Steeger v. Beard Drilling, Inc.

371 S.W.2d 684

Opinions

STEAKLEY, Justice.

Petitioners, W. J. Steeger et ah, as Owner, entered into a written contract with respondent, Beard Drilling, Inc., as Con tractor, for the drilling of a test well for oil and gas. In the course of the drilling operations petitioners instructed respondent to prepare the well as required for the running of an electrical log by Schlumberger, a third party whose specialized services were to be provided by petitioners under the contract. When the depth specified by petitioners was reached, mud was circulated for forty-five minutes, after which, and while in the process of “pulling out of the hole,” the well blew out and caught fire. This suit was thereafter filed by respondent against petitioners to recover the value of respondent’s equipment which was destroyed.

Petitioners filed a cross-action sounding in both tort and contract to recover from respondent the necessary and reasonable cost expended by petitioners in controlling the blowout. The trial court sustained petitioners’ motion for summary judgment as to the portion of respondent’s suit based on the contract. The case was tried to a jury which found that neither party was negligent. The jury also made findings of damages to petitioners caused by the blowout, upon the basis of which the trial court entered judgment for petitioners on their cross-action.

On appeal, the Court of Civil Appeals held that the trial court erred in granting petitioners’ motion for summary judgment, and in entering judgment for petitioners on their cross-action. Further, that the trial court should have rendered judgment in favor of respondent on petitioners’ cross-action since the jury found neither party guilty of negligence. However, the Court of Civil Appeals did not render judgment for respondent for the stated reason that there was no basis in respondent’s pleadings therefor since the trial court had ordered the elimination of respondent’s pleadings on the contract. So the Court of Civil Appeals reversed the judgment of the trial court and generally remanded the cause for further proceedings in accordance with the opinion of the Court. Beard Drilling, Inc. v. Steeger et al., 361 S.W.2d 888.

Petitioners filed application for writ of error asserting error by the Court of Civil Appeals only in its construction of the contract, and in upholding respondent’s right of action under the contract.

The question before us is whether under the written contract of the parties, petitioners assumed the risk of, and agreed to indemnify respondent against, a loss of respondent’s drilling equipment occurring during operations which were preliminary to, preparatory for, and before the actual running of, an electric log. We hold that petitioners did not.

In answering the question in the affirmative, it was the view of the Court of Civil Appeals that the terms “electrical logs” and “electric logging,” as used in the contract, included not only the actual running of the • electrical logs, but, in addition, the work of circulating mud and removing the drill stem preliminary thereto; and that petitioners had agreed to indemnify respondent against the loss which occurred during these preparatory operations.

The testimony of Joe Beard, president of the respondent corporation, as quoted in the opinion of the Court of Civil Appeals, was that the term “electric logging” was generally used to describe that procedure “whereby a company like Schlumberger comes out to a well, lowers certain instruments into the well, shoots electric currents through there for the purpose of conducting certain tests.”

The contract between the parties is quoted in full in the opinion of the Court of Civil Appeals (361 S.W.2d 889-892), to which we refer. We will quote only the provisions of the contract which are deemed controlling.

It is our view that the answer to the problem rests in the delineation of obligations expressed by the parties in paragraph 2 of the contract which speaks in detail of the services, materials and equipment to be furnished by petitioners as Owner, and by respondent as Contractor. With respect to petitioners, paragraph 2a provides :

“2. EQUIPMENT AND LABOR.

“a. FURNISHED BY OWNER. Owner, at his expense, shall furnish the services and materials required of him in said specifications, and in addition, all casing (both surface and production), tubing, wellhead connections, separators, flow lines, and other completion equipment installed in or upon said well and location, and all required services and equipment of third persons for drill stem tests, side wall cores, coring perforations, electrical logs, cementing (including surface and production casing and squeeze jobs), and all cement so required.”

Footnotes

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■ With respect to respondent, paragraph 2b provides:

“2.

“b. FURNISHED BY CONTRACTOR: Contractor, at his expense shall furnish what is required of him in said specifications, and also an adequate rotary drilling rig, including blowout preventer, and all other machinery, tools, equipment, materials, services, and labor necessary or proper in the performance of said work, except those to be supplied by owner as set forth above or im, said specifications

A reasonable construction of the emphasized language in paragraphs 2a and b, above, is that petitioners obligated themselves to furnish the required services and equipment of the third person engaged for electric logs; and that the respondent obligated itself to furnish all other services and labor with respect to the electric logs which would include the process of circulating the mud and removing the drill stem. It is undisputed that preparatory services necessarily precedent to the actual electric logging operation were not a part of the services and labor to be performed by the third person engaged by petitioners to run the electric logs; also, that the labor and services of the third person were not to commence until the well was in a position for the running of the electric log.

In relation to the foregoing, petitioners assumed risk and expense obligations in paragraph E of the specifications as follows:

“E. RISK: The operations enumerated in subdivisions (1) to (9) inclusive of paragraph ‘D-2-b’ immediately above, shall be conducted at owners risk and expense, provided however, that owner shall never be liable for contractor’s negligence or want of skill or diligence, or for failure of contractor’s equipment.”

The operation pertinent here is enumerated in subdivision (4) of paragraph “D-2-b” as “Electric logging.”

In brief, then, petitioners as Owner agreed to furnish at their expense and risk the services and equipment of the third person performing the operation of electric logging, and to indemnify respondent for any loss suffered by respondent during the performance by the third person of the electric logging operation. The parties by their contract measured the risk and expense obligation of petitioners regarding electrical logs by the labor and services of the third person engaged by petitioners to perform the operation; or, as may be otherwise expressed, the parties agreed that petitioners would indemnify respondent for any loss suffered by respondent from anything occurring during the time the equipment and personnel of the third party was running the electric log, and hence during the time the third person would be in control at the well site. The logic of the contract in this respect is self-evident. Respondent stepped aside, and relinquished control of the well, when the third person engaged by petitioners took charge. During the time the third person engaged by petitioners was in control, respondent was protected by the assumption of risk by petitioners. Thus, the crucial point at which petitioners’ indemnity obligation arose was when the third person assumed control of the well for execution of the electric logging operation. The risk and expense obligation of petitioners, defined in paragraph E, coincided precisely with that which they had agreed to furnish and pay for, and for which they had agreed to be responsible.

There is further consistency in paragraph 5 of the contract wherein it was agreed that “except as otherwise provided in said specifications, all work hereunder shall be conducted at Contractors sole risk.” As before noted, the electric logging exception with which we are here concerned was one of a number of exceptions enumerated in the specifications as being at the “Owner’s risk and expense.”

It was also agreed in paragraph 4 of the contract as follows:

“4. OWNER’S PREROGATIVES, ACCESS, AND NOTICE. The size and amount of casing (both surface and production) to be set, and the time, place, manner and extend of all cementing, coring, testing, electric logging, perforating, squeezing, and completing said well shall be determined by owner and conducted accordingly. Owner and his nominees shall have access to the derrick floor and premises at all times, shall be furnished complete samples and full information at the times and places directed by him, and shall be notified and afforded reasonable opportunity to be present and to observe all coring and testing.”

These provisions are consistent with other parts of the contract. Petitioners having assumed the obligations of electric logging at their risk and expense, it was provided that they were to have access to the information developed by the drilling operations, together with the right to determine the enumerated matters, with respect to electric logging. Paragraph 4 gave petitioners the right to determine when drilling would be stopped for an electric log, hence when the mud would be circulated and when the drill stem would be removed; there is no provision giving petitioners the right to determine who would do these things or how they would be done. The latter were the responsibility and prerogative of respondent under the delineation of obligations in paragraphs 2 and 5 of the contract.

It appears that the major consideration in the construction of the contract by the Court of Civil Appeals was the conclusion that the parties intended that respondent and its employees would be subject to petitioners’ direction and control during the preliminary process of circulating the mud and removing the drill stem. The Court further appeared to be influenced principally by the provisions of paragraph 4 of the contract, quoted above. In our view the beginning and major emphasis in construing the contract, and in reaching the intent of the parties, should be upon paragraph 2 in which there was expressed the division of obligations and the objective intent that respondent would furnish all services except those expressly assumed by petitioners. It cannot reasonably be said that the parties contemplated that petitioners would furnish the labor and services involved in circulating the mud and withdrawing the drill stem in preparation for the actual logging operation. Respondent and its employees did not step aside at this stage as they would have done when Schlumberger took charge with its specialized equipment and personnel. We do not regard paragraph 4, when considered in the light of the other provisions of the contract, to be subject to the construction that the parties intended that control of the employees of respondent would pass to petitioners, and that respondent would step aside, upon the exercise by petitioners of their contractual rights to determine the “time, place, manner and extent” of “electric logging.”

In our view, there is no ambiguity-in the contract when considered in all of its provisions and resort to aids in construction is therefore unnecessary, and, indeed, not permissible. Wood Motor Co. v. Nebel, 150 Tex. 86, 238 S.W.2d 181. It is the duty of the Court to construe the contract as an entire instrument, and to consider each part with every other part so that the effect and meaning of one part on any other part may he determined. This process makes clear the intent of the parties and the extent to which they intended to be hound. Citizens National Bank in Abilene v. Texas & P. Ry. Co., 136 Tex. 333, 150 S.W.2d 1003. See also Spence & Howe Construction Co. v. Gulf Oil Corp., Tex., 365 S.W.2d 631, and Ohio Oil Co. v. Smith, Tex., 365 S.W.2d 621.

We sever into one cause respondent’s suit against petitioners to recover the value of its destroyed equipment, as to which we reverse the judgment of the Court of Civil Appeals and affirm the judgment of the trial court granting petitioners’ motion for summary judgment.

We sever into another cause petitioners’ suit in the form of a cross-action against respondent. As to this cause, and without expressing an opinion thereon, we affirm the judgment of the Court of Civil Appeals remanding the case to the trial court for a new trial. Affirmance of the judgment of the Court of Civil Appeals to this extent is required since no error is here asserted by petitioners against the judgment reversing and remanding the judgment of the trial court for petitioners on their cross-action.

All emphasis added.