Court: District Court, E.D. Louisiana; May 24, 2019; Federal District Court
On May 1, 2019, the Court issued an Order regarding EPI Consultants' Motion in Limine to exclude the testimony of Plaintiff's expert, Robert McGowen. The Court subsequently reconsidered its decision under Federal Rule of Civil Procedure 54(b). Oracle, owned by Robert Brooks, contracted EPI to provide engineering services for the Lucille Broussard No. 1 well in Vermillion Parish. Oracle claims EPI used defective materials and inadequately inspected the equipment, leading to damages including well damage, incurred expenses, loss of reserves and revenue, and costs for a replacement well.
McGowen, a petroleum engineer, was retained to assess the potential net revenue from the well, estimating it at $25,003,325 after production taxes and $24,484,899 in net cash flow after expenses. However, he did not account for the costs related to redrilling the well. Initially, the Court denied the motion to exclude McGowen's testimony, arguing that the omission did not render his opinion wholly unreliable, rather it could be challenged during cross-examination. Upon reconsideration, the Court found McGowen's testimony irrelevant and unhelpful.
The legal standards referenced include Federal Rules of Evidence 401, 403, and 702, which detail the criteria for relevance and reliability of expert testimony. The offering party must demonstrate the expert's testimony is both reliable and relevant by a preponderance of the evidence. McGowen's role was to provide an expert opinion on the potential net revenue from the well, based on his assessment of recoverable hydrocarbons as of April 2008.
Damage models for the loss of an oil well aim to restore the property owner to their pre-damage state. The primary measures of damages include:
1. **Cost of Restoration**: If the well is repairable, damages equate to the repair costs. For instance, in *JFD Inc. v. Shell Oil Co.*, the court awarded workover costs for repairs.
2. **Difference in Value**: If the well is destroyed or irreparable, damages are based on the difference in the well's market value before and after the incident. This was upheld in *Atex Pipe, Supply, Inc. v. Sesco Production Co.*, where the court assessed the cash market value of the well post-accident.
3. **Replacement Cost**: If the values pre- and post-accident cannot be reliably determined, damages can be awarded based on the cost of a replacement well, minus any depreciation, as seen in *Petrol Industries, Inc. v. Gearhart-Owen Industries, Inc.*.
Additionally, courts do not allow recovery for lost production revenue or reserves due to the speculative nature of such claims. No Louisiana case has awarded damages for the revenue a well would have generated following a complete loss, rendering testimonies about potential revenues irrelevant. Courts require damages to be proven with certainty and not based on conjecture or speculation. Cases such as *Coon v. Placid Oil* and *Petrol Industries, Inc. v. Gearhart-Owen Industries, Inc.* illustrate that estimates based on future profits or unsupported projections are insufficient for awarding damages.
The court in JFD, Inc. v. Shell Oil Co. determined that reserve estimates are inherently speculative due to their reliance on various formulas that involve uncertainty and can fluctuate significantly. Expert testimony in the case confirmed that these estimates are theoretical and influenced by historical data, and the court concluded that the loss of underground reserves cannot be accurately quantified in monetary terms. The court previously excluded speculative expert testimony regarding the economic potential of a well in Texocan Operating, Inc. v. Hess Corp., highlighting concerns over the lack of independent verification of operating expenses used in calculations. Similarly, Mr. McGowen's analysis of potential net production revenue was deemed too speculative due to numerous unverified assumptions and the fact that the well had never produced. Consequently, his testimony regarding potential revenue was ruled irrelevant and inadmissible. The court granted the Motion in Limine to exclude McGowen's testimony and clarified its authority under Rule 54(b) to modify interlocutory orders, allowing for reconsideration of prior rulings.
Oracle acknowledges that it is unable to recover costs related to reworking a well due to the loss of necessary leases for land access and mineral exploration. Relevant case law is cited, emphasizing precedents for awarding costs associated with drilling new wells, such as Helmer Directional Drilling, Inc. v. Dexco, which affirmed cost awards for drilling activities, and Schexneider v. United Geophysical Corp., which upheld awards for additional operational expenses due to well damage. Various cases illustrate that costs for replacing damaged wells and associated expenses can be awarded, albeit typically less depreciation, and highlight the importance of establishing property value pre- and post-damage. Additionally, the excerpt references multiple legal standards and evidentiary rules, asserting the need for precise calculations of damages that include considerations of lost production, as seen in Atex Pipe Supply, Inc. v. Sesco Production Co., which was remanded for a new trial due to jury instruction errors regarding damage calculations.
