CORRECTEDApache Corporation v. Castex Offshore Inc. et al, answers the question, What constitutes willful misconduct in oil field operations? This was a breach of contract suit involving operator Apache and non-operator Castex.
In the exculpatory clause of the model form JOA, the operator can be liable only in the event of
Co-author Rusty TuckerAs Humpty Dumpty would have said to Alice if he were Justice Dumpty of the Texas Supreme Court, the term means whatever the parties to an oil and gas lease say it means, neither more nor less. In Sundown Energy LP, et al. v. HJSA No. 3, Ltd. P’ship the term “drilling operations” meant that activities other than spudding-in new wells were sufficient to satisfy a continuous operations clause.
The lease
In a lease in Ward County, 19,570 acres from the surface to the base of the Pennsylvanian formation were “Producing Areas”. The remainder covered all depths as to 10,880 acres plus depths in the Producing Areas below the Pennsylvanian. During the primary term, production in paying quantities from anywhere on the leased premises would maintain the entire lease. At the end of the primary term lessee Sundown was required to reassign its rights in each tract not then held by production unless Sundown was engaged in a “continuous drilling program.” The continuous drilling clause in Paragraph 7(b) read:
The obligation . . . to reassign tracts not held by production shall be delayed for so long as Lessee is engaged in a continuous drilling program on that part of the Leased Premises outside of the Producing Areas. The first such continuous development well shall be spudded-in on or before the sixth anniversary of the Effective Date, with no more than 120 days to elapse between completion or abandonment of operations on one well and commencement of drilling operations on the next ensuing well.
Sundown spudded-in three development wells prior to the end of the primary term and then spent over $40 million drilling 14 more wells from 2006 to 2015.
Continue Reading What are “Drilling Operations”?
Co-author Rusty TuckerWhat is the standard of care imposed by the Model Form JOA on the well operator? Crimson Exploration Op., Inc. v. BPX Op. Co. gives us the answer, and it is no surprise.
Background
Under a Model Form JOA, BPX as operator and Crimson and other non-operators drilled the McCarn A1H well. After a problem that prevented further drilling the parties agreed to plug and abandon the well.
BPX billed Crimson for its proportionate share of drilling expenses; Crimson refused to pay. In BPX’s suit to recover Crimson’s share of costs, Crimson asserted the affirmative defense of prior material breach by BPX’s failure to act as a prudent operator in drilling the well. Crimson argued the standard of care was a “reasonably prudent operator” while BPX relied on the exculpatory clause in Art. V.A of the JOA that excused liability unless BPX acted with gross negligence or willful misconduct.
Continue Reading Well Operator Protected by the Model Form JOA
What could possibly go wrong when drill pipe and a delivery ticket are sent to a well location? Well …
The facts
In Knight Oil Tools v. Rippy Oil Company, Knight rented drill pipe to Rippy for an Eagle Ford well. A delivery ticket represented that the pipe complied with API premium class standards. The pipe, marked with two white bands, was supposed to meet standards for API premium class pipe. Some of the pipe did not comply with the standards.
(The physical condition of used drill pipe is indicated by an industry-recognized system of colored bands, with each color representing a certain physical condition.)
The pipe broke in the hole because of what the parties agreed was fatigue. Rippy abandoned the well and an offset well was unsuccessful. Rippy sued Knight to recover damages for the lost well and Knight counterclaimed for unpaid invoices.
Partial summary judgment for the customer
Continue Reading Defective Drill Pipe+Delivery Ticket=Lawsuit
Co-author Brittany BlakeyAfter a trial court order, two appellate opinions, a dissent, and another appellate opinion, the tension between a well operator and an adjacent mineral owner over whether hydraulic fracturing can constitute a subsurface trespass in Pennsylvania has, for the most part, been resolved. In Briggs v. Southwestern Production Company, several points of Pennsylvania law have been confirmed:
Continue Reading Pennsylvania Rule of Capture Still Bars Subsurface Trespass Claim
Co-author Rusty TuckerThe threat: You, the operator, are operating unprofitable wells where monthly costs exceed or barely equal revenues, making money on the fixed COPAS overhead charges. Your non-operators are going into the economic hole and they don’t like it.
Yesterday we presented options for the non–operator to stop the financial bleeding. Today we anticipate responses available to the operator.
Yesterday’s caveats still apply.
Continue Reading My Operator is Making Money … Part 2, The Operator’s Response
Co-author Rusty TuckerWith the plunge in commodity prices many formerly profitable wells are now in the red, and we don’t know for how long. This is causing non-operators to question the bona fides of the operations … and of the operator, and to search for a way out of their obligations.
The challenge: The operator is operating unprofitable wells where monthly costs exceed or barely equal revenues, making money on fixed COPAS overhead charges, and non-operators are going into the economic hole. What can the non–operator do to stop the financial bleeding?
Continue Reading My Operator is Making Money on the Well and I’m Not. What Can I Do? Part 1.
A fellow walks into a bar in New Orleans. “What’ll it be?” “A Corona and two Hurricanes,” says he. “Here you go. That’ll be $20.20.”
Now, on to operations in hurricane-free New Mexico. Lessons from BEPCO, L.P. v. RMTDC Operations, LLC d/b/a Total Energy Services:
Co-author Rusty TuckerWho pays for fluid containment in an oil field emergency? It depends on your contract and, we are told in Pearl Resources, LLC v. Charger Services, LLC, oil and gas industry custom.
Continue Reading Industry Custom Determines Who Pays for a Well Emergency
Co-author Rusty TuckerIn Evans Resources, L.P., et al. v. Diamondback E&P, LLC, two agreements left the terms “constructed” and “utilized” undefined. If the terms had been defined would the outcome have been different? Maybe. Should parties define every term in an agreement? No, if they are content to rely on the ordinary meaning of the words.
The agreements
Continue Reading “Construction” of a Well Pad Requires More than a Survey
