You do, whether you are a vendor or an operator. Matador Production Company vs. Weatherford Artificial Lift Systems, Inc. is a treatise on what can go wrong with a frac job: Failure of pumps, worker inexperience, failure of the “delayed release gel breaker”, failure to clean gel hoses, failure to pump enough gel and proppant, loss of materials, profuse apologies, invoices, refusal to pay invoices, and … litigation. It also suggests what you need for an enforceable MSA and the likely result if you don’t have one.
If you are trying to enforce an MSA:
- Disclaimers and exculpatory clauses in six point font on the last page of a six-page stimulation recommendation will not satisfy the conspicuousness requirement of the express negligence rule (about which, see below).
- Terms and conditions to be found on the vendor’s web site, if the customer bothers to look, are insufficient.
- Between two parties who had never before worked together, an MSA signed three months after the FUBAR is not admissible at trial.
- A properly prepared and administered MSA can save a party – the vendor in this case – lots of time, money and grief.
Weatherford sued on a sworn account alleging $314,000 due on invoices. Matador counterclaimed for economic damages of $2,300,000. after summary judgment for Weatherford on the sworn account, the jury found that Weatherford failed to use reasonable skill and diligence and breached its implied warranty of a good and workmanlike performance of services. But Weatherford’s breach was excused because Matador waived compliance with the contract and released Weatherford from liability arising from the contract. It did this in the Master Service Agreement.
Reversed. Weatherford could not rely on the MSA (see the lessons). In the MSA Matador released Weatherford for Weatherford’s negligence, agreed that acceptance of delivery indicates inspection and approval of the equipment, and waived its right to consequential damages. A release by one party of another for the released party’s own negligence must be CONSPICUOUS IN THE CONTRACT (this is the express negligence doctrine). As a result of Weatherford’s failure to properly prepare and administer its MSA Weatherford’s home run at trial morphed into a bases-loaded strikeout on appeal.
What to Do?
Am I suggesting that a MSA is more important for the vendor than the customer? No. The purpose of an MSA is peace of mind brought about by certainty, to establish from the outset – before there is a disagreement having major financial consequences – who will be liable for acts and omissions and who will be responsible for damages. Get your MSA in place, whether you are a vendor or producer. Take care of potential exposure with proper and sufficient insurance coverage.
Didn’t the customer benefit from not having an MSA? Yes, but if he had been the negligent party, maybe not.
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