John E. Graham & Sons v. Brewer

Revised April 25, 2000
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________________________
No. 99-30301
_____________________________________
In Re: In the Matter of the Complaint
of John E. Graham & Sons As Owner of M/V Sean G for
Exoneration From or Limitation of Liability
JOHN E. GRAHAM & SONS,
Plaintiff,
VERSUS
HORACE BREWER, ET AL.,
Defendants,
ENRON OIL & GAS COMPANY,
Defendant-Third
Party Plaintiff
Appellee
VERSUS
DYNAMIC OFFSHORE CONTRACTORS, INC.,
Third Party Defendant
Appellant.
____________________________________________________________
Appeal from the United States District Court
For the Western District of Louisiana, Lafayette Division
____________________________________________________________
April 18, 2000
1
Before HIGGINBOTHAM and PARKER, Circuit Judges, and WARD,* District
Judge:
T. JOHN WARD, District Judge:
An offshore contractor appeals a decision casting it in
judgment to an owner on an indemnity claim. Although it is a close
question, we believe that the Texas Oilfield Anti-Indemnity Act
bars enforcement of the indemnity agreement. Accordingly, we
REVERSE.
I.
BACKGROUND AND PROCEDURAL POSTURE
In 1994, Enron Oil & Gas Company (“Enron”) owned several
offshore platforms in the Matagorda Island Area off the coast of
the State of Texas. A bridge connected two of the platforms, and
together they formed Enron’s A-B complex. The A platform supported
eight gas wells, and the B platform held the production facilities.
The production side of the complex included gas separators, testing
equipment, meters, quarters, and other devices used in the
production of natural gas.1 In general terms, the gas flowed from
the wellheads located on the A platform through pipes to a manifold
and then through a series of pipes to separators and testing
*
District Judge of the Eastern District of Texas, sitting by
designation.
1
Raw natural gas contains both gas and liquid hydrocarbons.
Separators remove the liquid hydrocarbons from the gas. Howard
R. Williams et al., Manual of Oil and Gas Terms 983 (10th ed.
1997)(defining “separation”).
2
equipment on the B side of the complex. After the initial
separation of the liquid hydrocarbons from the gas, the gas flowed
through a sales meter and into a pipeline.
In addition to the two structures forming the A-B complex,
Enron also operated a nearby satellite platform. The satellite
platform supported three gas wells which Enron had completed in
1993 and 1994. However, the satellite platform lacked its own
separators and testing facilities, so Enron needed to move the flow
of gas from the wellheads on the satellite platform to the
equipment on the A-B complex. Enron could not produce the new
wells until it connected the satellite platform to the A-B complex.
Enron contracted with Offshore Pipeline, Inc. (“OPI”) to lay
a pair of pipelines between the satellite platform and the A-B
complex. Enron’ agreement with OPI also required OPI to install
risers at the ends of the pipelines to facilitate the connection of
the new wells on the satellite platform to the new pipelines, and,
in turn, the new pipelines to the existing manifold located on the
A-B complex.2
After the installation of the pipelines, Enron needed to
connect the wells on the satellite platform to the risers installed
by OPI. Enron also needed to attach the risers running up the leg
of the A platform to the existing manifold. Moreover, the
2
A riser is a vertical extension of the horizontal pipeline
at the bottom of the platform which allows the pipeline to run
vertically up the platform.
3
inclusion of the production from the three new wells required
modifications to the safety system located on the A-B complex.
Enron hired Dynamic Offshore Contractors (“Dynamic”) to perform
these portions of the job. Enron and Dynamic had previously
entered into a master service contract which contained a provision
requiring Dynamic to indemnify Enron for damages caused by Enron’s
negligence.3 Pursuant to the master service contract, Enron
solicited and accepted Dynamic’s bid to complete the tie-in of the
satellite platform. The work order between Enron and Dynamic
called for Dynamic to perform several tasks on both the satellite
platform and the A-B complex. On the satellite platform, Dynamic
fabricated and installed a manifold, connected flowlines from the
three individual Christmas trees to the new manifold, and installed
3
The master service contract, entered in 1991, provided in
part that:
[Dynamic] agrees to protect, defend, indemnify and hold
[Enron] harmless from and against all damage, loss,
liability, claims, demands and causes of action of
every kind and character, without limit and without
regard to the cause or causes thereof, including but
not limited to strict liability or the unseaworthiness
or unairworthiness of any vessel or craft, or the
negligence of any party, including but not limited to
the sole or concurrent negligence of [Enron], arising
in connection herewith in favor of [Dynamic’s] agents,
invitees and employees, and [Dynamic’s] subcontractors
and their agents, invitees and employees, on account of
damage to their property or on account of bodily injury
or death. . . .
4
a pneumatic safety system.4 On the A-B complex, Dynamic installed
piping from the risers installed by OPI to the existing manifold,
modified the safety shutdown system on the A platform to
incorporate the two new incoming pipelines, and installed shut down
valves and check valves. These modifications allowed the operator
to segregate the product from each individual well for testing and
enabled the operator to shut in any particular well in case of an
emergency.
During the project, Daniel Koonce (“Koonce”) and Horace Brewer
(“Brewer”), two Dynamic employees, were injured while being lowered
in a personnel basket from the satellite platform onto the deck of
a boat owned by John E. Graham & Sons (“Graham”). OCS, Inc.
(“OCS”) employed the crane operator. At the time of the accident,
Brewer and Koonce were installing connecting spools in a riser
attached to the satellite platform. This case arose in admiralty
when Graham filed a petition seeking exoneration from or a
limitation of liability in response to the personal injury claims
made by Brewer and Koonce. When Brewer and Koonce filed cross-
claims against Enron, Enron demanded that Dynamic honor the
indemnity covenant contained in the master service contract.
Dynamic refused, prompting Enron to file a third party action
4
The Christmas tree is the uppermost assembly of valves on a
gas well. Williams, supra, at 157. This assembly is shaped
somewhat like and referred to in the industry as a Christmas
tree.
5
against Dynamic for breaching the indemnity provision.
The parties settled the personal injury claims for $550,000.
Thereafter, the district court held a bench trial to apportion
fault among OCS, Enron and Graham.5 The court found that OCS bore
the majority of responsibility, at 75%. The court found Enron 20%
at fault, and Graham, 5%. The only remaining question was whether
the indemnity provision between Dynamic and Enron was enforceable
under the Texas Oilfield Anti-Indemnity Act (“TOAIA”). The court
originally invalidated the provision but, on rehearing, revisited
the issue and enforced it. Having concluded that Dynamic owed
Enron an indemnity obligation, the district court awarded Enron
$110,000 against Dynamic (representing 20% of the total
settlement), plus an additional $56,200 in attorney’s fees and
costs. Dynamic appeals, asserting that the indemnity provision of
the master service contract is unenforceable under the Texas
Oilfield Anti-Indemnity Act (“TOAIA”).
II.
A. APPLICABLE LAW AND STANDARD OF REVIEW
5
Enron stipulated that it owed an indemnity obligation to OCS
and Graham. And, at trial, Enron took the position that it,
rather than OCS or Graham, bore the bulk of responsibility for
the accident. Apparently, the purpose behind this strategy was
to try to reduce the responsibility of OCS and Graham,
concomitantly lowering the amount Enron would owe because of its
indemnity arrangement with those parties. At the same time, if
the court found that Enron had been primarily at fault, Enron
could attempt to pass its liability through to Dynamic under the
terms of the master service contract.
6
The parties have agreed that Texas law governs this dispute.
Because the facts in this case are undisputed, we turn to the
question whether the indemnity provision is enforceable under Texas
law. We review the district court’s determination of Texas law de
novo. Salve Regina College v. Russell, 499 U.S. 225, 231, 111
S. Ct. 1217, 1220-21, 113 L. Ed. 2d 190 (1991). We apply the law of
Texas as announced by that state’s highest court, or, in absence of
such a decision, we must predict what the highest court would
decide if it confronted the same issue. Transcontinental Gas v.
Transportation Ins. Co., 953 F.2d 985, 988 (5th Cir. 1992). In this
case, there is an absence of authority from the Texas Supreme Court
on the dispositive issue. Therefore, we must anticipate what that
court would do under these facts.
Under Texas law governing statutory construction, the primary
objective of a court is to give effect to the Legislature’s intent.
Mitchell Energy Corp. v. Ashworth, 943 S.W.2d 436, 438 (Tex. 1997).
In ascertaining legislative intent, Texas courts would consider the
object to attain, the circumstances of the statute’s enactment,
legislative history, former statutory and common law, and the
consequences of a particular construction. Tex. Gov’t Code §
311.023; Mitchell Energy, 943 S.W.2d at 438. The Texas Supreme
Court would attempt to give the statute the meaning the Legislature
intended, keeping in mind the old law, the evil, and the remedy.
Id.
7
In this case, Dynamic asserts that its agreement with Enron
contemplated well or mine service, implicating the protections of
the TOAIA. Therefore, according to Dynamic, the district court
erred when it enforced the indemnity agreement contained in the
master service contract. Enron asserts that Dynamic’s work fell
within an exclusion, rendering enforceable Dynamic’s indemnity
obligation. Our study of the TOAIA informs us that Dynamic’s
agreement with Enron sufficiently contemplated well or mine service
to render the indemnity agreement unenforceable.
B. THE TEXAS OILFIELD ANTI-INDEMNITY ACT
1. HISTORY AND PURPOSE
The TOAIA invalidates certain indemnity provisions contained
in agreements pertaining to wells for oil, gas, or water, or to
mines for minerals.6 In 1973, on the heels of New Mexico’s
6
The current version of the TOAIA provides in part:
(a) Except as otherwise provided by this chapter, a
covenant, promise, agreement, or understanding
contained in, collateral to, or affecting an agreement
pertaining to a well for oil, gas, or water or to a
mine for a mineral is void if it purports to indemnify
a person against loss or liability for damage that:
(i) is caused by or results from the sole or
concurrent negligence of the indemnitee, his agent
or employee, or an individual contractor directly
responsible to the indemnitee; and
(ii) arises from:
(A) personal injury or death;
(B) property injury; or
8
adoption of a similar statute, the Texas Legislature created an
interim committee to study the effects of hold harmless agreements
extracted from service contractors in the petroleum industry.
House Interim Study Committee on Hold Harmless Agreements, Report,
63rd Leg. i (1973). The Legislature noted that the expense of
contracting for the negligence of a third party often put the small
contractor in a precarious financial position. Id. The committee
considered the arguments for and against the adoption of the TOAIA
and, noting inequities between large oil companies and small
contractors, ultimately recommended that the Legislature adopt the
TOAIA. Id. at 3-8. After receiving the committee’s
recommendation, the Legislature enacted the TOAIA to curb the
perceived inequity. In general, the TOAIA provides that certain
agreements which provide for indemnification of a negligent
indemnitee are void as against public policy. Tex. Rev. Civ. Stat.
art. 2212b (now codified at Tex. Civ. Prac. & Rem. Code § 127.001-
007).
2. THE SCOPE OF THE TOAIA AND ITS DEFINITION OF
“WELL OR MINE SERVICE”
The TOAIA invalidates indemnity provisions contained in
(C) any other loss, damage, or expense that
arises from personal injury, death, or
property injury.
Tex. Civ. Prac. & Rem. Code § 127.003.
9
agreements pertaining to wells for oil, gas or water or to mines
for minerals. Under the TOAIA, an agreement pertains to a well if
it requires the contractor to render “well or mine services” or
“to perform a part of those services or an act collateral to those
services . . . .” Tex. Civ. Prac. & Rem. Code § 127.001(1)(A)(i)-
(ii). In turn, the TOAIA defines “well or mine service” to
encompass a broad range of activities, including:
(i) drilling, deepening, reworking, repairing, improving,
testing, treating, perforating, acidizing, logging,
conditioning, purchasing, gathering, storing, or
transporting oil, brine water, fresh water, produced
water, condensate, petroleum products, or other liquid
commodities, or otherwise rendering services in
connection with a well drilled to produce or dispose of
oil, gas, other minerals or water; and
(ii) designing, excavating, constructing, improving, or
otherwise rendering services in connection with a mine
shaft, drift, or other structure intended for use in
exploring for or producing a mineral . . . .
Tex. Civ. Prac. & Rem. Code § 127.001(4)(A)(i)-(ii) (Vernon 1997).
If an agreement calls for well or mine services, for a part of
those services, or for an act collateral to those services, it is
within the scope of the TOAIA.
The Texas Supreme Court has counseled that the TOAIA is to be
strictly construed to permit parties to contract freely with regard
to agreements not covered by the statutory language. Getty Oil Co.
v. Insurance Co. of N. America, 845 S.W.2d 794, 805 (Tex. 1992),
cert. denied sub nom., Youll & Companies v. Getty Oil Co., 114
S. Ct. 16 (1993). In Getty Oil, the Court addressed whether an
10
“additional insured” provision in a purchase order was invalidated
by the TOAIA. Getty Oil, 845 S.W.2d at 805. The court strictly
construed the terms of the TOAIA and rejected the argument that
sanctioning the insurance shifting provision would have the
practical effect of relieving the oil company of responsibility for
its sole negligence. Id. The Court held that the TOAIA applied
exclusively to indemnity agreements and did not prohibit insurance
shifting arrangements not expressly covered by the statute. Id.
Although the present case does not involve the same type of
contractual provision addressed by Getty Oil, we believe that the
Texas Supreme Court would strictly construe the TOAIA in assessing
whether an agreement comes within its scope.
Although the Texas Supreme Court has not considered the
definition of well or mine service, intermediate Texas courts have
required a close nexus between production activities and the
agreement at issue. For instance, in Transworld Drilling Co. v.
Levingston Shipbuilding Co., 693 S.W.2d 19, 23 (Tex. App.–Beaumont
1985), the court held that the TOAIA did not apply to an agreement
to repair an offshore drilling rig when the contractor performed
the repairs in a shipyard. The contractor asserted that it was
rendering services in connection with a structure intended for use
in the exploration for or production of a mineral. Transworld, 693
S.W.2d at 23. The court rejected this argument and reasoned that
the Legislature did not intend to cover an on-shore repair contract
11
when the record revealed no connection with the drilling of an
actual well. Id.
Likewise, in Singleton v. Crown Cent. Petroleum Corp., 713
S.W.2d 115, 121 (Tex. App.–Houston [1st Dist.] 1985), rev’d on other
grounds, 729 S.W.2d 690 (Tex. 1987), the court summarily held that
a contract between a petroleum company and its contractor requiring
work to be performed inside the company’s plant was not covered by
the TOAIA. Consistent with Transworld, the court characterized the
TOAIA as a statute prohibiting certain agreements pertaining to a
well site for oil, gas, or water, or to a mine for a mineral.
Singleton, 713 S.W.2d at 121. Because the agreement involved in
Singleton was a construction contract for work to be performed at
a plant, the TOAIA did not apply.
Finally, in Coastal Transport Co. v. Crown Central Petroleum
Corp., 2000 WL 33062 (Tex. App.–Houston [14th Dist.] 2000, n.w.h.),
the court held that the TOAIA did not invalidate an indemnity
provision contained in a terminal loading agreement between a
trucking company and a petroleum refiner. The case arose when an
employee of Coastal, the trucking company, was injured in a
gasoline fire at Crown Central’s loading terminal. Coastal argued
that the agreement concerned “well or mine services” because
transporting gasoline was an act collateral to well services. The
court rejected this argument, reasoning that the TOAIA only applies
to contracts for “services involved in the drilling or servicing of
12
wells.” Coastal Transport, 2000 WL 330062 at *7. Because Crown
was in the business of refining, supplying, and transporting
petroleum products, the TOAIA did not apply. Transworld,
Singleton, and Coastal Transport all stand for the proposition
that, for an agreement to fall within the TOAIA, it must bear a
close nexus to a well drilled for oil, gas, or water, or to a mine
for a mineral.
3. THE PIPELINE EXCLUSION
The Legislature has also limited the definition of well or
mine service. In 1991, the Legislature amended the TOAIA to exempt
from the definition of well or mine service certain activities
related to pipelines. Under the TOAIA, “well or mine service” does
not include:
(i) purchasing, selling, gathering, storing, or transporting
gas or natural gas liquids by pipeline or fixed
associated facilities; or
(ii) construction, maintenance, or repair of oil, natural gas
liquids, or gas pipelines or fixed associated facilities.
Tex. Civ. Prac. & Rem. Code § 127.001(4)(B)(i)-(ii).7
Our research has revealed only one decision that has
considered the pipeline exclusion. In Phillips Petroleum Co. v.
7
The 1991 amendment also deleted the word “gas” from
subsection (4)(A)(i) immediately following the terms “gathering,
storing, or transporting oil.” The amendment did not remove the
word “gas” from the later provision of the same definition which
provides that well or mine service includes “otherwise rendering
services in connection with a well drilled to produce or dispose
of oil, gas, other minerals or water.”
13
Brad & Sons Const. Inc., 841 F. Supp. 791 (S.D. Tex. 1993), the
court held that the TOAIA did not apply to a contract to repair a
leak in a pipeline located in a gathering field 800 feet from the
nearest well. Id. at 796. The court noted that the Legislature
intended the 1991 amendments to the TOAIA to clarify the already
existing definition of well or mine service. Id. In reaching this
conclusion, the court relied heavily on the fact that the
Legislature had expressly given the 1991 amendments retroactive
effect. Id. The court held that the contract did not call for
work within the definition of well or mine service existing before
or after the amendments. In other words, the agreement in Phillips
called for work lacking the necessary proximity to a well.
Phillips, like the decisions announced by the intermediate Texas
courts, reinforces the requirement that a close nexus must exist
between the agreement and an actual well drilled to produce oil,
gas, or water.
C. THE LOUISIANA OILFIELD ANTI-INDEMNITY ACT–SIMILARITIES
AND DIFFERENCES
Although this court has only scarcely considered the scope of
the TOAIA, it has addressed on several occasions the breadth of
the Louisiana Oilfield Anti-Indemnity Act (“LOAIA”).8 While we
8
This court has never considered the definition of well or
mine service under the TOAIA. This court’s decisions under the
TOAIA address other provisions of the act, such as the provision
permitting certain cross-indemnity arrangements when they are
supported by insurance. See, e.g., Greene’s Pressure Testing &
Rentals v. Flournoy Drilling Co., 113 F.3d 47, 51 (5th
14
find some guidance in this court’s decisions under the LOAIA, we
note differences in the structure of that act and the TOAIA.
Accordingly, while we refer to this court’s LOAIA decisions for
guidance, we do so only to the extent that the particular holdings
are supported by similar language set forth in the TOAIA.
We first note the similarities in the two laws. Under the
LOAIA, this court has stressed that when the LOAIA speaks of
invalidating “agreements,” the relevant agreement is the particular
work order giving rise to the claim. See Roberts v. Energy
Development Corp., 104 F.3d 782, 784 n.3 (5th Cir. 1997)(applying
Louisiana’s version of the Act and focusing on oral work order);
Johnson v. Amoco Production Co., 5 F.3d 949, 952 (5th Cir.
1993)(same). It is common practice for companies and contractors
to enter into master service agreements, the specific terms of
which govern future work performed by the contractor pursuant to
individual work orders or authorizations. Like its Louisiana
counterpart, the TOAIA invalidates “agreements,” and we are
persuaded that the relevant agreement we must consider is the work
order between Dynamic and Enron giving rise to this claim.
Furthermore, because offshore production differs from land-
based production, we have held that multiple wells directionally
drilled and situated on a single platform constitute one “well” for
purposes of the LOAIA. Transcontinental, 953 F.2d at 995 n. 40.
Cir. 1997).
15
Like many offshore platforms, the ones involved in this case
supported multiple wells. On this point, we find the reasoning of
Transcontinental persuasive and hold that multiple wells supported
by a single platform constitute a single “well” for purposes of the
TOAIA.
But this court’s decisions under the LOAIA provide less
support for deciding the question whether a particular agreement
contemplates “well or mine service” under the TOAIA. Under the
LOAIA, this court applies a two step approach to determine whether
an agreement falls within the scope of that legislation.
Transcontinental, 953 F.2d at 991. First, the court assesses
whether the agreement “pertains to a well.” Id. To determine
whether an agreement “pertains to a well,” this court has adopted
a functional approach. Id. at 994-95 (setting forth
“Transcontinental factors”).9 If, after applying the
9
The Transcontinental factors include:
(1) whether the structures or facilities to which the
contract applies or with which it is associated are part of an
in-field gas gathering system;
(2) what is the geographic location of the facility or
system relative to the well or wells;
(3) whether the structure in question is a pipeline or is
closely involved with a pipeline;
(4) if so, whether that line picks up gas from a single well
or a single production platform or instead carries commingled gas
originating from different wells or production facilities;
(5) whether the pipeline is a main transmission line or
trunk line;
(6) what is the location of the facility or structure
relative to compressors, regulating stations, processing
facilities or the like;
16
Transcontinental factors, the court concludes that an agreement
pertains to a well, the court then asks whether the agreement
involves operations related to the exploration, development,
production, or transportation of oil, gas, or water. Id. at 991.
If it does, the LOAIA applies; otherwise, it does not. Id.
Dynamic relies on this court’s LOAIA cases to assert that its
agreement with Enron “pertained to a well.” See, e.g., Lloyds of
London v. Transcontinental Gas Pipe Line Corp., 38 F.3d 193, 197
(5th Cir. 1994)(holding that work performed at or upstream from
metering point pertained to a well under the LOAIA); Copous v.
ODECO Oil & Gas Co., 835 F.2d 115, 116 (5th Cir. 1988)(contract for
the renovation of living quarters on a manned offshore platform
within the scope of the LOAIA). While we agree generally with
Dynamic’s reading of this court’s LOAIA cases, we disagree with
Dynamic’s conclusion that those cases are controlling because it
rests on the faulty assumption that the LOAIA and the TOAIA are
similarly structured. The language of the LOAIA differs from the
(7) what is the purpose or function of the facility or
structure in question;
(8) what if any facilities or processes intervene between
the wellhead and the structure or facility in question, e.g.,
“heater treaters,” compressor facilities, separators, gauging
installations, treatment plants, etc.;
(9) who owns and operates the facility or structure in
question, and who owns and operates the well or wells that
produce the gas in question;
(10) and any number of other details affecting the
functional and geographic nexus between “a well” and the
structure or facility that is the object of the agreement under
scrutiny.
17
TOAIA, and that difference renders suspect Dynamic’s analogy to our
decisions under the LOAIA.
Primarily, the TOAIA contains a provision exempting certain
pipeline-related activities. This court recently cautioned that
the Transcontinental approach is most relevant in a case where the
contract provides for work to be performed on a pipeline or other
part of the transmission system and where that work has little, if
any, connection to a well. Roberts v. Energy Development Corp.,
104 F.3d 782, 785 (5th Cir. 1997). The TOAIA’s pipeline exclusion,
absent from the LOAIA, generates friction with this court’s
Transcontinental approach. Roberts and the TOAIA’s pipeline
exclusion counsel against Dynamic’s attempt to apply, carte
blanche, this court’s LOAIA decisions to cases arising under the
TOAIA.
We further reject wholesale application of decisions under the
LOAIA to the cases arising under the TOAIA because the definitional
section of the LOAIA differs from the one provided by the TOAIA.
The relevant language of the LOAIA provides that “‘agreement’ as it
pertains to a well for oil, gas, or water . . . . means any
agreement or understanding . . . concerning any operations related
to the exploration, development, or production, or transportation
of oil, gas, or water . . . .” La. Rev. Stat. Ann. § 9.2780
(emphasis added); see Transcontinental, 953 F.2d at 991. Under the
LOAIA, the phrase “as it pertains to a well” is not defined as part
18
of the preceding term “agreement.” The undefined phrase “as it
pertains to a well” is, in part, language that led this court to
adopt a functional analysis to answer the question whether a given
agreement “pertains to a well.” Transcontinental, 953 F.2d at 991
(noting that “[w]e can come to no conclusion but that the
legislature intended the Act to apply if (but only if) an agreement
pertains to a well”). By contrast, the TOAIA defines the entire
phrase “[a]greement pertaining to a well for oil, gas, or water or
to a mine for a mineral.” Tex. Civ. Prac. & Rem. Code §
127.001(1). Given that the TOAIA defines this entire phrase, while
the LOAIA leaves “as it pertains to a well,” undefined, this
court’s decisions applying the Transcontinental factors are not on
point.
Accordingly, we derive our holding from the language and
purpose of the TOAIA, as opposed to borrowing from decisions
applying Transcontinental. We begin by noting that the
Legislature listed no less than fifteen specific activities within
the definition of well or mine services. The definition includes
well services ranging from pre-completion tasks such as “drilling”
to post-completion work such as “deepening” and “reworking.” The
definition also includes general maintenance tasks such as
“repairing” and “improving” together with services performed with
an eye toward regulatory requirements, i.e. “testing.” Finally,
the definition includes “treating,” a service necessary to prepare
19
the ultimate product for transportation and sale. Tex. Civ. Prac.
& Rem. Code § 127.001(4)(A)(i).
In addition to the several activities specifically set forth
within the definition of well or mine service, the Legislature
included a catch-all provision. Specifically, the definition of
well or mine services includes “otherwise rendering services in
connection with a well drilled to produce oil, gas, other minerals,
or water.” Tex. Civ. Prac. & Rem. Code § 127.001(A)(4)(i)(emphasis
added). We believe that the Legislature’s use of the terms
“otherwise rendering services in connection with a well” indicates
an intent to expand the scope of activity constituting well or mine
service to other types of work falling within the same general
class or category as the activities specifically listed in the
definition. See, e.g., Dawkins v. Meyer, 835 S.W.2d 444, 447 (Tex.
1992)(discussing statutory construction and rule of ejusdem
generis). The specifically listed activities are all typically
performed in close proximity to a well, but not all of them are
directed at the wellbore itself. Moreover, as relates to gas
wells, the specifically listed activities are directed toward the
goal of obtaining or maintaining production from a well. We hold
that a contractor is “otherwise rendering services in connection
with a well” if the services called for by the contract bear a
close nexus to a well and are directed toward the goal of obtaining
or maintaining production from a well.
20
III. ANALYSIS AND HOLDING
A. DYNAMIC’S AGREEMENT WITH ENRON CONTEMPLATED
WELL OR MINE SERVICES
We hold that Dynamic’s agreement with Enron contemplated well
or mine services. As we have noted, Texas law requires a close
nexus between the production activities and the agreement. We find
that requirement satisfied in this case. Particularly, the
agreement called for Dynamic to fabricate and install a manifold on
the satellite platform and tie in flowlines to the actual wellheads
located on that platform. Likewise, on the A-B complex, Dynamic’s
modification of the safety shutdown system to facilitate the
preservation of the production facilities and the employees manning
them in case of an emergency satisfies the requisite connection to
a well. Moreover, Dynamic’s services were performed to further the
goal of obtaining or maintaining production from Enron’s satellite
wells. Our treatment of the multiple wells on the platforms as one
“well” under the TOAIA reinforces our decision, because we view
these platforms as integral to the drilling and production
operations. Dynamic’s services, involving work on the platforms
themselves, are directly supportive of the wells.
B. THE PIPELINE EXCLUSION DOES NOT EXEMPT THE AGREEMENT FROM THE
DEFINITION OF WELL OR MINE SERVICE
Enron relies heavily on the TOAIA’s pipeline exclusion to urge
21
that its agreement with Dynamic did not contemplate well or mine
service. Although we credit the Legislature’s intent to restrict
the activity comprising well or mine service, we reject Enron’s
argument because Dynamic’s contract with Enron called for services
above and beyond simply installing piping associated with a well.
For this reason, Enron’s argument, though not without some force,
does not convince us that the exclusion validates the present
indemnity arrangement.
Although the TOAIA contains a pipeline exclusion, it does not
define “pipeline.” For the reasons discussed below, we need not
determine where the well “ends” and the “pipeline” begins to decide
this case. However, Enron suggested at oral argument that, for
purposes of this and future cases involving the pipeline exclusion,
we should hold that the well “ends” and the pipeline “begins” at
the choke.10 In other words, Enron would have us hold that any
agreement calling for work to be performed downstream from the well
choke falls within the pipeline exclusion. We reject Enron’s
argument because it is inconsistent with at least three terms
contained in the definition of well or mine service.
First, the definition of well or mine service includes
“testing.” The undisputed facts of this case indicate that the
testing facilities for the three wells located on the satellite
10
The well choke is a valve located near the top of the
wellhead which controls the volume of gas flowing out of the
well.
22
platform were actually located on the B side of the A-B complex.
The testing facility on the A-B complex was the location that the
flow from the individual wells could be segregated and directed
through a test separator for testing required by the Minerals
Management Service (“MMS”). The Legislature’s use of the term
“testing” indicates its intent to include at least some types of
service work performed downstream from the wellbore. Enron’s
identification as the well choke as the point at which well service
stops and pipeline service starts would render meaningless the
Legislature’s inclusion of “testing” as a type of well or mine
service.
Second, well or mine service includes “treating.” Again, the
initial treatment of the natural gas produced from the satellite
platform occurred at the separation facilities located on the A-B
complex. Until the raw gas passed through the separators, it
still contained both natural gas and liquid hydrocarbons. Although
we note that natural gas may go through various stages of treatment
throughout its transmission to the ultimate consumer, we must
strive to give effect to the Legislature’s use of the term
“treating,” as it relates to well service. The use of the term
“treating,” at a minimum, indicates that the Legislature intended
to include at least initial treatment of product prior to its
transmission and sale. Enron’s selection of the well choke, a
point upstream from the initial treatment point, fails to give
23
effect to the Legislature’s intent.
Finally, the definition of well or mine services includes
“otherwise rendering services in connection with a well . . . .”
(emphasis added). The Legislature did not limit well services to
those performed in a well, but rather included work performed in
connection with a well. The broader language “in connection with”
indicates a legislative intent to include services other than those
performed in the wellbore itself. Enron’s suggested limitation of
well services to those performed in the wellbore fails to give
meaning to this phrase.
Enron also asserts that Dynamic’s construction and fabrication
work is not well “service.” Enron seems to assert that fabrication
work or construction work performed at or in close proximity to a
well site can never constitute well “service.” We disagree.
Construction work is a type of service often provided by oil and
gas service contractors. In fact, the parties’ agreement is titled
a master service contract. It characterizes Dynamic as a “service
contractor,” albeit one engaged in the construction and fabrication
business. While pipeline construction is exempted from the
definition of well or mine service, Dynamic’s contract with Enron
contemplated work above and beyond simply installing pipes. Even
if we were to assume, arguendo, that connecting flowlines to the
risers on the legs of the platform constituted pipeline
construction within the meaning of the exemption, Dynamic also
24
fabricated a manifold to be affixed to the satellite platform,
modified safety systems and tied flowlines into the Christmas trees
on the satellite platform. Although the pipeline exclusion exempts
pipeline construction from the definition of well or mine service,
we believe that the Legislature intended only to exempt those
agreements which, in their entirety, contemplate work within the
exclusion. In this case, the agreement between Dynamic and Enron
was not limited solely to construction, repair or maintenance of a
pipeline, even if we assume that the piping installed by Dynamic
constituted a “pipeline” under the TOAIA. Therefore, the TOAIA
applies to the indemnity covenant in the master service contract.
IV. CONCLUSION
In conclusion, we hold that Dynamic’s contract with Enron
contemplated “well or mine service” under the TOAIA. We also hold
that the agreement was not limited to work falling under the
pipeline exclusion. As a result, the TOAIA applies to invalidate
Dynamic’s indemnity obligation. We REVERSE the judgment of the
district court and RENDER judgment that Enron take nothing by way
of its third party action.
25