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Walter v. Marathon Oil Corp.

Court of Appeals of Texas, Fourteenth District

January 30, 2014

J.C. WALTER, III, CAROLE WALTER LOOKE, J.C. WALTER, JR., LTD., F. FOX BENTON, III, MORENO ENERGY, INC., WILLIAM C. OEHMIG, THE CAIN 1988 DESCENDANTS' TRUST, MARY H. CAIN, MARY H. CAIN MARITAL TRUST, ROBERT D. JOLLY, HOWARD CHAPMAN, RUTH B. SMALLEY, ARTHUR L. SMALLEY, III, TOM E. SMALLEY, BARBARA BETH FRANK SHARMAN TRUST, JANIS KAY FRANK HENRY TRUST, AND MARGARET WEAVER, Appellants
v.
MARATHON OIL CORPORATION AND MARATHON E.G. LPG LIMITED, Appellees IN RE J.C. WALTER, III, CAROLE WALTER LOOKE, J.C. WALTER, JR., LTD., F. FOX BENTON, III, MORENO ENERGY, INC., WILLIAM C. OEHMIG, THE CAIN 1988 DESCENDANTS' TRUST, MARY H. CAIN, MARY H. CAIN MARITAL TRUST, ROBERT D. JOLLY, HOWARD CHAPMAN, RUTH B. SMALLEY, ARTHUR L. SMALLEY, III, TOM E. SMALLEY, BARBARA BETH FRANK SHARMAN TRUST, JANIS KAY FRANK HENRY TRUST, AND MARGARET WEAVER, Relators

On Appeal from the 295th District Court Harris County, Texas Trial Court Cause No. 2009-58805

Panel consists of Justices Boyce, Jamison, and Busby.

OPINION

J. Brett Busby Justice

The central question presented by this case is: When one participant in a business agrees to pay another using a formula, and some disputes about the formula are resolved in an arbitration award confirmed by a court judgment, does the court abuse its discretion by declining to interpret the award to resolve other disputes about the formula that were not expressly addressed in the award? We hold that the answer is no.

This original proceeding and appeal concern a dispute between the relators, who are Limited Partners in the Alba Equatorial Guinea Partnership, L.P., and Marathon E.G. LPG Limited (MEGLPG), the general partner of the Partnership. The parties dispute the amounts due the Limited Partners as a result of the Partnership's investment in an oil and gas field off the coast of Equatorial Guinea. The dispute was eventually arbitrated, and the trial court confirmed the arbitration award in a final judgment.

More than a year later, believing MEGLPG was miscalculating the payments due under the final judgment, the Limited Partners filed a motion asking the trial court to enforce the judgment. The court denied the motion to enforce, and the Limited Partners filed both an appeal and a petition for a writ of mandamus challenging that denial. We conclude the trial court's denial of the Limited Partners' motion to enforce is not an appealable final judgment or interlocutory order, and we therefore dismiss the appeal. We further conclude the trial court did not abuse its discretion when it denied the Limited Partners' motion to enforce, and we therefore deny their petition for writ of mandamus.

Background

The Partnership was created in 1995 when the parties executed the "Agreement of Limited Partnership of Alba Equatorial Guinea Partnership, L.P." (the AEGP Agreement). Through the Partnership, the Limited Partners possessed an interest in the "Alba Project, " defined as "the gas processing plant proposed to be constructed . . . to process the Gas Stream [produced from the Alba Field] to separate propane and butane from such Gas Stream and to sell and export such Products."

The Alba Field operations evolved over time. An onshore gas processing plant, referred to as Plant 3, was constructed to extract propane, butane, and condensate from the Gas Stream. Over time, additional offshore wells were drilled in the Alba Field and plans were made to construct an expanded gas processing plant to handle the increased production. Marathon Oil Company eventually acquired a controlling interest in the Alba Field operations, and its affiliate, MEGLPG, became the general partner of the Partnership. The expanded gas processing plant—known as Plant 4—was constructed adjacent to Plant 3, and Plant 3 was taken out of service.

A. The parties submit their dispute to arbitration.

Under the AEGP Agreement, the Limited Partners are entitled to a portion of the Available Alba Net Cash Flow after Payout is reached. Payout occurs when the Discounted Alba Net Cash Flow (generated by selling the Products separated from the Gas Stream) equals $800, 000. MEGLPG asserted that the AEGP Agreement did not include Plant 4. With Plant 3 out of service and Plant 4 outside the scope of the AEGP Agreement, MEGP reasoned, Payout would never occur and the Limited Partners would never receive any portion of the Available Alba Net Cash Flow. The Limited Partners disagreed with MEGLPG's analysis and argued that Plant 4 was included within the scope of the AEGP Agreement and that the Payout Date had occurred in the first quarter of 2008. This primary dispute led to the arbitration at issue.[1]

As stated in the arbitration award, both sides sought declaratory judgments from the arbitration panel. The Limited Partners sought a declaration (1) that the Gas Stream, as used in the AEGP Agreement, included all gas from the Alba Field processed at the Alba Project; (2) that the Alba Project included any gas processing plant located in Equatorial Guinea owned or operated by the Partnership; (3) that Products, as used in the AEGP Agreement, included condensate; and (4) if it did not, the Limited Partners should not be burdened with the cost of separating condensate from the Gas Stream because they did not receive any allocation of revenue from that condensate. In response, MEGLPG sought a declaration (1) that the Alba Project was limited to Plant 3; (2) that the Gas Stream was limited to a specified volume of gas regardless of whether the Alba Project included only Plant 3 or encompassed both Plant 3 and Plant 4; and (3) that Products does not include plant condensate but is instead limited to butane and propane.

In addition to resolving the primary dispute whether Plant 4 was within the scope of the AEGP Agreement, the arbitration panel also was called upon to decide subsidiary issues such as (1) the construction of defined terms in the AEGP Agreement, including Alba Project, Gas Stream, and Products; (2) the determination of when, if ever, the Payout Date under the AEGP Agreement would occur; and (3) whether capital costs and certain specified categories of expenses should be subtracted when calculating the Available Alba Net Cash Flow.[2] In addition, the Limited Partners argued during the arbitration that MEGLPG had breached fiduciary duties it owed them, and that Marathon Oil was liable to them under the theories of alter ego, agency, and single business enterprise.

The arbitration proceeding was lengthy, and much of the arbitration record does not appear in our appellate record. During the arbitration, the panel asked the Limited Partners' expert, Dee Patterson, to prepare various Payout models that included or excluded various items in the calculation formula. In its request, the panel did not specifically mention condensate income taxes and whether they should or should not be deducted in calculating the Payout date or Alba Net Cash Flow after Payout. In response to the panel's request, Patterson submitted ten models, half of which excluded condensate from Products as MEGLPG argued, while the other half included condensate within Products as the Limited Partners argued. With respect to the five Payout models that excluded condensate from Products, Patterson excluded condensate revenues and did not deduct condensate income taxes.[3] In the remaining five Payout models, Patterson included condensate within the definition of Products, included condensate revenues, and deducted condensate income taxes. MEGLPG's expert agreed that Patterson's methodology was correct, but did not agree that particular items should be included or excluded from the formula.

B. The panel issues its arbitration award and the Limited Partners obtain a final judgment confirming the award.

In its arbitration award, the panel determined that the AEGP Agreement was ambiguous.[4] The panel agreed with the Limited Partners on the "central issue" and determined that Plant 4 was part of the Alba Project. In the panel's view, accepting MEGLPG's position that the Alba Project did not include Plant 4 would render the "Limited Partners' rights under the AEGP Agreement illusory, " a result not permitted under Delaware law. The panel also agreed with the Limited Partners that the Gas Stream, as defined in the AEGP Agreement, was not limited in volume to the amount that was being produced at the time Plant 3 was constructed. The panel agreed with MEGLPG, however, that Products did not include condensate.[5] The panel also found that Payout occurred in the third quarter of 2008. The result of these determinations was that the Limited Partners had an interest in the revenues from the propane and butane generated by Plant 4 but not the condensate generated by Plant 4.

Having determined that Payout occurred in the third quarter of 2008, the panel addressed the formula for calculating the Available Alba Net Cash Flow after Payout. The AEGP Agreement defined this term to mean "all revenues from the sale of Products . . . less all expenditures actually paid . . . for [certain specified kinds of] Alba Project costs and expenses." The dispute regarding this issue initially focused on condensate-related expenses. The Limited Partners argued that if Products excluded condensate, they should not be charged for the portion of Plant 4 operating expenses and capital costs allocated to separating condensate from the Gas Stream. The panel rejected the Limited Partners' argument, instead deciding that "the operative provisions of the AEGP Agreement do not contemplate an allocation of operating expenses and capital costs on the basis of those costs and expenses that are attributable only to the separation of butane and propane from the Gas Stream and those that are not." As a result, the panel decided that MEGLPG could deduct all of the Plant 4 operating expenses and capital costs, with the exception of capitalized interest. The panel went on to conclude that the Limited Partners' share of the Available Alba Net Cash Flow After Payout, beginning with the fourth quarter of 2008, would be "calculated going forward using actual product proceeds realized under the terms of the AEGP Agreement."

The panel's award stated that, as a result of the arbitration, the Agreement "is at least somewhat clearer in the current factual context and the parties have sufficient guidance to conduct their current operations." The award also recognized, however, that "disputes may occur in the future as the parties have an interest in a significant natural ...


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