In Re: Oracle Oil, LLC, No. 2:2018cv03674 - Document 98 (E.D. La. 2019)
Court Description: ORDER AND REASONS - On 5/1/2019, the Court issued its 75 Order and Reasons on the 20 Motion in Limine filed by Defendant EPI Consultants, seeking to exclude testimony from Plaintiff's expert, Robert McGowen. The Court sua sponte reconsiders its Order and Reasons, pursuant to Federal Rule of Civil Procedure 54(b). The MOTION in Limine seeking to exclude the testimony of Robert McGowen is GRANTED. Signed by Judge Susie Morgan on 5/24/2019.(sbs)
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In Re: Oracle Oil, LLC Doc. 98 U N ITED S TATES D ISTRICT COU RT EASTERN D ISTRICT OF LOU ISIAN A ORACLE OIL, LLC, Plain tiff CIVIL ACTION VERSU S N O. 18 -3 6 74 EPI CON SU LTAN TS, D e fe n d an t SECTION : “E” ORD ER AN D REAS ON S On May 1, 20 19, the Court issued its Order and Reasons 1 on the Motion in Lim ine 2 filed by Defendant EPI Consultants (“EPI”), seeking to exclude testim ony from Plaintiff’s expert, Robert McGowen. The Court sua sponte reconsiders its Order and Reason s, pursuant to Federal Rule of Civil Procedure 54(b). 3 BACKGROU N D Oracle is a com pany owned solely by Robert “Bob” Brooks. 4 Oracle was the operator of the Lucille Broussard, et al. No. 1 well (“the well”) located in Verm illion Parish. 5 Oracle alleges it contracted with EPI for EPI to provide consulting engineering services, on-site supervision, and other services in connection with the well in order to rework the well. 6 Oracle alleges that, in connection with the contracted work, EPI used rusty, scaly pipe and failed to properly inspect or clean the pipe before running it in the 1 R. Doc. 75. R. Doc. 20 . 3 Pursuant to Rule 54(b), the Court has the authority to m odify an interlocutory order. See United States v. Randa, 70 9 F.3d 472, 479 (5th Cir.20 13) (“Rule 54(b) authorizes a district court to reconsider and reverse its prior rulings on any interlocutory order for any reason it deem s sufficient.”) (in ternal quotation m arks and citation om itted). The Court m ay exercise this authority sua sponte. See McKethan v. Texas Farm Bureau, 996F.2d 734, 736 n. 6 (5th Cir. 1993) (approving district court's sua sponte reversal of a denial of partial sum m ary judgm ent); Stephens v. Fla. Marin e Transporters, Inc., No. 12-1873, 20 13 WL 5236624, at *1 n. 1 (E.D. La. Sept. 16, 20 13) (sua sponte reconsiderin g a rulin g on a m otion in lim ine). 4 R. Doc. 26-2 at ¶ 1; R. Doc. 42-1 at ¶ 1. 5 R. Doc. 1-7 at ¶ 2. 6 Id. at ¶ 3. 2 1 Dockets.Justia.com well. 7 Oracle further alleges that EPI set retain ers, bridge plugs, and/ or pokers near joints in the casing, causing a split in the casing. 8 As a result of EPI’s actions, Oracle seeks dam ages for (1) dam age to the well, (2) costs and expenses incurred by Oracle, (3) loss of reserves and revenue, and (4) costs of drillin g a replacem ent well. 9 To support its dam ages claim for loss of reserves and revenue, Oracle hired Robert McGowen, a petroleum engin eer, to determ ine the net revenue the well would have generated, had the well com m enced production. In his expert report, Mr. McGowen opines the net revenue after production taxes of the well would have been $ 25,0 0 3,325 and the net cash flow after expenses would have been $ 24,484,899. 10 At deposition, Mr. McGowen estim ated Oracle’s net revenue after production taxes to be $ 22,142,255. 11 On May 1, 20 19, the Court denied the Motion in Lim ine to exclude the testim ony of Mr. McGowen. The Court reasoned, “[t]he fact that Mr. McGowen does not account for the cost to redrill the well when estim ating the net revenue of Oracle’s interest in the well does not render his opinion wholly unreliable and inadm issible. Instead, it is appropriate fodder for cross exam ination.”12 Upon reconsideration, the Court finds Mr. McGowen’s testim ony irrelevant and, as a result, unhelpful. LEGAL STAN D ARD Federal Rule of Evidence 40 1 provides, [e]viden ce is relevant if: (a) it has any tendency to m ake a fact m ore or less probable than it would be without the evidence; and (b) the fact is of consequence in determ ining the action.” Federal Rule of Evidence 40 3 7 Id. at ¶ 5. Id. at ¶¶ 22-24. 9 R. Doc. 1-7. Oracle concedes it cannot recover costs associated with reworking the well as it no longer has the leases n ecessary to enter the land and explore m in erals. R. Doc. 91 at 5 n. 5. 10 R. Doc. 20 -5 at 3. 11 R. Doc. 20 -6 at 4. 12 R. Doc. 75. 8 2 provides, “[t]he court m ay exclude relevant evidence if its probative value is substantially outweighed by . . . unfair prejudice, confusing the issues, m isleading the jury, undue delay, wasting tim e, or needlessly presenting cum ulative evidence.” Federal Rule of Evidence 70 2 perm its an expert witness with “scientific, technical or other specialized knowledge” to testify if such testim ony “will help the trier of fact to understand the eviden ce or to determ ine a fact in issue,” so long as (1) “the testim ony is based upon sufficient facts or data,” (2) “the testim ony is the product of reliable principles and m ethods,” and (3) “the expert has reliably applied the prin ciples and m ethods to the facts of the case.”13 Courts, as “gatekeepers,” are tasked with m aking a prelim inary assessm ent of whether the expert’s testim ony is relevant and reliable. 14 The party offering the expert opin ion m ust show by a preponderance of the eviden ce that the expert’s testim ony is reliable and relevant. 15 LAW AN D AN ALYSIS Oracle hired Mr. McGowen to provide an expert opinion regarding the net revenue the well would have generated for Oracle, had the well com m enced production. 16 Mr. McGowen explained he “m ade an estim ate of what [he] deem ed to be recoverable hydrocarbons as of April 20 0 8.”17 Mr. McGowen opines the net revenue after production taxes on the well would have been $ 25,0 0 3,325 and the net cash flow after expenses would have been $ 24,48 4,899. 18 13 F ED. R. E VID. 70 2. See Pipitone v. Biom atrix, Inc., 28 8 F.3d 239, 243– 44 (citing Daubert v. Merrell Dow Pharm ., Inc., 50 9 U.S. 579, 592– 93 (1993)). 15 Mathis v. Exxon Corp., 30 2 F.3d 448, 459– 60 (5th Cir. 20 0 2). 16 R. Doc. 20 -6 at 2. 17 R. Doc. 20 -6 at 5. 18 R. Doc. 20 -5 at 3. 14 3 I. D am age Mo d e ls fo r Lo s s o f a W e ll Where property has been dam aged through the fault of another and legal recourse is sought, the judicial process essentially strives to restore the owner of the dam aged property, as n early as possible, to his state im m ediately prior to the dam aging occurrence.”19 Consequently, “where the thing dam aged can be adequately repaired, the proper m easure of dam ages is the cost of restoration.”20 If it is not practical to repair the dam aged property, the injured party m ay be restored to his prior position by an award of the difference in the value of the property before the dam age was inflicted an d im m ediately afterwards. 21 When this figure cannot be determ in ed with a reasonable degree of certainty, the dam age award should be based upon the cost to replace the dam aged property, m inus depreciation. 22 The injured party m ay also recover expenses incurred as a result of the dam age. 23 When an oil well is dam aged or destroyed, this Court must consider these alternative m odels of dam ages to put the injured person in the sam e position as before the dam age occurred. When the dam aged well can be repaired, the proper m odel of dam ages is the cost to repair the well. For exam ple, in JFD Inc. v. Shell Oil Co., the court 19 JFD, Inc. v . Shell Oil Co., No. 79-898, 198 8 WL 40 260 , at *9 (E.D. La. Apr. 27, 198 8) (citing Coon v . Placid Oil Co., 493 So. 2d 1236, 1240 (La. App. 3 Cir. 1986); Petrol Indus., Inc., v . Gearhart– Ow en Indus., Inc., 424 So. 2d 10 59, 10 62 (La. App. 2 Cir. 1982)). 20 Petrol, 424 So. 2d at 10 62. 21 Petrol, 424 So. 2d at 10 62. 22 Petrol, 424 So. 2d at 10 62 (awardin g cost to drill a new well, m inus depreciation ); Helm er Directional Drilling, Inc. v. Dexco, Inc., 94-1272 (La. App. 4 Cir. 3/ 29/ 95), 653 So. 2d 1245, 1250 , writ granted, 95-1537 (La. 11/ 13/ 95), 662 So. 2d 452 (affirm in g award of cost to drill n ew well); Schexneider v . United Geophy sical Corp., 385 So.2d 533, 536 (La. App. 3 Cir. 1980 ) (awardin g cost to drill n ew well); Basin Exploration, Inc. v. Tidew ater, 353 F. Supp. 2d 662, 671 (E.D. La. Mar. 10 , 20 0 4) (awarding cost of replacem ent well). See also Atex Supply Inc. v. Sesco Prod. Co., 736 S.W. 2d 914, 917 (Tex. App. 1987). 23 Helm er, 653 So. 2d at 1250 (awardin g costs associated with drillin g in wron g direction); Schexneider, 385 So.2d at 536 (upholdin g an award of costs for additional fuel and oil consum ed by the well as a result of the well's dam aged condition); Petrol, 424 So. 2d at 10 62 (upholding an award of additional expenses incurred as a result of the dam age). 4 awarded the plaintiff workover costs for repairs related to the dam aging event. 24 When the well cannot be repaired or is destroyed, the appropriate dam age m odel is the difference in value of the well before and after the accident. For exam ple, in Atex Pipe & Supply , Inc. v. Sesco Production Co., the court found the proper m easure of dam age for a destroyed well was “the difference in the reasonable cash m arket value of the well, as equipped, im m ediately before and im m ediately after the tubing collapse.”25 When the value of the well before and after the accident cannot be calculated, or is too speculative, the appropriate dam age m odel is the cost of a replacem ent well, m inus depreciation. For exam ple, in Petrol Industries, Inc. v. Gearhart-Ow en Industries, Inc., the court upheld an award of dam ages for the cost of a replacem ent well, less depreciation. 26 II. Lo s s o f Re s e rve s a n d Lo s s o f Pro d u ctio n Re ve n u e Are N o t Re co ve rable D am age s fo r Lo s s o f a W e ll The Court has found no Louisiana case, and the Plaintiff has cited none, in which there was a com plete loss of the well and the court awarded the am ount of revenue the well would have generated as dam ages. 27 In this case, Oracle seeks dam ages as a result of the “com plete loss of the well.”28 Because the revenue the well would have produced is not a proper m easure of dam ages, any testim ony regarding this am ount is irrelevant. 29 As a result, Mr. McGowen will not be perm itted to testify regarding the net revenue of the well, had it com m enced production. 24 JFD, Inc. v. Shell Oil Co., No. 79-898 , 198 8 WL 40 260 , at *5 (E.D. La. Apr. 27, 198 8). Atex Supply Inc. v. Sesco Prod. Co., 736 S.W. 2d 914, 917 (Tex. App. 1987). 26 Petrol Indus., Inc. v. Gearhart-Ow en Indus., Inc., 424 So. 2d 10 59, 10 62 (La. App. 2 Cir. 1982); see also Schexneider, 385 So.2d at 536 (awarding cost to replace well, less depreciation when there was no evidence of the value of the property prior to and after the dam age). 27 In fact, in Atex Pipe & Supply , Inc. v. Sesco Production Co., the Texas Court of Appeals rem anded for a new trial after the trial court instructed the jury to consider the loss of production when calculating dam ages. 736 S.W. 2d 914, 917 (Tex. App. 1987). 28 R. Doc. 1-7 at ¶ 30 . 29 F ED . R. E VID . 40 1. 25 5 Further, courts do not allow the recovery of lost reserves or lost revenue from an oil well because any estim ate of these am ounts is too speculative to substantiate an award of dam ages. Under Louisiana law, dam ages m ust be proven with certainty. 30 “Proof to substantiate a claim for dam ages m ust be clear and definite and not subject to conjecture.”31 Courts cannot award speculative dam ages. 32 As a result, proof that establishes only possibility, speculation or unsupported probability does not establish a dam age claim .”33 For exam ple, in Coon v. Placid Oil, the court found a dam age award, based on a petroleum engineer’s estim ation of reservoir potentials, too speculative to uphold. 34 Sim ilarly, in Petrol Industries, Inc. v. Gearhart-Ow en Industries, Inc., the court found estim ates of the value of a well before the accident, calculated on the basis of future anticipated profits, and the value of the well after the accident were too speculative to serve as a basis for the dam age award. 35 In its findings of fact and con clusions of law in JFD, Inc. v. Shell Oil Co., the court expressly found “[r]eserve estim ates depend on the particular form ula used to calculate the reservoir, and such form ulae involve a great deal of uncertainty, fluctuation and are never 10 0 % accurate . . . reserve estim ates are by definition speculative in nature an d 30 Tow n of Gram ercy v . Blue W ater Shipping Servs., No. 0 7-2655, 20 0 9 WL 79970 9, at *2 (E.D. La. Mar. 24, 20 0 9) (citing Clem ent v. La. Irrigation & Mill Co., 56 So. 90 2 (1911); Sm ith v. W hite, 411 So.2d 731 (La. App. 3 Cir. 198 2); Coon v. Placid Oil Co., 493 So.2d 1236, 1240 (La. App 198 6)). 31 Todd v . State Through Dep't of Soc. Servs., Office of Cm ty . Servs., 96-30 90 (La. 9/ 9/ 97), 699 So. 2d 35, 43 (citin g Zion v. Stockfieth, 616 So.2d 1373 (La. App. 5 Cir.)). 32 Overland Sols., Inc. v. Christensen, No. 0 6-53, 20 0 9 WL 2588 232, at *4 (M.D. La. Aug. 21, 20 0 9) (citing Arco Oil & Gas Co., a Div. of Atlantic Richfield Co. v . DeShazer, 649 So.2d 444, 448 (La. App. 3 Cir. 1994); Coon, 493 So.2d 1236). 33 Gom ez v. St. Jude Med. Daig Div. Inc., 442 F.3d 919, 937 (5th Cir. 20 0 6) (citin g Coon v. Placid Oil Co., 493 So.2d 1236 (La. App. 3 Cir. 1986)). 34 Coon v. Placid Oil, 493 So. 2d 1236, 1241-44 (La. App. 3 Cir. 198 6). 35 Petrol, 424 So. 2d at 10 62. 6 subject to num erous variables which would affect the reserve calculations.”36 In JFD, one expert testified that reserve estim ates are by their very nature theoretical form ulae tem pered by historical well data an d that any reserve calculation is speculative in nature; another expert testified that the determ ination of recoverable reserves changes every tim e that the calculation is m ade. 37 As a result, the court found “the loss of underground reserves . . . cannot be accurately calculated and com pensated by m oney dam ages.”38 Courts have excluded, as too speculative, expert testim ony on the econom ic potential of a well. For exam ple, in Texocan Operating, Inc. v. Hess Corp., the court excluded as speculative expert testim on y regarding the “loss value” to the plaintiff based on the expert’s “forecast” of future production of the well. 39 The court expressed concern that, in calculating the loss value, the expert used operating expen ses provided by the plaintiffs without conducting any in depen den t verification of the expenses. 40 Mr. McGowen’s opinion regarding the net production revenue of the well, had it com m enced production, is likewise too speculative to support a dam ages award and is too speculative to be reliable and adm issible. In calculating the net production revenue, Mr. McGowen m akes num erous assum ptions and estim ates, including (a) using a structure m ap prepared for a unit application, (b) assum ing the oil-water contact is the m idpoint between the LKO (-13,912) and the HKW (-14,0 24) or -13,968, (c) estim ating the total oil in place, (d) estim ating the oil recovery assum ing a partial water drive, (e) estim ating the ultim ate recovery assum ing a 70 % recovery of the solution-gas-place, (f) estim ating the 36 JFD, Inc. v. Shell Oil Co., No. 79-898 , 198 8 WL 40 260 , at *8 (E.D. La. Apr. 27, 198 8). Id. 38 Id. 39 Texocan Operating, Inc. v. Hess Corp., 89 F. Supp. 3d 90 3, 910 -12 (S.D. Tex. J an . 21, 20 15). 40 Id. at 911. 37 7 operating expenses. 41 Additionally, Mr. McGowen does not independently verify the operating expenses but relies on inform ation provided by Veazey and Associates, Inc. 42 The speculative nature of Mr. McGowen’s estim ate is further eviden ced by his acknowledgem ent that the well never produced, which further reduces the verified inform ation billed to him . 43 Mr. McGowen will not be perm itted to testify regarding the net revenue of the well, had it com m enced production, because this testim on y is irrelevant for two reasons: (1) it does not reflect the correct dam ages m odel an d (2) it is speculative. CON CLU SION IT IS ORD ERED that the Motion in Lim ine 44 seeking to exclude the testim ony of Robert McGowen is GRAN TED . N e w Orle a n s , Lo u is ian a o n th is 2 4 th d ay o f May, 2 0 19 . ______________________________ SU SIE MORGAN U N ITED S TATES D ISTRICT J U D GE 41 R. Doc. 20 -5 at 3. R. Doc. 20 -5 at 3; see also R. Doc. 20 -6 at 4. 43 R. Doc. 20 -5 at 1. 44 R. Doc. 20 . 42 8
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