This paper attempts to summarize recent case law developments with significance in the area of oilfield litigation. Special problems and resources to consider are also included.
The Master Service Agreement is typically entered into between larger entities, and covers a number of operations throughout the United States. There is much litigation construing sections of the Master Service Agreement, which can entail risk-shifting agreements, waivers of workers’ compensation subrogation rights, limits on the rights of control, and a number of other issues. See, for example, Nabors Corporate Services, Inc. v. Northfield Insurance Co., 132 S.W.3d 90, 92 (Tex. App.—Houston [14th Dist., no pet.] 2004). You may wish to review the Master Service Agreement and read it with an eye toward the issues which are developing in your case. As Master Service Agreements change from time-to-time, you may wish to obtain copies of the Master Service Agreement from all parties subject to the Agreement to make sure that there are no material changes among the various versions in circulation.
Drilling contracts come in different forms including “Turnkey,” “Day Work,” “Footage,” and a few other variations. The most common examples of these contracts are contained in various International Association of Drilling Contractor (IADC) forms. “Turnkey” drilling is an oilfield term for drilling a well for a fixed price. Much of the risk is allocated to the driller, as it is responsible for reaching a certain depth/formation regardless of the time and resources spent on the effort. “Day Work” contracts and “Footage” contracts, on the other hand, typically allocate much of the risk to the developer of the well, as it can be in more control of the pace of drilling and activities involved in drilling. Again, both “Turnkey” and “Day Work” contracts have been discussed in published case law and are probably worth reviewing in any oilfield litigation relating to drilling. A good description of the differences in these different drilling contracts are found in Mohican Oil & Gas, LLC v. Scorpion Exploration & Production, Inc., 337 S.W.3d 310 (Tex. App.—Corpus Christi 2011, no pet.) and Melvin Green, Inc. v. Questor Drilling Corp., 946 S.W.2d 907 (Tex. App.—Amarillo 1997, pet. denied).
Many Master Service Agreements contain indemnity agreements — some are found in pre-printed form; others are added by lawyers working for one or both of the parties. The indemnity provisions must be carefully read and understood, especially in light of Texas Civil Practice & Remedies Code, §§127-001-007, the Texas Oilfield Anti-Indemnity Statue.
The Oilfield Anti-Indemnity Statute arises in many contexts. For instance, in Ex-Pro Americus, LLC v. Sanguine Exploration, LLC, 351 S.W.3d 915 (Houston App.—14th Dist. 2011, pet. dismissed
) – Sanguine operated an oil and gas lease, and its contractor hired Ex-Pro to perform downhole services. Once the services had been provided, and Ex-Pro gave Sanguine’s contractor a ticket which included an indemnity agreement by which the parties agreed to indemnify each other and procure insurance. Sometime later, Ex-Pro was named as a defendant in a lawsuit for a fatal incident which occurred at the wellsite. Ex Pro demanded indemnity from Sanguine. Both sides sought summary judgment. The Court of Appeals reversed the partial summary judgments below and held that issues of conspicuity and authority/apparent authority precluded summary judgment.
For the interplay between the Texas Workers’ Compensation system and the Texas Oilfield Anti-Indemnity Act, consider Energy Service Co. of Bowie, Inc. v. Superior Snubbing Services, Inc., 236 S.W.3d 190 (Tex. 2007). Energy Service Co. and Superior Snubbing both provided services for Mitchell Energy Corporation, and each signed agreements with Mitchell which included indemnity agreements. Each party agreed to support its obligation with liability insurance so that, to the extent of coverage, the indemnification obligations would not be voided by Texas Oilfield Anti-Indemnity Act. Superior Snubbing’s employee sued Mitchell and Energy Service Co. for injuries he suffered while working at a Mitchell site. Energy Service Co. settled with the Superior employee, and then sued Superior on the indemnity agreement. Superior claimed that because it was covered by a workers’ compensation policy, Energy’s claim was barred by Section 417.004 of the Labor Code. The trial court disagreed and granted summary judgment for Energy. The court of appeals reversed and rendered judgment for Superior. On appeal to the Supreme Court, Superior argued that a contractor working in the oilfield should not be economically pressured into surrendering its statutory immunity from liability for indemnity of an employee’s personal injury claims. The court held that the Texas Oilfield Anti-Indemnity Act was not overridden by amendments to the Workers’ Compensation Act of 1989.
A complication caused by an insurance carrier’s insolvency was the subject of Nabors Corporate Services, Inc. v. Northfield Insurance Co., 132 S.W.3d 90 (Tex. App.—Houston [14th Dist.] 2004, no pet). Abraxas hired Pool to perform work on its oil and gas lease. The agreement between Abraxas and Pool contained an indemnity clause by which the parties agreed to indemnify one another for claims arising from the death or injury of their employees. The parties also agreed to acquire and maintain adequate insurance consistent with the Safe Harbor provisions of the Texas Oilfield Anti-Indemnity Act. A Pool employee was fatally injured at the drilling site, and his estate file suit against Abraxas which in turn demanded defense and indemnity from Pool. Pool’s insurance carrier agreed to indemnify Abraxas and later agreed to settle the case. Unfortunately, the insurance carrier became insolvent before the case was funded. Pool itself contributed $1,000,000.00 to settle the case post-insolvency and sought reimbursement from Abraxas’ insurance carrier, Northfield. After another lawsuit, summary judgment was granted against Pool on its claim that the Anti-Indemnity statute applied. The court of appeals affirmed the summary judgment, holding that Pool’s indemnity obligations were not altered because of the insolvency; Abraxas and its carrier were not required to reimburse Pool for the money paid to settle the underlying claim.