Company Man Wins MSA Dispute

Gray Reed
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Gray Reed

A fellow walks into a bar in New Orleans. “What’ll it be?” “A Carona 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:

  • Hire a good company man and trust him
  • Get a good expert for trial
  • Prep your witnesses well for deposition and trial

Operator BEPCO hired TOTAL for drilling consultant services under an MSA and hired Latshaw Drilling to drill a well on federal land in New Mexico.

Total’s company man Valencia, whose job was to supervise the drilling contractor to ensure that the well was drilled in the manner required by the operator, was required to “perform all Work with due diligence and care and in a good and workmanlike manner … acceptable to [BEPCO].”

The washout: top-down or bottom-up?

The drilling prognosis gave Valencia instructions, but did not specify the operations that were to be supervised. After completion of a cementing operation, Latshaw had to “washout” excess cement. There are two methods to washout: most common, the “top-down” procedure; less common, and more dangerous, “bottoms-up”.  There was testimony that BEPCO’s standard procedure was bottoms-up. BEPCO’s drilling superintendent denied that he told Latshaw to use the bottoms-up procedure.  Valencia testified that he always used the top-down method and he was unaware that Latshaw used bottoms-up.

As required by regulation, a BLM (that’s “Bureau of Land Management” if you’re confused) representative was at the well during the cementing operation. Valencia did not supervise the washout because he was meeting with the BLM rep. After the washout, it was discovered that the intermediate casing had collapsed, and the well was P&A’ed.

BEPCO sued, alleging that Total breached the MSA because Valencia, by failing to supervise the washout, did not perform his work “with due diligence and in a good and workmanlike manner.”

The jury found that Total did not breach the MSA, resulting in a take-nothing judgment.

On appeal: the test for evidence

The court will sustain a challenge to the legal sufficiency of evidence only if:

  • there is a complete lack of evidence of a vital fact,
  • rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact,
  • there is no more than a scintilla of evidence offered to prove a vital fact, or
  • the opposite of the vital fact is conclusively established.

Six witnesses testified about whether Valencia was required to supervise all or part of the washout operation. After considering the conflicting testimony, the court of appeals found more than a scintilla of evidence to support the jury finding. BEPCO did not carry its burden to prove that Total breached the MSA.

The court gave these primary reasons for its holding:

  • Perkin (Total’s expert engineer) testified that Valencia was not required to supervise the washout procedure and was not always required to supervise the connection of a high-pressure hose (one of BEPCO’s complaints). Valencia was “doing his job” by meeting with the BLM, and complied with his obligations as a company man.
  • BEPCO’s former company man testified that a company man was not required to supervise a washout procedure. (Catch that? Former company man testifying against the company! It appears that he testified “the right way” at trial but was reminded of contrary deposition testimony).

The jury could have reasonably determined that Valencia’s decision to meet with the BLM representative rather than supervise the washout procedure was “that quality of work . . . generally considered proficient by those capable of judging such work” and was made with “the diligence and care reasonably expected from and ordinarily exercised by” a company man.

Speaking of floods and angry Mother Nature

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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