LPCX CORP. v. Faulkner

1991 OK 46, 818 P.2d 431, 62 O.B.A.J. 1498, 115 Oil & Gas Rep. 281, 1991 Okla. LEXIS 50, 1991 WL 78883
CourtSupreme Court of Oklahoma
DecidedMay 14, 1991
Docket60828
StatusPublished
Cited by21 cases

This text of 1991 OK 46 (LPCX CORP. v. Faulkner) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
LPCX CORP. v. Faulkner, 1991 OK 46, 818 P.2d 431, 62 O.B.A.J. 1498, 115 Oil & Gas Rep. 281, 1991 Okla. LEXIS 50, 1991 WL 78883 (Okla. 1991).

Opinions

[433]*433HARGRAVE, Justice.

The present action, brought in the District Court of Major County; results from the development and operation of the Chester Young No. 1 well in Major County, Oklahoma. Prior to the drilling of this well, the leasehold was owned by Lenard Palm and Cook Exploration. Before drilling, LPCX sold its 50% interest to the ap-pellees listed in the caption as additional appellees, and LPCX continued to represent these additional appellees in the operation of the well. Appellee Withrow purchased a 127⅛ interest from Red Eagle Oil Company, and participated in the development of the well as a nonoperating working interest owner. Thereafter Red Eagle owned a 37½ interest in the lease and was the operator of the well.

The Young well was drilled in June of 1978 into a unit of one section. It was completed into the Mississippi solid formation at a depth of 9,000 feet, producing both oil and gas. Production was sufficient to pay out Withrow’s interest by June of 1980. Production was comparable with other similar wells in the area. The well was swabbed to increase production that month, and at the end of June, defendant’s records show the well was shut in. With-row’s evidence tended to show that there was no indication the well was dying prior to this time. Thereafter Red Eagle performed a workover with their own tools, for the expressed purpose of repairing a casing leak at a cost of $45,863.60. Neither Withrow, LPCX nor any of the additional plaintiffs were notified of this work prior to commencement of the operation.

After the workover the Young well was allowed to produce only sporadically, amounting to 53 hours out of the ensuing 90 days. During these production periods the water/oil ratio was comparable to that production prior to the workover. Plaintiffs were of the opinion that such limited production was not a prudent operating decision, and notified the defendant Red Eagle of that opinion. The same letter sought information on the workover to repair a casing leak. Negotiations thereafter continued and two subsequent actions were taken by Red Eagle Oil Company. First, the defendant filed a lien against Withrow for failure to pay the workover costs charged by the defendant. Second, Red Eagle’s offer to resign as operator of the well was accepted by letter. Filing of the lien resulted in the suspension of With-row’s oil runs by Champlin Oil Company, and Withrow paid the workover costs he is now trying to recover to enable him to again receive his oil run payment.

Upon the preceding factual basis, the plaintiffs LPCX and Withrow brought four causes of action against Red Eagle and Harry Johnson. The first cause of action sought recovery for lost revenues as a result of failure to produce the well and punitive damages. The second cause of action sought a determination that LPCX and Withrow were not liable for the expenses of repairing the casing leak. The third cause sought the return of the amount Withrow had paid for his share of the workover. The last cause sought an order decreeing that Red Eagle had effectively resigned as operator of the Young well. This last cause was not tried to the jury and is not an issue in this appeal.

Plaintiffs contend that the rework operation, which was an attempt to correct a casing leak, was both unnecessary and unauthorized under the provisions of Section 11 of the parties’ operating agreement. It is the plaintiff’s position that the operating agreement specifies notice shall be made before rework operations are begun and that prior notification was not made, that no authorization for expenditures (AFE) letter was sent to him, and in fact he had no actual advance notice.

Plaintiff’s testimony shows his expert opinion to be there was no indication of a casing leak in the Young No. 1 well at the time it was shut in. This testimony additionally shows attempts to repair a casing leak are rework operations, that no prior notification was made, and that receipt of a daily drilling report is not prior notice contemplated in the operating agreement. Withrow also presented evidence that the well should have been placed on continuous production after workover operations [434]*434ceased, considering the condition of the well at that time. It was plaintiff’s position that the imprudent operation of the Young well resulted in a loss of income to him of $19,049 in a period of two years.

At trial, Withrow produced evidence tending to show that the defendants misrepresented well production data in such a manner as to produce the conclusion that the Young well had ceased to be commercially productive. The intent of such a course of action was to pursuade plaintiffs the only viable alternatives left for the well were to sell their interest to Red Eagle or convert it into a salt water well.

Contrarily, the defendants, Red Eagle Oil Company and Harry Johnson, took the position during the trial of this action that the well was shut in because it had a ruptured casing and that the repair cost of over $45,000.00 was the actual expenditure made in furtherance of that repair. They contended that Section 11 of the operating agreement was not triggered, and that if it was, their action complied with that paragraph. An outline of the defense presented includes several points: Repair of a casing leak is not a rework operation as that term is used in Section 11; repair of a casing leak is an emergency measure, which requires no advance notice under the last-mentioned section; if the repair is considered to be a rework operation under the operating agreement, advance notice was not required because when operations to repair began, it was not thought that the remedial action would cost more than $10,-000.00 (the threshold sum at which advance notice of a rework operation is deemed necessary); the notification made in the daily drilling report suffices to comply with the terms of the contract.

In addition to the above enumerated defenses, the defendants asserted a counterclaim against LPCX for its proportionate share of the operating costs incurred by Red Eagle Oil Company on LPCX’s behalf in performing the workover. Red Eagle also asserted a lien arising from the provisions of the operating agreement for these costs and prayed the court for foreclosure thereof.

A four-day jury trial was held in the cause. At the conclusion of the trial Red Eagle renewed their demurrer to the plaintiffs’ evidence in regard to the plaintiffs’ claim for damages, by virtue of fraud and conspiracy to defraud them of their interest in the well. This demurrer was sustained. The issues remaining to be decided by the jury, after LPCX abandoned its first cause of action and the demurrer was sustained to. Withrow’s first cause of action, was liability for the workover expenses. (Withrow’s claim was for return of these expenses and LPCX asserted they were not obligated to pay them.) Red Eagle Oil Company demanded that LPCX pay its share of the workover costs. The jury returned a verdict finding that Withrow was entitled to a return of the expenses and LPCX and the additional plaintiffs were not obligated to pay workover or operating expenses. Judgment was entered in accordance with the jury verdict, and attorney fees were awarded to LPCX and Withrow. From this judgment the defendants appeal.

The defendants assail the judgment on several points. It is argued before this Court there is no competent evidence to sustain the jury verdict, the jury was improperly instructed, and the jury’s verdict forms were improper. The trial court’s award of attorneys’ fees is also appealed.

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LPCX CORP. v. Faulkner
1991 OK 46 (Supreme Court of Oklahoma, 1991)

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Bluebook (online)
1991 OK 46, 818 P.2d 431, 62 O.B.A.J. 1498, 115 Oil & Gas Rep. 281, 1991 Okla. LEXIS 50, 1991 WL 78883, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lpcx-corp-v-faulkner-okla-1991.