In Re: Oracle Oil, LLC

Filing 98

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)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ORACLE OIL, LLC,
Plaintiff

CIVIL ACTION

VERSUS

NO. 18-3674

EPI CONSULTANTS,
Defendant

SECTION: “E”

ORDER AND REASONS
On May 1, 2019, the Court issued its Order and Reasons 1 on the Motion in Limine2
filed by Defendant EPI Consultants (“EPI”), 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). 3
BACKGROUND
Oracle is a company owned solely by Robert “Bob” Brooks. 4 Oracle was the
operator of the Lucille Broussard, et al. No. 1 well (“the well”) located in Vermillion
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

R. Doc. 75.
R. Doc. 20.
3 Pursuant to Rule 54(b), the Court has the authority to modify an interlocutory order. See United States v.
Randa, 709 F.3d 472, 479 (5th Cir.2013) (“Rule 54(b) authorizes a district court to reconsider and reverse
its prior rulings on any interlocutory order for any reason it deems sufficient.”) (internal quotation marks
and citation omitted). The Court may 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 summary judgment); Stephens v. Fla. Marine Transporters, Inc., No. 12-1873, 2013 WL 5236624,
at *1 n. 1 (E.D. La. Sept. 16, 2013) (sua sponte reconsidering a ruling on a motion in limine).
4 R. Doc. 26-2 at ¶ 1; R. Doc. 42-1 at ¶ 1.
5 R. Doc. 1-7 at ¶ 2.
6 Id. at ¶ 3.
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well. 7 Oracle further alleges that EPI set retainers, 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
damages for (1) damage to the well, (2) costs and expenses incurred by Oracle, (3) loss of
reserves and revenue, and (4) costs of drilling a replacement well. 9
To support its damages claim for loss of reserves and revenue, Oracle hired Robert
McGowen, a petroleum engineer, to determine the net revenue the well would have
generated, had the well commenced production. In his expert report, Mr. McGowen
opines the net revenue after production taxes of the well would have been $25,003,325
and the net cash flow after expenses would have been $24,484,899. 10 At deposition, Mr.
McGowen estimated Oracle’s net revenue after production taxes to be $22,142,255. 11
On May 1, 2019, the Court denied the Motion in Limine to exclude the testimony
of Mr. McGowen. The Court reasoned, “[t]he fact that Mr. McGowen does not account for
the cost to redrill the well when estimating the net revenue of Oracle’s interest in the well
does not render his opinion wholly unreliable and inadmissible. Instead, it is appropriate
fodder for cross examination.” 12 Upon reconsideration, the Court finds Mr. McGowen’s
testimony irrelevant and, as a result, unhelpful.
LEGAL STANDARD
Federal Rule of Evidence 401 provides, [e]vidence is relevant if: (a) it has any
tendency to make a fact more or less probable than it would be without the evidence; and
(b) the fact is of consequence in determining the action.” Federal Rule of Evidence 403

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 necessary to enter the land and explore minerals. 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.
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provides, “[t]he court may exclude relevant evidence if its probative value is substantially
outweighed by . . . unfair prejudice, confusing the issues, misleading the jury, undue delay,
wasting time, or needlessly presenting cumulative evidence.”
Federal Rule of Evidence 702 permits an expert witness with “scientific, technical
or other specialized knowledge” to testify if such testimony “will help the trier of fact to
understand the evidence or to determine a fact in issue,” so long as (1) “the testimony is
based upon sufficient facts or data,” (2) “the testimony is the product of reliable principles
and methods,” and (3) “the expert has reliably applied the principles and methods to the
facts of the case.” 13 Courts, as “gatekeepers,” are tasked with making a preliminary
assessment of whether the expert’s testimony is relevant and reliable. 14 The party offering
the expert opinion must show by a preponderance of the evidence that the expert’s
testimony is reliable and relevant. 15
LAW AND ANALYSIS
Oracle hired Mr. McGowen to provide an expert opinion regarding the net revenue
the well would have generated for Oracle, had the well commenced production. 16 Mr.
McGowen explained he “made an estimate of what [he] deemed to be recoverable
hydrocarbons as of April 2008.” 17 Mr. McGowen opines the net revenue after production
taxes on the well would have been $25,003,325 and the net cash flow after expenses would
have been $24,484,899. 18

FED. R. EVID. 702.
See Pipitone v. Biomatrix, Inc., 288 F.3d 239, 243–44 (citing Daubert v. Merrell Dow Pharm., Inc., 509
U.S. 579, 592–93 (1993)).
15 Mathis v. Exxon Corp., 302 F.3d 448, 459–60 (5th Cir. 2002).
16 R. Doc. 20-6 at 2.
17 R. Doc. 20-6 at 5.
18 R. Doc. 20-5 at 3.
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I. Damage Models for Loss of a Well
Where property has been damaged through the fault of another and legal recourse
is sought, the judicial process essentially strives to restore the owner of the damaged
property, as nearly as possible, to his state immediately prior to the damaging
occurrence.” 19 Consequently, “where the thing damaged can be adequately repaired, the
proper measure of damages is the cost of restoration.” 20 If it is not practical to repair the
damaged property, the injured party may be restored to his prior position by an award of
the difference in the value of the property before the damage was inflicted and
immediately afterwards. 21 When this figure cannot be determined with a reasonable
degree of certainty, the damage award should be based upon the cost to replace the
damaged property, minus depreciation. 22 The injured party may also recover expenses
incurred as a result of the damage. 23
When an oil well is damaged or destroyed, this Court must consider these
alternative models of damages to put the injured person in the same position as before
the damage occurred. When the damaged well can be repaired, the proper model of
damages is the cost to repair the well. For example, in JFD Inc. v. Shell Oil Co., the court

19 JFD, Inc. v. Shell Oil Co., No. 79-898, 1988 WL 40260, at *9 (E.D. La. Apr. 27, 1988) (citing Coon v.
Placid Oil Co., 493 So. 2d 1236, 1240 (La. App. 3 Cir. 1986); Petrol Indus., Inc., v. Gearhart–Owen Indus.,
Inc., 424 So. 2d 1059, 1062 (La. App. 2 Cir. 1982)).
20 Petrol, 424 So. 2d at 1062.
21 Petrol, 424 So. 2d at 1062.
22 Petrol, 424 So. 2d at 1062 (awarding cost to drill a new well, minus depreciation); Helmer 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 (affirming award of cost to drill new well); Schexneider v. United
Geophysical Corp., 385 So.2d 533, 536 (La. App. 3 Cir. 1980) (awarding cost to drill new well); Basin
Exploration, Inc. v. Tidewater, 353 F. Supp. 2d 662, 671 (E.D. La. Mar. 10, 2004) (awarding cost of
replacement well). See also Atex Supply Inc. v. Sesco Prod. Co., 736 S.W. 2d 914, 917 (Tex. App. 1987).
23 Helmer, 653 So. 2d at 1250 (awarding costs associated with drilling in wrong direction); Schexneider,
385 So.2d at 536 (upholding an award of costs for additional fuel and oil consumed by the well as a result
of the well's damaged condition); Petrol, 424 So. 2d at 1062 (upholding an award of additional expenses
incurred as a result of the damage).

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awarded the plaintiff workover costs for repairs related to the damaging event. 24 When
the well cannot be repaired or is destroyed, the appropriate damage model is the
difference in value of the well before and after the accident. For example, in Atex Pipe &
Supply, Inc. v. Sesco Production Co., the court found the proper measure of damage for
a destroyed well was “the difference in the reasonable cash market value of the well, as
equipped, immediately before and immediately 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 damage model is the cost of a replacement well, minus depreciation. For
example, in Petrol Industries, Inc. v. Gearhart-Owen Industries, Inc., the court upheld
an award of damages for the cost of a replacement well, less depreciation. 26
II.

Loss of Reserves and Loss of Production Revenue Are Not
Recoverable Damages for Loss of a Well

The Court has found no Louisiana case, and the Plaintiff has cited none, in which
there was a complete loss of the well and the court awarded the amount of revenue the
well would have generated as damages. 27 In this case, Oracle seeks damages as a result of
the “complete loss of the well.” 28 Because the revenue the well would have produced is
not a proper measure of damages, any testimony regarding this amount is irrelevant. 29 As
a result, Mr. McGowen will not be permitted to testify regarding the net revenue of the
well, had it commenced production.

JFD, Inc. v. Shell Oil Co., No. 79-898, 1988 WL 40260, at *5 (E.D. La. Apr. 27, 1988).
Atex Supply Inc. v. Sesco Prod. Co., 736 S.W. 2d 914, 917 (Tex. App. 1987).
26 Petrol Indus., Inc. v. Gearhart-Owen Indus., Inc., 424 So. 2d 1059, 1062 (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 damage).
27 In fact, in Atex Pipe & Supply, Inc. v. Sesco Production Co., the Texas Court of Appeals remanded for a
new trial after the trial court instructed the jury to consider the loss of production when calculating
damages. 736 S.W. 2d 914, 917 (Tex. App. 1987).
28 R. Doc. 1-7 at ¶ 30.
29 FED. R. EVID. 401.
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Further, courts do not allow the recovery of lost reserves or lost revenue from an
oil well because any estimate of these amounts is too speculative to substantiate an award
of damages. Under Louisiana law, damages must be proven with certainty. 30 “Proof to
substantiate a claim for damages must be clear and definite and not subject to
conjecture.” 31 Courts cannot award speculative damages. 32 As a result, proof that
establishes only possibility, speculation or unsupported probability does not establish a
damage claim.” 33
For example, in Coon v. Placid Oil, the court found a damage award, based on a
petroleum engineer’s estimation of reservoir potentials, too speculative to uphold.34
Similarly, in Petrol Industries, Inc. v. Gearhart-Owen Industries, Inc., the court found
estimates 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 damage award. 35
In its findings of fact and conclusions of law in JFD, Inc. v. Shell Oil Co., the court
expressly found “[r]eserve estimates depend on the particular formula used to calculate
the reservoir, and such formulae involve a great deal of uncertainty, fluctuation and are
never 100% accurate . . . reserve estimates are by definition speculative in nature and

Town of Gramercy v. Blue Water Shipping Servs., No. 07-2655, 2009 WL 799709, at *2 (E.D. La. Mar.
24, 2009) (citing Clement v. La. Irrigation & Mill Co., 56 So. 902 (1911); Smith v. White, 411 So.2d 731 (La.
App. 3 Cir. 1982); Coon v. Placid Oil Co., 493 So.2d 1236, 1240 (La. App 1986)).
31 Todd v. State Through Dep't of Soc. Servs., Office of Cmty. Servs., 96-3090 (La. 9/9/97), 699 So. 2d 35,
43 (citing Zion v. Stockfieth, 616 So.2d 1373 (La. App. 5 Cir.)).
32 Overland Sols., Inc. v. Christensen, No. 06-53, 2009 WL 2588232, at *4 (M.D. La. Aug. 21, 2009) (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 Gomez v. St. Jude Med. Daig Div. Inc., 442 F.3d 919, 937 (5th Cir. 2006) (citing 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. 1986).
35 Petrol, 424 So. 2d at 1062.
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subject to numerous variables which would affect the reserve calculations.” 36 In JFD, one
expert testified that reserve estimates are by their very nature theoretical formulae
tempered by historical well data and that any reserve calculation is speculative in nature;
another expert testified that the determination of recoverable reserves changes every time
that the calculation is made. 37 As a result, the court found “the loss of underground
reserves . . . cannot be accurately calculated and compensated by money damages.” 38
Courts have excluded, as too speculative, expert testimony on the economic
potential of a well. For example, in Texocan Operating, Inc. v. Hess Corp., the court
excluded as speculative expert testimony 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 expenses provided by the
plaintiffs without conducting any independent verification of the expenses. 40
Mr. McGowen’s opinion regarding the net production revenue of the well, had it
commenced production, is likewise too speculative to support a damages award and is too
speculative to be reliable and admissible. In calculating the net production revenue, Mr.
McGowen makes numerous assumptions and estimates, including (a) using a structure
map prepared for a unit application, (b) assuming the oil-water contact is the midpoint
between the LKO (-13,912) and the HKW (-14,024) or -13,968, (c) estimating the total oil
in place, (d) estimating the oil recovery assuming a partial water drive, (e) estimating the
ultimate recovery assuming a 70% recovery of the solution-gas-place, (f) estimating the

JFD, Inc. v. Shell Oil Co., No. 79-898, 1988 WL 40260, at *8 (E.D. La. Apr. 27, 1988).
Id.
38 Id.
39 Texocan Operating, Inc. v. Hess Corp., 89 F. Supp. 3d 903, 910-12 (S.D. Tex. Jan. 21, 2015).
40 Id. at 911.
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operating expenses. 41 Additionally, Mr. McGowen does not independently verify the
operating expenses but relies on information provided by Veazey and Associates, Inc. 42
The speculative nature of Mr. McGowen’s estimate is further evidenced by his
acknowledgement that the well never produced, which further reduces the verified
information billed to him. 43 Mr. McGowen will not be permitted to testify regarding the
net revenue of the well, had it commenced production, because this testimony is
irrelevant for two reasons: (1) it does not reflect the correct damages model and (2) it is
speculative.
CONCLUSION
IT IS ORDERED that the Motion in Limine44 seeking to exclude the testimony
of Robert McGowen is GRANTED.
New Orleans, Louisiana on this 24th day of May, 2019.
______________________________
SUSIE MORGAN
UNITED STATES DISTRICT JUDGE

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.
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