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Energy & the Law

Les Miles is Like the Oil Business

Posted in Contract Disputes

les milesHow is that, you say?

  • Recruits well
  • Sometimes can’t get to TD
  • Occasional blowouts
  • Lingo often not understood by others
  • Eats/uses no more turf than necessary
  • Surely benefits from “white privilege”
  • Down but not out.

More on the Les mess:

  • Next time you encounter incompetence in action, just say, “They must work for Joe Alleva”.
  • If President F. King Alexander handles academics like he does athletics, LSU will be a bottom-tier university by the end of the decade.
  • After making a tactical error exiting campus after the game (note classy absence of Aggie-directed trash talk), I came to realize that the ObamaCare website and LSU’s post-game traffic directives must have been designed and implemented by the same people.

And now, on to our case

Co-author Brooke Sizer.

  NorAm Drilling Co. v. E & Pco Intern., LLC is important if you:

  • Use the IADC form Daywork Contract,
  • Wonder when letters and emails can amend a contract (hint: after, not before)
  • Wonder what it takes to  waive the benefits of a contract.

The events

E&P acquired two leases in Caldwell Parish, Louisiana, and began discussing a deal in August 2007 for NorAm to be its drilling contractor.

12/06/07 – E&P circulates an Addendum to a contract stating, if a deposit is not made by E&P the contract will be null and void.  Note:  There was no evidence that this addendum was ever signed by NorAm. 

12/12/07 – The parties execute a Drilling Bid Proposal and Daywork Contract.  NorAm is obligated to commence operations by 12/15/07, or by a date mutually agreed to.  The contract  required an escrow account to be set up with an amount to cover mob and demob, interest, and three months of operations. Note: E&P never paid a cent into escrow and NorAm never demanded that the escrow be paid.

1/16/08 – NorAm contacts E&P: The rig cannot continue to sit idle; offers a standby rate of $15,000 effective 1/21.

1/18  – E&P emails NorAm: The contract was contingent upon a Letter of Credit or Escrow Deposit, and was surprised that NorAm was proposing to mitigate the losses.

2/18 – NorAm emails E&P: It was NorAm’s understanding that the Daywork Contract would go on a standby rate of $15,000 per day commencing February 11 and continue on that rate until the rig is read to move to the first location.

2/21 – E&P responds, acknowledging the email request to place the rig on standby at $15,000 per day.

5/27 – NorAm contacts E&P: The rig has been on standby for six months.  The outstanding balance by the end of May will be $2,182,500.

6/02 – E&P emails NorAm: In the final stages of securing financing.

6/25 – NorAm sends E&P a letter: Based on discussions, NorAm could rent the rig to other operators in order to mitigate E&P’s damages, the contract was in full force and effect and E&P would continue to seek funding.  E&P acknowledges this letter by signature on June 26.

Ultimately, E&P received funding, but used a different operator. E&P never paid NorAm. NorAm filed suit in Louisiana. The contract selected Texas law to govern.

E&P argued that the parties both understood that the contract was subject to E&P obtaining funding. The trial court found that the Daywork Contract was in effect, starting on 2/11, per the email agreement. E&P’s conduct from 12/07 through 6/08 was inconsistent with a claim that E&P didn’t have an obligation under the contract. The court found breach of contract by E&P and damages at the standby rate from 2/11 through 6/25.

The Law

Under Texas law the escrow clause did not create a condition precedent for the existence of the contract. Additionally, Texas law permits the party that the condition precedent favors to waive it.  Thus, it was untenable for E&P to argue that because the escrow clause was not satisfied the Daywork Contract was unenforceable.  NorAm’s conduct showed a willingness to waive the condition.  Texas law additionally recognizes the right of parties to modify a contract by the use of letter agreements.

The appellate court affirmed the judgment of $2.01 million plus interest and attorney fees.

Our musical interlude is for sports fans everywhere.