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Solstice Oil & Gas I LLC v. Obes Inc.

United States District Court, E.D. Louisiana

May 12, 2015

SOLSTICE OIL & GAS I LLC,
v.
OBES INC. ET AL., SECTION:

ORDER & REASONS

CARL J. BARBIER, District Judge.

Before the Court is Defendant Seneca Insurance Company (Seneca)'s Motion for Summary Judgment (Rec. Doc. 159); oppositions thereto filed by Plaintiff Solstice Oil & Gas I LLC (Solstice) (Rec. Doc. 194) and Third-Party Plaintiff OBES, Inc. (Ole Brook) (Rec. Doc. 195); Seneca's reply (Rec. Doc. 202); and Ole Brook's supplemental memorandum in opposition. (Rec. Doc. 207) Also before the Court is Defendant Commerce & Industry Insurance Company (C&I)'s Motion for Summary Judgment (Rec. Doc. 156), oppositions thereto filed by Solstice (Rec. Doc. 179) and Ole Brook (Rec. Doc. 173), C&I's reply (Rec. Doc. 190), and Seneca's reply to Solstice's and Ole Brook's oppositions. (Rec. Doc. 189) Having considered the parties' submissions, the record, and the applicable law, the Court finds, for the reasons expressed below, that the motions should be GRANTED.

FACTS AND PROCEDURAL BACKGROUND

This action arises out of the drilling of the ML Mann et al. No. 1 Well in West Avondale Field, St. Charles Parish, Louisiana. On August 15, 2011, JAM Petroleum, LLC (JAM) and Solstice entered into a Joint Operating Agreement (JOA) regarding the establishment of oil and gas leases. The JOA provides that JAM is the Operator of leases formed under the agreement, and Solstice is a non-operating interest-holder.

In its role as Operator, JAM contracted with more than eight drilling and servicing companies to drill the Well, including Ole Brook for its directional drilling services. As directional driller, Ole Brook was charged with directing the drilling of the nonvertical wellbore to a predetermined underground target using down hole drilling equipment, including Measurement-While-Drilling (MWD) tools. (Rec. Doc. 159-2, p. 4) The MWD tools allow directional drillers, such as Ole Brook, to plot the course of the drilling and give the driller navigational instructions. Id . Under the terms of JAM's Master Services Agreement (MSA) with Ole Brook, Ole Brook "warrant[ed] that it [was] an expert in its field [of directional drilling]; that all work [would] be performed safely and in a good and workmanlike manner; that [Ole Brook] ha[d] adequate equipment in good working order and fully trained personnel capable of efficiently and safely operating such equipment and performing services." Id. at 3 (emphasis omitted).

JAM hired Nabors Drilling USA, LP (Nabors) to provide the drilling platform and to perform the initial vertical drilling operations. Id. at 3. Accordingly, Nabors drilled the vertical wellbore to roughly 3600 feet. Id. at 5. On or about November 14, 2011, Ole Brook began directionally drilling the Well from approximately 3600 feet. Id .; (Rec. Doc. 195-1, p. 2). Ole Brook continued to directionally drill the Well, in part with the assistance of its subcontractor PinPoint Drilling and Directional Services, LLC, through late December of 2011. Id . Ole Brook was discharged from the project on December 27, 2011, after the parties experienced a number of problems drilling the Well. Id .; (Rec. Doc. 195-1, p. 2).

Thereafter, JAM determined that the Well was "damaged" and had deviated drastically from the target bottom hole location, which prevented JAM from using the Well to test the prospect that it was designed to test. (Rec. Doc. 1; Rec. Doc. 30, p. 2; Rec. Doc. 159-2, p. 6) This deviation and failure necessitated the drilling of a second, side-track well to test the prospect. (Rec. Doc. 159-2, p. 6) Alternative directional drillers completed the second well, which successfully reached the target location but resulted in a dry hole. Id.

On October 1, 2012, Solstice filed suit against Ole Brook and its insurers, Seneca and C&I.[1] (Rec. Doc. 1) Solstice alleges that Ole Brook did not drill the Well according to specifications, resulting in a misshaped Well and causing "physical injury to the Well and to the integrity of the wellbore." Id .; (Rec. Doc. 30, p. 2). Consequently, Solstice claims Ole Brook breached its obligations under the MSA, industry standards, and the standard of performance warranted in the MSA. (Rec. Doc. 1) Solstice brought claims against the insurers under the Louisiana Direct Action Statute, Louisiana Revised Statute Section 22:655. Id . Ole Brook denied the allegations in the complaint and filed counterclaims against Solstice, crossclaims against Seneca and C&I, and third-party complaints against other contractors who were engaged in drilling the Well. (Rec. Doc. 31)

On January 27, 2015, C&I filed its Motion for Summary Judgment. (Rec. Doc. 156) Ole Brook opposed the motion on February 6, 2015 (Rec. Doc. 173), and Solstice filed its opposition on February 10, 2015. (Rec. Doc. 179) C&I replied on February 11, 2015. (Rec. Doc. 190) That same day, Seneca filed a reply to Solstice's and Ole Brook's oppositions to C&I's motion. (Rec. Doc. 189)

Likewise, on January 28, 2015, Seneca filed its Motion for Summary Judgment. (Rec. Doc. 159) Solstice (Rec. Doc. 194) and Ole Brook (Rec. Doc. 195) opposed the motion on February 16, 2015. Seneca replied on February 25, 2015. (Rec. Doc. 202) OBES filed a supplemental memorandum in opposition to the Motion for Summary Judgment on March 4, 2015. (Rec. Doc. 207)

PARTIES' ARGUMENTS

A. Insurers' Motions

Seneca and C&I (collectively, "insurers") argue that they are entitled to summary judgment on Solstice's claims and Ole Brook's crossclaims because their contracts of insurance with Ole Brook do not cover the damages allegedly suffered by Solstice, and even if they did, such damages are excluded from coverage under the policies' exclusions. (Rec. Doc. 159-2; Rec. Doc. 156-1) To begin, C&I argues that Louisiana's choice of law analysis dictates that Texas law applies to the interpretation of the insurance contract. (Rec. Doc. 156-1, pp. 8-9) Seneca asserts, however, that "it is not necessary to determine whether Louisiana law or Texas law applies to the coverage issues presented by th[e] Motion for Summary Judgment, " because Louisiana and Texas law are identical in their interpretation of the insurance contract. (Rec. Doc. 159-2, p. 7)

Insurers argue that their contracts of insurance with Ole Brook do not cover the claimed damages, because Solstice has not made a claim for property damage as it is defined in the policies. Both policies define "property damage" as:

a. Physical injury to tangible property, including all resulting loss of use of ...

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