Dore Law - April 2020

THE D or É R eport

D ore L aw . com

APRIL 2020

LET ME TELL YOU ANOTHER STORY ... MUD MOTOR MYSTERY

Once upon a time, an O&G service company provided a drilling mud motor to assist in directional drilling of a well in Polk County, Texas. When the $700,000 invoice came through, the customer refused to pay the bill. The objection was that the penetration rate had been only about 6 feet per hour, but when the motor and bit were pulled, replaced, and rerun, the penetration rate jumped to almost 70 feet per hour. That’s where I come into this story. I told my client (the mud motor company) that it sounded like the dispute had some merit, but I’d get to the bottom of it. Initially, I figured my client would need to offer a big discount on their initial bill. After recovery, the investigation found that the hydraulic pressures were good, the mud circulation was unimpeded, and the mud motor was working fine. As it happened, I also represented the company that supplied the drill bit, so I pulled the bit records. Guess what I found? The bit had been completely worn out. The shoulders were gone, and “I learned a lot during this case, but here’s the bottom line: You can’t automatically believe the reason given for a job dispute. The customer might be under hidden financial pressures, and it’s up to the smart oil and gas lawyer to dig them up.” the cutters were almost falling out. This bit had been left in place too long. Worse, the company man who had made the decision

to keep this bit running so long was also one of the owners of the company, my client’s customer. When the bit and motor were replaced, the penetration rate jumped because it was only enlarging the hole to the correct size (called “under-reaming” by you engineering types). When I called the customer’s general counsel to report my findings, she told me she didn’t really care about all of the details. Basically, the customer wanted a discount to resolve the dispute regardless. Fortunately, I had anticipated this position. I told her that I had already obtained authority to offer two options. First, the customer could pay the invoice in three equal monthly installments with no interest, or second, the customer could accept service of process for a lawsuit because there would be no discount. I also explained the uncomfortable position that both I and the general counsel would be in if the first option were rejected. A lawsuit

would mean that my first deposition would be with this company man, and I would have to force him to explain why he’d made such a terrible engineering decision — a decision in contradiction to all the service company recommendations — which he was trying to hide from his investors by putting the blame on his innocent equipment suppliers. The next day, I received a call from the general counsel to accept the three-month payment terms. I learned a lot during this case, but here’s the bottom line: You can’t automatically believe the reason given for a job dispute. The customer might be under hidden financial pressures, and it’s up to the smart oil and gas lawyer to dig them up.

All’s well that ends well, my friends.

-Carl Doré

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