Face Challenges Confidently

525 Cresson SWD Services, L.P. v. Basic Energy Services, L.P.

Friday, February 5th, 2016

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Cresson SWD Services, L.P. v. Basic Energy Services, L.P. held that a jury can determine it is not a breach of an agreement to not complete the agreed upon work on a disposal well, if the working party does not guarantee success and the working party follows the direction of the party receiving the services. Here, Cresson SWD Services, L.P. and DJ Pulling, P.C. (together referred to as Cresson) owned a salt water disposal well that needed to be reworked. Basic Energy Services, L.P. (Basic) orally agreed to rework the well. Cresson hired Jerry Lack to oversee the contractor work, and Lack’s duties were to supervise the reworking project on-site under the direction of Cresson. Under Lack’s supervision, Basic removed the well tubing, and cleaned out the well. Then, on October 28 part of the drill bit was broken and lost in the hole, and Basic attempted to fish the fragment out, but was unsuccessful. On October 31, the drill became stuck and efforts to dislodge the drill were also unsuccessful. Subsequently, a Basic employee tried to recover the equipment sent down into the hole and this was unsuccessful. On November 4, Basic pulled a whipstock out of the hole that Lack did not know was there, so called a meeting to discuss if Cresson wanted to spend the additional money it would take to complete the work given the new circumstances.

The meeting occurred on November 5, and was attended by Cresson managers, Lack, and Basic managers. There are different accounts as to whether there was an offer to finish the work during the meeting. Lack testified that he informed the members of Cresson it would cost $200,000 to complete the work. Further, a member of Basic said the amount discussed during the meeting to complete the work was between $100,000 and $200,000. However, a member of Cresson testified on rebuttal that he did not know the job could be completed for $200,000 and Basic never gave the option to continue drilling. Further, a member of Cresson said that after the meeting Basic did not indicate they were going to continue and Cresson wanted to examine its options. After the meeting, the rig was ordered to be taken down and the well was not completed. A Basic employee testified he did not know which company gave the order to take down the rig. Also, a member of Basic testified that the day after the whipstock was found, Lack told him Cresson was not going to spend any more money on the well.

A member of Cresson testified he was never promised the reworking would be a successful project. Additionally, a member of Basic testified that he never promised the rework would be completed, and guarantees are not usually made in the oil services business. Lack testified concurrently that guarantees are not used in the oil services business. At the trial court the jury was instructed that Basic agreed to rework the well, and was asked “Did [Cresson] prove by a preponderance of the evidence that [Basic] failed to comply with the agreement?” The jury answered “No,” and the trial court ruled in favor of Basic. Cresson challenged the legal sufficiency of this finding and claimed there is no evidence to support Basic did not breach the agreement and the finding was against the great weight and preponderance of the evidence. Cresson argued that Basic did not complete the rework, and did not offer to complete the rework after the difficulties arose, so Basic breached its agreement. On the other hand, Basic responded that it made no guarantee the work could be completed, and worked until Cresson decided not to pay anymore.

The issue was whether Basic breached its agreement by not completing the rework of the well? The court found that based on the evidence presented at trial, the jury could have determined the terms of the oral agreement made required Basic to follow the orders of Lack, Cresson’s on-site consultant, since he was supervising for Cresson. Here, Basic’s employees complied with all of Lack’s directions. Additionally, based on the evidence, the jury could have found the order to take down the rig came from Cresson and not Basic. The court ruled “Therefore, we conclude that the evidence is legally sufficient to support the jury’s finding on liability, and because the jury was the sole judge of the witnesses’ credibility, we likewise conclude that the evidence is factually sufficient to support the finding.” The court affirmed the ruling in favor of Basic.

The significance of this case is that there are typically no guarantees in the oil services business to complete work successfully. Therefore, an agreement in the oil services business is not necessarily breached if the project is not completed how it was originally contemplated. The act of drilling and reworking a well can meet unforeseen problems that prevent the goal of an agreement from being realized. It is important to contemplate issues ahead of time and contract what will happen in those scenarios.