of a platform on a well that had been plugged years earlier was really part of "abandoning" the well, or performed on a "well site". While many industry personnel would consider platform decommissioning part of the abandonment process (and in fact many use the terms interchangeably), the operations themselves are different.

While the U.S. Department of the Interior's Bureau of Ocean Energy Management, Regulation and Enforcement is the federal agency responsible for overseeing the safe and environmentally responsible development of energy and mineral resources on the OCS, matters such as lien rights are governed by the law of the state closest to the federal lease. Since this dispute involved a platform located offshore Vermilion Parish, Louisiana, the law of that state applied, even though under federal regulations platform decommissioning is a required part of abandonment, as pointed out by one of the plaintiffs.

There was enough lack of clarity in the Louisiana statute and vague language in older cases to leave room for argument. While federal regulations and federal case law make clear that "abandonment" includes platform decommissioning, there remained substantial room for argument under the Louisiana Oil Well Lien Act, LA REV. STAT. ANN. §9:4861, et seq. (2007).

The facts of the case are a bit confusing because of the number of parties, but in summary the OCS lessee, Dominion Exploration & Production, Inc. plugged the wells that were connected to the platform and cut the associated conductors in April 1999. The following month, May 1999, a platform removal plan was submitted to the old Minerals Management Service, and resubmitted to MMS in March 2005. Hurricane Rita did part of the work a few months later in Sept. 2005, toppling at least part of the platform.

In early 2007, an application was filed to leave the remainder in place as an artificial reef, which was denied. In March 2007 Dominion entered into an agreement with a contractor to survey and remove the platform. The contractor, Con-Dive, hired a number of subcontractors who did the work and removed the platform. Shortly after the removal, Eni Operating and Eni Petroleum (collectively "Eni") acquired 50 percent of the record title and operating rights and 100 percent of all contract rights and obligations from Dominion.

Con-Dive, the contractor, never paid the subs, which filed mineral liens in Oct. 2008. One of the subs sued the general contractor in state court, and added Eni to the case. Eni removed the case to federal court. The general contractor did not contest the subs' motion for summary judgment on the contract, essentially an admission by the general contractor that it didn't pay the subs. That left the argument of whether, under the Louisiana Oil Well Lien Act, work done for platform removal from wells that had been plugged and disconnected years earlier were part of "abandonment" or conducted "on the well site" and thus entitled to a lien. Both the subs and Eni moved for summary judgment.

The Federal District Court, in a well-reasoned opinion, traced and explained the Louisiana Mineral Lien Statute, federal regulations affecting offshore operations and the interplay of the two bodies of law. The court ruled that the Subs were entitled to summary judgment and overruled Eni's motion for summary judgment, essentially holding that platform decommissioning is part of well abandonment. This is consistent with federal regulations, and also consistent with literature on oil & gas operations.

There was also an evidentiary point at issue having to do with a paragraph in an affidavit that recited "facts" that were ultimately held to be opinions, and therefore stricken from the affidavit.

The Fifth Circuit, in a very short Order, affirmed the District Court, adopting that court's reasoning and actually attaching the District Court opinion to the its own.

Take Away Points: The most obvious and welcome by service providers is that under Louisiana law platform decommissioning is part of abandonment, subjecting the lease to a mineral lien or privilege if the fees are unpaid.

As an owner or operator, be sure of your due diligence before you acquire a mineral interest, and operators must be sure that payments to general contractors actually find their way into the hands of subcontractors, or run the risk of paying twice for the same work.

The case is Cutting Underwater Technologies USA, Incorporated, Plaintiff v. ENI U.S. Operating Company; ENI Petroleum U.S., L.L.C., Defendants – Cross Claimants – Appellants v. T. Baker Smith, Incorporated, Counter Defendants – Appellee; Case No. 11-30380; in the U. S. Court of Appeals for the Fifth Circuit, 2012 WL 45374.

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