Revised April 25, 2000
UNITED STATES COURT OF
FOR THE FIFTH CIRCUIT
In Re: In the Matter of
of John E. Graham &
Sons As Owner of M/V Sean G for
Exoneration From or Limitation
JOHN E. GRAHAM & SONS,
HORACE BREWER, ET AL.,
ENRON OIL & GAS COMPANY,
Defendant-Third Party Plaintiff
DYNAMIC OFFSHORE CONTRACTORS,
Third Party Defendant
Appeal from the United States
For the Western District
of Louisiana, Lafayette Division
April 18, 2000
Before HIGGINBOTHAM and PARKER,
Circuit Judges, and WARD,(1) District
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.
BACKGROUND AND PROCEDURAL
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.(2) 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
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.(3)
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 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.(4) 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 a pneumatic safety system.(5) 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
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 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.(6) 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").
A. APPLICABLE LAW AND STANDARD
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.
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
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.(7)
In 1973, on the heels of New Mexico's
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 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 "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 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 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
Tex. Civ. Prac. & Rem. Code
Our research has revealed only one
decision that has considered the pipeline exclusion. In Phillips
Petroleum Co. v. 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,
C. THE LOUISIANA OILFIELD
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").(9) While
we 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. 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").(10) If, after
applying the 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 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 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 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.
III. ANALYSIS AND HOLDING
A. DYNAMIC'S AGREEMENT WITH
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
Enron relies heavily on the TOAIA's
pipeline exclusion to urge 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.(11) 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 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 effect to the
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 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
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.
District Judge of the Eastern District of Texas, sitting by designation.
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").
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.
The master service contract, entered in 1991, provided in part
[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. . . .
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
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
7. 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 amine 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
(C) any other loss, damage, or expense
that arises from personal injury, death, or property injury.
Tex. Civ. Prac. & Rem. Code
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
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
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;
(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.
The well choke is a valve located near the top of the wellhead
which controls the volume of gas flowing out of the well.