United States Court of Appeals Fifth Circuit FILED May 22, 2003 Charles R. Fulbruge III Clerk In the United States Court of Appeals for the Fifth Circuit m 02-20757 C HEVRON U.S.A., I NC ., Plaintiff-Appellee, VERSUS S ANTA F E S NYDER C ORPORATION , ET AL ., Defendants, S ANTA F E S NYDER C ORPORATION ; S AMEDAN O IL C ORPORATION ; R ANGER O IL C OMPANY , Defendants-Appellants Appeal from the United States District Court for the Southern District of Texas m H-00-CV-847 Before S MITH and B ARKSDALE , Circuit Judges, and F ITZWATER , * District Judge.

J ERRY E. S MITH , Circuit Judge: ** Defendant Santa F e Sny der Corporation a n d others appeal a summary judgment for Chevron U.S.A. entered on the basis that Santa Fe contracted to have Chevron process its entire monthly na t ural gas production. Althoug h the partiesÂ’ agreement requires Santa Fe to pay minimum monthly processing fees, it does not require Santa Fe to deliver any or all of its producti on to Chevron. We reverse and remand.

I. Chevron owns and operates a gas processing facilit y, a well, and a lease, designate d South Ti mbalier Block 177 (“Block 177"), located on a platform off the coast of Louisiana. Santa Fe and others jointly own oil and gas wells and a lease, designated South Timbalier Block 178 (“Block 178"), l ocated on a n earby offshore platform. In 1996, Chevron and Santa Fe entered into an ag reement by w hich Chevron agreed to process Santa F e’s producti on fro m Block 178. In March 1998, the parties amended the agreement to accommodate the product io n from another well owned by Santa Fe , South Timbalier Block 179 (“Block 179"). 1 The agreement was termina ble by either party on or after October 1, 2001. By way of the March 1998 amendment, San ta Fe reserved the right to termi nat e the agreement early with respect to Block 179 (but not Block 178) by givi ng written notice ninety days in advance. In No vember 1998, Santa Fe invoked this provision by not ifying Chevron that it intended to install its own processing facilities. Santa Fe also stated that as soon as its processing facilities were functional, it would process all producti on from Blocks 1 7 8 and 179. For Block 178, Santa Fe stated that it would pay the minimum mo nt hly processing and administrative fees specified in the agreement. Chevron replied that cessation of production deliverie s in advance of the termination date would be viewed as a breach of contract.

Specifically, Chevron notified Santa Fe that its offer to pay minimum fees in lieu of fees generated through processing was not acceptable substitute performance. In February 1999, Santa Fe ceased delivery of producti on to Chev r on and began paying the minimum monthly fees.

Chevron sued for, inter alia , declaratory relief and breach of con tract, contendi ng i t i s en t itled to process Santa Fe’s entire production for the full term of the agreement, subject only to its own operational constraints and the February 27, 1999 (ninety days after noti ce) termination date for Block 179. Defendants counterclaimed, seeki ng a declaratory judgment that the agreement did not obligate them to deliv e r any or all of the producti on from Blocks 178 and 179. The district court granted Chevron’s motion for partial summary judgment, finding that “the parties contracted for the delivery and processing of actual production from Sant a Fe’s wells in Timbalier * District Judg e of the Northern District of Texas, sitting by designation. ** Purs uant to 5 T H C IR. R. 47.5, the court has deter mined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5 TH C IR .

R. 47.5.4 1 Block 178 contains two wells (Wells A-1 and A-3), and Block 179 contains one well (Well B-1).

Blocks 178 and 179.” II. We review a summary judgm ent d e novo .

King v. Ames , 179 F.3d 370, 373 (5th Cir. 1999). Summary judgment “shall be rendered forthwith if the pleadings, de positions, answers to interrogatories, and admissions on file, together with the affidavi t s, if any, show that there is no gen uine issue of material fact and that the mo ving party is entitled to judgment as a matter of law.” F E D . R. C IV . P. 56(c). In the context of contract interpretation, “only when there is a choice o f reasonable interpretation of th e contract i s there a material fa ct issue concerning the parties’ intent that wo uld preclude summary judgment.” A moco Prod. Co. v. Tex. Meridian Res. Exploration, Inc. , 180 F.3d 664, 669 (5th Cir. 1999).

III. The dispute ce n ters on whether Santa Fe was required to deliver all producti on from its Block 178 and 179 wells or whether, instead, it retained the right t o process i ts gas elsewhere so long as it paid the minimum monthly processing and administrative fees.

Because the agree ment originates from a federal lease on th e outer conti nental shelf SS off the coast of Louisiana SS the choiceof-law provisions of th e Outer Continental Shelf Lands Act, 43 U.S.C. §§ 1333(a)(2)(A), 1349(b)(1), apply, so construction of the agreement is governed by Louisiana law to the extent such law is not inconsistent with federal law. U nion Tex. Petr oleum Corp. v. PLT EngÂ’g, Inc. , 895 F.2d 1043, 1050 (5th Cir. 1990).

Under Louisiana law, “[w]hether a contract is ambiguous or not is a question of law.” Lawrence v. Terral Seed, Inc. , 7 9 6 So. 2d 115, 123 (La. App . 2d Cir. 2001) (citation omitted), writ de nied , 808 So. 2d 341 (La. 2 002). If “the words of a contract are clear and explicit and lead to no absurd consequences, no further interpret a tion may be m ade in search of the parties’ intent.” L A .

C IV . C ODE A NN . art. 2046 (West 1987). “The rules of co nstruction do not authorize a perversion of the words or the exercise of inventive powers to create an ambiguity where none exists or the making of a new contract when th e terms express with sufficient clearness the part ies’ intent.” C ampbell v. Melton , 817 So. 2d 69, 76 (La . 2002) (citations omitted). “The fact that one party may create a dispute about th e meaning of a co ntractual provision does not render the provision ambiguous.” Id. Key to t he district court’s conclusion that Santa Fe was required to deliver all of its production is the agreem e nt’s preamble, which sets forth its purpose: WH EREAS, Santa Fe desires to produ ce gas, condensate and water production fro m the Well (the “Production”) through its construction of an eight inch (8”) N.D. pipeline from the init ial Well, and any subsequent Lease Wells, to that certain Chevron operated “E” platform . . . .

WHEREAS, Chevron desires to receive the Producti on at the Chevron Operated Platform, perform c e rtain processing services an d redeliver the Production . . . .

The term “production” SS defined as “gas, condensate and water producti on from the Well” SS is used throughout the ag r eement. 2 Sections one and two state the o bligations of each party. In section one, Santa Fe agrees to “del iver the Production at the Connection Point at . . . the Chevron Operated Platform” and “properly trea t all of its Production to prevent the entry of any corrosive product(s) or chemicals into Ch e vron’s facilities.” Section two obligates Chevron to “receive the Producti on at the Chevron Operated Platform and perform” certain duties, including the separation, compression, treat ment, and redelivery of natural gas. Section three defines “Processing Fees”: The “Processing Fees” a re hereby defined (i) as not less than minimum processin g fees of $3,000.00 per calendar month (“Minimum Processing Fees”) from init ial commencement of Pr o cessing until termination of this Agreement, except and excluding any such calendar month during which Chevron is not prepared to receive the Producti on and perform the Processing and furth er except and excluding any calendar month lacki ng at l east twenty (20) days of Proces sing due to force majeure pursuant to Section 21, and (ii) as itemized hereafter . . . .

Section three continues by setting per-un i t rates for the separation, compre s sion, and treatment of gas, as well as a dministrative overhead of $1000. For example, compression fees are set at $0.20 per MCF, and the treatment of oil and condensate is set at $0.50 per barrel. Section six limits Chevron’s processing obligation to “volume rates not to exceed 2,500 barrels of condensate per day, 50 MMCF of natural gas per day, and 1000 barrels o f produced water per day; provided, however, that Chevron shall not be required to compress gas hereunder in excess of 1 MMCF of natural gas per day.” The district court reasoned that the preamble’s definition of “product ion” “suggests that the agreement contemplates the processing of the actual producti on from Santa Fe’s wells and not simply an optio n either to process or pay a de mi nimus [ sic ] monthly fee.” Although section three does no t explicitly provide Santa Fe with an “option” of delivering producti on or paying a m inimum monthly fee, the court interpreted section three as “provid[ing] Chevron a minimal amount of revenue in the event that deli veries of production for a parti cul ar m onth unexpectedly fell below projections.” Given that an unamb i guous contract contains terms that ar e “clear and explicit,” L A . C IV . C ODE A NN . art. 2046 (Wes t 1987), the agreem ent did not unambiguously grant Chevron the right to process all of Santa Fe’s production. The agreement discusses minimum monthly fees bu t nowhere requires Santa Fe to deliver any, much less all, of its producti on to C hevron. The district court focused on the pr e amble’s definition of “production,” meant to serve as shorthand for “gas, condensate and wat er producti on from the Well,” and erroneously interprete d it as creating an exclusivity arrangement. 3 Yet, an 2 In the amended agreement, the parties expanded the definition of “production” to include “ the comingled production from South Timbalier 178 and South Timbalier 179.” 3 Generally, a preamb le does not create rights beyond those conveyed by the contract’s operative terms. S ee Grynberg v. F.E.R.C. , 71 F. 3d 413, (continued...) exclusivity arrangement cannot be created by implication.

In Pogo Producing Co. v. Sea Robin Pipeline Co. , 493 So. 2 d 909, 914 (La.

App. 3d Cir.), cert. denied , 497 So. 2d 310 (La. 1986), the court recognized the efficiencies of exclusivity arrangements, or output contracts, but only where mutual consideration or “cause” exists. Exclusivity arrangements benef it sellers of services such as Chevron, becaus e t hey are assured a constant demand, while buyers of services such as Santa Fe are assured a constant supply. Chevron processed its own natural gas derived from its Block 177 Well and therefore did not look to Santa Fe as an exclusive source of business. Instead, evidence sug gests Chevron entered into the agreement to fill excess capacity. As part of the bargain, Che vron received $4000 in minimum monthly processing fees, while simultaneously imposing a ceiling on the amount of Santa Fe’s gas it wa s willing to process. This suggests a lack of mutualit y if the con tract is interpreted as an output contract: Why wo uld Santa Fe pay additional consideration to lock itself into an exclusivity arrangement? 4 In the 1996 agreement, the parties likely contemplated Santa Fe’s delivering its entire producti on to Chevron, though this was never reduced to writing. Perhaps the geographical isolation of the platforms prevented competition, w hile the prospect of Santa Fe developing its own processing facilit ies was remote. By the time t he agreement was amended, Santa Fe’s constructi on of processing facilit ies evidently became a possibility, hence the insertion of the ninety day termination clause.

The par t ies’ intentions are irrelevant, however; because the agreement did not state that Santa Fe was required to deliver all or any of its producti on t o Chevron, there is no ambiguity. So long as Santa Fe paid the contractually defined monthly minimum pr o cessing and administrative fees, it could not, as a matter of law, have breached the agreement e xcept by failing to pay additional fees incurred as a result of processing actual deliveries or by failing to meet section two’s qualitative obligations. As we have already said, quoting Campbell , 817 So. 2d at 76, the rules of constructi on do not authori ze us to pervert the words of a contract or to create an 3 (...continued) 416 (D.C. Cir. 1995) (“[I]t is st andard contract law that a Whereas clause, while sometimes useful as an aid to interpretation, ‘cannot create any right beyond those arising from the operative terms of the document.’”). 4 Santa Fe argues that the agreement resembles a “ta ke or pay” contract. Natural gas sales contracts typically contain a take or pay clause that requires the “pipeline-purchaser either to take (and pa y for at the maximum lawful price) a specified quantity of natural gas during each contract year or (continued...) 4 (...continued) to make a single annual payment to the producer to the extent that the volumes of gas taken during any contract year fall short of the minimum a n nual contract quantity.” Diamond Shamrock Expl oration Co. v. Hodel , 853 F.2d 1159, 1164 (5th Cir. 1988). Louisiana courts have construed take or pay contracts as imposing alternative obligations. P ogo Producing , 493 So. 2d at 916.

Santa Fe was not required to perform alternative obligations; it was required only to pay a minimum monthly processing and administrative fee, while meeting certain qualitative delivery specifications; it otherwise was free to decide how much of its production to deliver to Chevron for processing. am biguity or to make a new contract. Given that the agreement makes no mention of an exclusivity arrangement or a minimum delivery volume, the district court should have granted summary judgment for defendants.

The judgment is REVERSED, and this matter is REMANDED for further appropriate proceedings.