Apache Corp. v. Castex Offshore, Inc. (In re Castex Energy Partners, LP)

584 B.R. 150
CourtUnited States Bankruptcy Court, S.D. Texas
DecidedFebruary 1, 2018
DocketCASE NO: 17–35835; ADVERSARY NO. 17–03454
StatusPublished
Cited by5 cases

This text of 584 B.R. 150 (Apache Corp. v. Castex Offshore, Inc. (In re Castex Energy Partners, LP)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Apache Corp. v. Castex Offshore, Inc. (In re Castex Energy Partners, LP), 584 B.R. 150 (Tex. 2018).

Opinion

Marvin Isgur, UNITED STATES BANKRUPTCY JUDGE

*152Apache Corporation filed a notice of removal of its pending suit from the 133rd Judicial District Court of Harris County, Texas, to the United States Bankruptcy Court for the Southern District of Texas. Castex Energy Partners, LP ("CEP") filed a motion to abstain and remand. Mandatory abstention is appropriate and the Court remands this proceeding to the 133rd Judicial District Court of Harris County.

Background

This background is provided to enhance the parties understanding of the basis of the Court's decision. None of the facts contained in this background section constitute findings of fact by the court.

Purchase of Property

In 2011, CEP and Apache purchased oil and gas producing property and infrastructure as a joint venture in the low-water areas of the Atchafalaya Bay. (ECF No. 16 at 5). To determine the rights and responsibilities of the parties, CEP and Apache entered into several Joint Operating Agreements ("JOAs") that dictated which party would operate a given well and which would be billed under a Joint Interest Billing Statement ("JIB") for its share of the operating expenses. (ECF No. 16 at 5). For example, the JOA on the Marathon Wells designated Castex Energy Inc. ("CEI") as the operator, giving CEI the right to bill Apache for its share of the operating expenses through a corresponding JIB. (ECF No. 16 at 5). Conversely, the Potomac Wells JOA named Apache the operator, which then billed CEI for its share of operating costs through a JIB. (ECF No. 16 at 5). Despite this arrangement, two events triggered an unraveling of the joint venture that led to litigation between the parties.

Belle Isle Facility

Early in the relationship, the parties identified a problem-the existing natural gas processing infrastructure was inadequate to handle the volume that the joint venture expected to produce from its Atchafalaya Bay property. (ECF No. 16 at 6). To remedy this problem, the parties decided to construct the "Belle Isle Facility" in October 2012 to efficiently process the natural gas they produced. (ECF No. 16 at 6). The parties agreed that Apache would operate Belle Isle and ownership of the facility would be split with Apache owning 75% and CEI owning the remaining 25%. (ECF No. 16 at 6). As the operator, Apache originally estimated the cost of Belle Isle's construction at $47,800,000.00. (ECF No. 16 at 6). However, as construction progressed, Apache encountered significant difficulties and total construction costs allegedly exceeded $148,000,000.00. (ECF No. 16 at 6).

Potomac # 3 Well

In January 2014, CEP proposed to drill a new well in the Atchafalaya Bay area. (ECF No. 16 at 7). The terms of the JOA named Apache as the operator with CEP paying its proportionate costs through JIBs. (ECF No. 16 at 7). Initial cost projections for completing the well totaled $25,000,000.00. (ECF No. 16 at 7). Unfortunately, the drilling and completion of the well was more difficult than anticipated, causing actual costs to double to nearly $50,000,000.00. (ECF No. 16 at 7). Additionally, although the well began producing some gas, within sixty days production ceased when the well began producing water and then sanded up. (ECF No. 16 at 7). The loss of the Potomac # 3 well purportedly resulted in the loss of the underlying reservoirs.

*153The cost overruns and failures of these two projects led to a dispute between the parties. CEP demanded that Apache account for the excess costs involved in Belle Isle and Potomac # 3. (ECF No. 16 at 8). After Apache refused, CEP allegedly began withholding JIB payments due to Apache under the terms of JOAs unrelated to Belle Isle and Potomac # 3. (ECF No. 16 at 8). In response, Apache allegedly withheld JIBs due to CEI on other JOAs where CEI was the named operator. (ECF No. 16 at 8). The joint venture continued to own this property until November 2014 when Apache sold its interest to Texas Petroleum Investment Company, which currently co-owns the property with CEP. (ECF No. 16 at 5 n. 2).

State Court Suit

On August 19, 2015, Apache filed a civil suit in the 133rd Judicial District Court of Harris County, Texas, against several Castex affiliates: CEP, CEI, Castex Offshore, Inc. ("COI"), Castex Energy 2008, and Castex Development Fund, LP (collectively known as "Castex"). (ECF No. 1 at 2). Apache alleged that Castex was liable to it for $18,000,000.00 due to material breaches of thirteen JOAs stemming from Castex's failure to pay amounts due under the JIBs. (ECF No. 1 at 2).

On September 9, 2015, Castex answered Apache's complaint and filed a counterclaim alleging that Apache committed fraud and breached its fiduciary duty to act as a reasonably prudent operator in constructing Belle Isle, and that Apache's negligence led to the cost overruns and loss of the Potomac # 3 Well. (ECF No. 16 at 6-7).

Apache answered Castex's counterclaim and filed a jury demand with the Harris County District Court. (ECF No. 16 at 9). On November 9, 2015, Apache filed a motion to designate Foster Wheeler USA Corp. as a responsible third party, claiming that any liability on Apache's behalf was due to its reliance on Foster Wheeler. (ECF No. 1 at 2).

In the intervening months, the parties engaged in significant discovery in anticipation of an October 2017 trial date in Houston. (ECF No. 16 at 12). However, before the trial date arrived, Hurricane Harvey made landfall and severely impacted Harris County's judicial system. (ECF No. 16 at 12). The lasting effects of the Hurricane forced the Harris County District Court to delay the parties' trial until May 2018. (ECF No. 16 at 13).

Castex's Bankruptcy Filing

On October 16, 2017, CEP, COI, and other Castex affiliates (collectively known as the "Castex Debtors") filed chapter 11 bankruptcy petitions, halting the state court proceeding. (ECF No. 22 at 5).

On December 20, 2017, Apache filed two proofs of claim in the Castex Debtors' bankruptcy proceeding. (ECF No. 22 at 5). Proof of Claim No. 82 claims $39,596.38 owed by COI while Proof of Claim No. 83 claims $18,457,588.00 owed by CEP. (ECF No. 22 at 5). Both of Apache's proofs of claim are founded in the same theory as its state court suit-that the Castex Debtors owe Apache approximately $18,000,000.00 in unpaid JIBs due under the JOAs. (ECF No. 22 at 5).

Apache also removed its state court lawsuit from the Harris County District Court to this Court on December 1, 2017. (ECF No. 1 at 1). After receiving notice of removal, the Harris County District Court removed the trial setting from its docket. (ECF No. 22 at 11).

On December 15, CEP filed its motion to abstain and remand arguing that, under 28 U.S.C. §§ 1334(c)(1), (2) and 1452(b), both mandatory and permissive abstention doctrines require the Court to remand the case to the Harris County District Court.

*154

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Bluebook (online)
584 B.R. 150, Counsel Stack Legal Research, https://law.counselstack.com/opinion/apache-corp-v-castex-offshore-inc-in-re-castex-energy-partners-lp-txsb-2018.