Pogo Producing Co. v. United Gas Pipe Line Co.

511 So. 2d 809, 96 Oil & Gas Rep. 294, 1987 La. App. LEXIS 9919
Louisiana Court of Appeal·Decided July 22, 1987·No. CA-7621·Published·Cited by 15 cases

Opinion

511 So.2d 809 (1987)

POGO PRODUCING COMPANY
v.
UNITED GAS PIPE LINE COMPANY.

No. CA-7621.

Court of Appeal of Louisiana, Fourth Circuit.

July 22, 1987.

*810 David R. Richardson, Galen S. Brown, Robert E. Arceneaux, Margaret E. Woodward, David B. Girard, James E. Bailey, Barham & Churchill, New Orleans, Paul G. Van Wagenen, Janice Cleavinger, Ronald B. Manning, Houston, Tex., Pogo Producing Co., for plaintiff-appellant, Pogo Producing Co.

Donald A. Hoffman, Donald Ensenat, R. Joshua Koch, Jr., W. Joe Mize, George W. Reese, Carmouche, Gray & Hoffman, New Orleans, W. Devier Pierson, James M. Costan, Pierson Semmes and Finley, Washington, D.C., H. Bruce Golden, Adrian L. Steel, Jr., William H. Knull, III, Mayer, Brown & Platt, Houston, Tex., for defendant-appellee United Gas Pipe Line Co.

Before GARRISON, BARRY and WARD, JJ.

WARD, Judge.

The question presented in this appeal is whether Pogo Producing Company is entitled to a preliminary injunction requiring United Gas Pipe Line Company to take and pay for certain minimum quantities of natural gas pursuant to contracts between the parties. Pogo claims that its reservoirs will suffer irreparable harm if United is not required to take the gas pending resolution of the suit for specific performance of the contracts. After considering extensive expert evidence, a Commissioner of the Civil District Court found no irreparable harm. The District Judge rejected Pogo's exceptions to the Commissioner's report and denied the preliminary injunction. Pogo's appeal is solely on the issue of irreparable harm. We affirm.

In the six gas purchase contracts at issue, United agreed to buy from Pogo natural gas produced from 21 reservoirs in six blocks located off the coast of Louisiana: East Cameron 335, High Island 355, High Island 356, South Pass 57, South Pass 58, and South Pass 78. Pogo owns approximately a 42 percent working interest in East Cameron 335; its interest in the other blocks ranges from approximately 9 to 20 percent. Only a portion of the gas from Pogo's interest in each block is dedicated to United.

*811 Each of the gas purchase contracts provides that United shall take delivery of, or pay for without taking delivery of, a specified quantity of gas each year ("Annual Minimum Quantity" or "AMQ"). For the East Cameron 335 block the AMQ is 80 percent of the delivery capacity of Pogo's working interest in the reservoirs; for each of the remaining blocks, the AMQ is 85 percent of the delivery capacity of Pogo's interest. This take-or-pay provision of the contracts allows United to "make up" gas paid for but not taken during the year under the AMQ requirement by taking the gas in a subsequent year. Additionally and more importantly for purposes of this litigation, each of the contracts also provides for minimum takes, that is, United must take delivery of and pay for 5.42 percent of the AMQ each month ("Monthly Minimum Quantity" or "MMQ"). The MMQ take requirement is independent of the AMQ requirement and cannot be satisfied by paying for gas not taken; hence, the MMQ requirement has no "make up" provision.

The six contracts were executed between 1976 and 1982. While the contracts were, in effect, in July of 1985, United notified Pogo (as well as other suppliers) by letter that it was unable to meet its obligations under the purchase contracts due to several factors beyond its control. Specifically, United cited "extraordinarily mild temperatures which constitute a radical departure from normal weather patterns; a severe and prolonged economic recession; a precipitous drop in the price of fuels competitive with natural gas; accelerated increases in producer deliverability; increased consumer conservation; and radical changes in the structure of the industry." In the letter, United also blamed its inability to take gas on regulatory actions of the Federal Energy Regulatory Commission. United stated that it "must continue to take steps to prorate our purchases" and referred to two 1983 letters in which it had recommended price reductions and other modifications in its contracts. In April and May of 1986, United further notified Pogo that it "cannot continue to purchase gas under contracts that are not responsive to current regulatory and market conditions." United again offered contract modifications which Pogo refused.

Beginning in early 1986, United consistently took less gas than the MMQ required under its contracts with Pogo. In August, Pogo filed this lawsuit for preliminary and permanent injunctive relief and later amended its petition to pray for a declaratory judgment and specific enforcement of the contracts. Following a removal to and a remand from federal court, Pogo's request for a temporary restraining order was denied in the Civil District Court, and the preliminary injunction was heard by a Commissioner of that Court.

The issue at the hearing on the preliminary injunction, as in this appeal, was whether Pogo proved that United's actions caused irreparable injury. The party requesting a preliminary injunction must show that irreparable injury, loss or damage may otherwise result unless an injunction is granted. La.C.C.P. art. 3601. Irreparable injury is a loss which cannot be adequately compensated in money damages or which cannot be measured by a pecuniary standard. Terrebonne Parish Police Jury v. Matherne, 405 So.2d 314 (La.1981). In addition to the showing of irreparable injury, the moving party also must make a prima facie showing that he will prevail on the merits of the suit. General Motors Acceptance Corp. v. Daniels, 377 So.2d 346 (La.1979).

Pogo asserts that irreparable injury will occur because United's takes of its gas at less than the MMQ level cause the irretrievable loss of an incalculable amount of gas. This loss occurs because, Pogo contends, the reservoirs are water drive reservoirs, that is, a portion of the energy for production comes from the influx of water into the reservoir, bypassing some gas which is trapped behind the advancing water. Pogo argues that although some gas will always be trapped and lost, United's refusal to purchase the minimum takes and its curtailment of production exacerbates the problem by increasing the amount of irretrievably trapped gas, causing irreparable injury. These losses, Pogo contends, *812 cannot be calculated to a certainty or accuracy required for compensation in money damages. United contends that Pogo failed to prove irreparable harm because a decrease in United's takes has no effect upon the reservoir pressure nor does it increase the amount of trapped gas that is lost to production. In the alternative, even if low production causes an increase in the amount of trapped gas, United argues that the losses can be reliably calculated for an award of compensatory damages.

The Commissioner made findings of fact that gas was not being lost and that irreparable harm would not result from United's reduced takes, and even if gas were lost to commerce as a result of reduced production, the value of the lost gas could be determined and Pogo compensated in money damages. Having found no irreparable harm, the Commissioner did not make a determination of the likelihood of Pogo's prevailing on the merits of the suit for specific performance. The Commissioner's factual findings were accepted and adopted by the Trial Court judgment.

THE STANDARD OF REVIEW

Pogo maintains that the Trial Judge did not make a de novo determination from the evidence but only reviewed the Commissioner's findings for manifest error, and be

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Pogo Producing Co. v. United Gas Pipe Line Co., 511 So. 2d 809, 96 Oil & Gas Rep. 294, 1987 La. App. LEXIS 9919 (La. Ct. App. 1987).

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