Hess Corporation v. Schlumberger Technology Corporation

Filing 225

MEMORANDUM OPINION AND ORDER denying as moot 212 MOTION FOR RENEWED RULE 52(c) MOTION FOR JUDGMENT ON PARTIAL FINDINGS AS TO THE WELL B(2) VALVE, denying 222 MOTION for Entry of Judgment. (Motion for Attorneys' Fees, Costs, and Expenses due by 11/19/2020.) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
HESS CORPORATION,
Plaintiff,

v.
SCHLUMBERGER TECHNOLOGY
CORPORATION,
Defendant.

§
§
§
§
§
§
§
§
§
§

November 05, 2020
David J. Bradley, Clerk

CIVIL ACTION NO. H-16-3415

MEMORANDUM OPINION AND ORDER

I.

Introduction

6

II.

Findings of Fact

9

Background . . .

9

i.

The Parties

9

ii.

A.

The Wells

9

iii. Federally Required Safety Equipment
iv.

Hess's Request for SCSSV Bids .

12

v.
B

10

The SCSSVs Schlumberger Offered to Sell to Hess

12

The Parties' Agreement for SCSSVs

17

i.

The Commercial Agreement . .

18

ii.

Exhibit A to the Commercial Agreement - Scope of Work
. . . .
. . . . . . . . . . . . . .
. . 18

iii. Exhibit J to the Commercial Agreement-Quality
Standards

19

iv.

The Quality Control Plan . . . . . . . . . . . .

19

v.

The Inspection Matrix . . .

20

vi.

The Master Service Contract

22

C.

Hess Failed to Establish by a Preponderance of the
Credible Evidence that It Justifiably Revoked Its
Acceptance of the Four SCSSVs . . . . . . . .

i.

26

Hess Established by a Preponderance of the Credible
Evidence that Its Acceptance of the SCSSVs was
Induced by Schlumberger's Assurances that They
Complied with API 14A, and by the Inherent Difficulty
of Discovering the Alleged Non-Conformities
26
a.

26

b.
ii.

Hess's 2013 Acceptance of the SCSSVs .
Hess's Second Acceptance of SCSSV H13S-0025
Following Retrofit of MSE Seal Assemblies

30

Hess Established by a Preponderance of the Credible
Evidence that It Timely Revoked Acceptance of the
. . . . . . . . .
SCSSVs . . . . .
32
a.

SCSSV H13S-0010 Installed in Well D

32

(I)

Installation, Production, and Failure

32

(II)

Investigation of Failure . . . .

33

(III) Hess's Revocation of Acceptance
SCSSV H13S-0011 Installed in Well B

37

(I)

Installation, Production, and Failure

37

(II)

b.

36

Hess's Revocation of Acceptance

37
38

Installation, Production, and Failure

38

(II)
d.

SCSSV Hl3S-0022 Installed in Well C
(I)

c.

Hess's Revocation of Acceptance

39

.

scssv Hl3S-0025 Installed in Well B (2).

.

40

(I)

Installation, Production, and Failure

40

(II)

Hess's Revocation of Acceptance

40

. .

iii. Hess Failed to Establish by a Preponderance of the
Credible Evidence that the SCSSVs Did Not Conform to
API 14A, Eleventh Edition . . . . . . . . . . . . 41

-2-

a.

Hess's Claims that the SCSSVs Were Not
Manufactured in Conformity with API 14A,
Eleventh Edition, Are Based on Schlumberger's
Investigations of the Failure of SCSSV H13S-0010
Installed in Well D, and of the Failure of a
Valve Owned by British Petroleum to Pass a Pre­
Installation Make-Up Test . . . . . . . .
41
Investigation of H13S-0010 Failure

41

Investigation of BP Valve Failure .

42

b.

Schlumberger's Expert Witnesses Were More
Credible than Hess's Expert Witness . . .

52

c.

Application of API 14A, Eleventh Edition

53

(I)

(II)

(I)

Section 6.3.2.2 of API 14A . . .
(A)

Hess Failed to Establish by a
Preponderance of the Credible
Evidence that Schlumberger Failed to
Manufacture SCSSVs Hl3S-0010 (Well
D), H13S-0011 (Well B), and H13S0022 (Well C) in Conformity with API
14A§ 6.3.2.2 . . . . .
57
(1)
(2)
(3)
(4)
(5)

(B)

(II)

MSE Seal Assembly Drawings
MSE Assembly Drawings . .
Rosette Spring Drawings .
Certificates of Conformity
Conclusions . . . . .

59
61
62
65
66

Hess Failed to Establish by a
Preponderance of the Credible
Evidence that Schlumberger Failed to
Manufacture SCSSV H13S-0025 (Well
B(2)) in Conformity with§ API 14A,
§ 6.3.2.2 .
67

Section 7.6.2 of API 14 A

(III) Section 7.6.3 of API 14A
iv.

54

72
75

Hess Failed to Establish by a Preponderance of the
Credible Evidence that the Alleged Violations of API
14A, Eleventh Edition, Either Caused the SCSSVs to
Fail or Substantially Impaired the Value of the
SCSSVs to Hess . . . . . . . . . . . . . . . . . 8 0
-3-

a.

The Alleged Violations of API 14A Did Not Cause
the SCSSVs to Fail
. . . . . . . . . 81
(I)

The BP Valve Failure During a Pre­
Installation Test is Not Comparable to
the Post-Installation Hess Valve Failures
. . . . . . . . . . . . . .
. . . . 81

(II)

Hess Failed to Establish by a
Preponderance of the Credible Evidence
that the Rosette Springs Caused the
SCSSVs to Fail . . . . . . . . . . .
83

(III) The Credible Evidence Establishes that
Hess's Operating Practices Caused the
SCSSVs to Fail . . . . . . . . . . .
85
85

(A)
(B )

D.

Hess's Operations of the Wells

90

(1)
(2)
(3)
(4)

v.

Hess's SCSSV Failure Rate Far
Exceeded the SCSSV Failure Rate of
Other Operators . . . . . . . .
89

(C)

b.

Hess's Operating Practices . .

90
93
95
97

Well
Well
Well
Well

D
B
C
B (2)

. . . .

.

.

. .

The Alleged Violations of API 14A, Eleventh
Edition, Did not Substantially Impair the Value
of the SCSSVs to Hess . . . . . . . . . .
99

Hess Failed to Establish by a Preponderance of the
Credible Evidence that Revocation Occurred "before
Any Substantial Change in the Condition of the
[SCSSVs] which [was] Not Caused by Their Own
Defect
100
103

Damages . .

i.

Schlumberger is Not Entitled to a Credit for Hess's
Use of the Failed SCSSVs . . . . . .
104

ii.

Failure of the SCSSVs Caused Hess to Incur the
Following Costs and Loss of Deferred Compensation 105
-4-

a.

Well D Damages . . . . . . . .

. . . . 105

(I)
(II)
b.

Cost of Cover for Failed SCSSV H13S-0010
. . . . . . . .
105
. . . . . . .
Incidental Costs to Retrieve and Replace
Failed SCSSV Hl3S-0010
106

Well B Damages . .

109

(I)

Cost of Cover for Failed SCSSV H13S-0011
. . . . . . . .
109
. . . . . . .

(II)

Incidental Costs to Retrieve and Replace
Failed SCSSV Hl3S-0011 . . .
110

(III) Consequential Loss of Deferred
Compensation .
(IV)
c.

112
114

Conclusions as to Well B .

Well C Damages . . .

115

(I)
(II)
d.

Cost of Cover for Failed SCSSV Hl3S-0022
115
. . . .
. . .
Incidental Costs to Retrieve and Replace
115
Failed SCSSV Hl3S-0022

Well B(2) Damages .

117

(I)

Cost of Cover for Failed SCSSV H13S-0011
. . . . . . .
. . . . . . . ..
118

(II)

Incidental Costs to Retrieve and Replace
118
Failed SCSSV H13S-0011

iii. Conclusions . . .

120

III. Conclusions of Law . . . . . . . . . . . . . . . . . . . .

122

A.

Jurisdiction . . . .

123

B.

Claims for Breach of Contract Under Texas Law . . . .

123

i.

Contracts for Sale of Goods . . . . . . . . . .

124

ll .

Justifiable Revocation of Acceptance

127

-5-

C.

129

D.

Damages

131

E.

Schlumberger's Affirmative Defense of Release and Waiver
and Counterclaim for Indemnity .
136

F.

IV.

Application of Texas Law to the Facts of this Case

Attorneys' Fees .

144
146

Conclusions and Order .
I. Introduction

This is a breach of contract action arising from the failure
of four Surface Controlled Subsurface Safety Valves ("SCSSVs") that
Corporation

Hess

Schlumberger
"Defendant").

("Hess"

Technology

or

"Plaintiff")

Corporation

purchased

("Schlumberger"

from
or

Although Hess asserts claims for breach of contract

pursuant to both Texas common law and the Texas Business and
Commerce Code § 2.608, 1 the court has already held that the two
claims are indistinguishable and that Chapter 2 of the Texas
Business and Commerce Code provides the applicable law.2
Hess claims that Schlumberger breached the parties' contract
by delivering four SCSSVs that did not conform to the terms of the

Third Amended Complaint ("TAC"), Docket Entry No. 71, pp. 2932 'lI'lI 92-104 (breach of contract pursuant to Texas Business and
Commerce Code 'IT 2.608), and 'lI'lI 105-109 (breach of contract). Page
numbers for docket entries in the record refer to the pagination
inserted at the top of the page by the court's electronic filing
system.
1

Memorandum Opinion and Order,
n. 20.
2

-6-

Docket Entry No. 40,

p. 6

parties' agreement at the time of delivery. 3

Hess claims that the

SCSSVs installed in Wells D, B, and C were non-conforming at the
time of delivery because they contained Metal Spring Energized
("MSE") Seal Assemblies that were not manufactured in compliance
with §§

6.3.2.2, 7.6.2, and 7.6.3(c) of the Eleventh Edition of

Specification 14A published by the American Petroleum Institute
("API 14A, Eleventh Edition").4

Hess claims that a second,

replacement, SCSSV installed in Well B was non-conforming at the
time of delivery because it contained MSE Seal Assemblies that were
not manufactured in compliance with§ 6.3.2.2. of API 14A, Eleventh
Edition. 5

Hess claims that the alleged nonconformities caused the

SCSSVs to fail, and that the failures shut in the wells, blocked
production, and substantially impaired the value of the SCSSVs to
Hess. 6

Hess seeks damages totaling $217,900,795.00, consisting of

(1) costs to replace the failed SCSSVs, (2) expenses incurred to
retrieve and replace the failed SCSSVs, and certain lost profits.7
Schlumberger contends that each SCSSV sold to Hess not only
met all the requirements of the parties' agreement but also worked
3

TAC, Docket Entry No. 71, p. 1 � 1.

Hess's Contentions, Exhibit A to Amended
Order, Docket Entry No. 163-1, pp. 2-3 �� 1-12.
4

Joint Pretrial

Id. at 4 �� 13-14. See also Trial Testimony ("TT") 3-20: 720, Docket Entry No. 203, p. 20 (Hess's counsel stating that the
only API 14A violation alleged with respect to Well B(2) is a
violation of § 6.3.2.2).
5

6

Id. at 4 � 15.

Hess's Motion for Judgment, Docket Entry No. 222, p. 45. See
also Hess's Contentions, Exhibit A to Amended Joint Pretrial Order,
Docket Entry No. 163-1, pp. 4-5 �� 16-23 (seeking $2.69 million).
7

-7-

downhole for more than the one-year warranty period.

Schlumberger

contends that the SCSSVS and the MSE Seal Assemblies inside them
met or exceeded the requirements of API 14, Eleventh Edition, that
the rosette springs inside the MSE Seals could not have caused the
SCSSVs to fail, and that the SCSSVs failed because Hess misused
them.

Schlumberger also contends that Hess's claims are barred,

released, and waived. 8
This case was tried to the court from February 3 - 19, 2020.
Pending before the court are Schlumberger Technology Corporation's
Renewed Rule 52(c) Motion for Judgment on Partial Findings as to
the Well B (2) Valve ("Schlumberger's Rule 52 Motion") (Docket Entry
No.

212),

and Hess Corporation's Motion for Entry of Judgment

("Hess's Motion for Judgment") (Docket Entry No.

222).

considering the evidence and arguments at trial,

After

the pending

motions and the response and replies thereto, the court makes the
following findings of fact and conclusions of law pursuant to
Federal Rule of Civil Procedure 52(a)( 1).

Pursuant to the Findings

of Fact and Conclusions of Law, Hess's Motion for Judgment will be
denied, and Schlumberger's Rule 52 Motion will be denied as moot.

Schlumberger's Contentions, Exhibit B to
Pretrial Order, Docket Entry No. 163-2, pp. 2-3.
8

-8-

Amended

Joint

II. Findings of Fact
A.

Background
i.

1.

The Parties

Plaintiff, Hess Corporation, is a Delaware Corporation

engaged in the exploration and production of oil and natural gas
with its principal place of business in New York. 9
2.

Defendant,

Schlumberger Technology Corporation,

is a

Texas Corporation with its principal place of business in Texas. 10

ii.
3.

The Wells

Hess has completed six wells,

named Well A,

Well B,

Well C, Well D, Well E, and Well H, in the Tubular Bells Field, a
development located approximately
Orleans,

Louisiana,

on

the

Outer

135

miles southeast of New

Continental

Shelf

in

the

Mississippi Canyon Area of the Gulf of Mexico. 11
4.

The Tubular Bells Field is a co-owned development. 12

Agreed Findings of Fact 1 and 2, Joint Proposed Findings of
Fact, Exhibit C to Amended Joint Pretrial Order, Docket Entry
No. 163-3, p. 2 (agreed findings of fact appear in black, Hess's
proposed findings of fact appear in green, and Schlumberger's
proposed findings of fact appear in blue). Subsequent references
to this instrument will be referred to only as "Agreed Finding of
Fact.
9

II

10

Agreed Finding of Fact 3.

11

Agreed Finding of Fact 5.

12

Agreed Finding of Fact 8.
-9-

5.

Hess is the operator owning a 57.14% working interest;

Chevron U.S.A.,

Inc. is the non-operator owning the remaining

42. 86% working interest. 13
6.

Pursuant to an October 4,

2011,

Production Handling

Agreement ("PHA") that Hess entered with The Williams Companies
("Williams"), wells in the Tubular Bells Field process hydrocarbons
through the Gulfstar One floating production system. 14
iii. Federally Required Safety Equipment
7.

The

Federal

Government

mandates

that

oil

and

gas

producers drilling wells on the Outer Continental Shelf of the Gulf
of

Mexico

install

safety

and

pollution

prevention

equipment

("SPPE") to prevent an uncontrolled well flow in the event of an
emergency.
8.

30 C.F.R. § 250.B0l(a).
The Bureau of Safety and Environmental Enforcement, the

agency charged with ensuring environmental protection relating to
offshore oil and gas operations, generally considers subsurface
safety valves and associated safety valve equipment to be an
approved type of SPPE.

30 C.F.R. § 250.B0l(a) (4) . 15

13

Agreed Finding of Fact 9.

14

Agreed Finding of Fact 10.

15

Agreed Finding of Fact 16.
-10-

9.
wellbore.

A subsurface safety valve is installed in the upper
A flapper on the downhole end of the valve controls

hydrocarbon flow into the production tubing by stopping production
from reaching the surface when the flapper is closed. 16
10.

Failing

"safe"

meaning

closed

helps

prevent

hydrocarbons from endangering personnel and equipment on the
surface while also preventing potential environmental issues. 17
11.

The subsurface safety valve is an emergency safety

device, not intended or designed for operational activities, such
as production reduction, production stop, or as a backflow valve. 18
12.

The American Petroleum Institute ("API") publishes the

specification API 14A,

which provides the minimum acceptable

requirements for subsurface safety valves. 19

16

Agreed Finding of Fact 19.

17

Agreed Finding of Fact 20.

Stephen Dunn, TT 2-36:19-22, Docket Entry No. 203, p. 36
("The only time we would normally close a safety valve would be for
regulatory testing or perhaps for hurricane abandonment where we're
abandoning a facility or in some emergency situations.").
18

Agreed Finding of Fact 87. API 14A, Eleventh Edition, § 1,
PTX 3, Exhibit 3 to Hess's Motion for Judgment, Docket Entry
No. 222-3, p. 10 ("This International Standard provides the minimum
requirements for subsurface safety valves ( SSSVs).
"). See
also
David Hirth, TT 3-75:22-23, Docket Entry No. 204, p. 75;
Andrew Johansson, TT 7-89:21-90:3, Docket Entry No. 208, pp. 89-90,
and Patrick Hyde, TT 8-98:9-16, Docket Entry No. 209, p. 98.
19

-11-

iv.
13.

Hess's Request for SCSSV Bids

Hess prepared a bid package for SCSSVs for its wells in

the Tubular Bells Field. 20
14.

Hess's bid package listed requirements, including that

"SCSSVS shall be manufactured,

tested,

and monogrammed to the

latest edition of API 14A. " 21

v.
15.

The SCSSVs Schlumberger Offered to Sell to Hess

Schlumberger responded to Hess's Bid Request by proposing

to supply 5-1 /2" TRC-II-15K safety valves,

Part Number

("PN'')

101091732, for Hess's wells. 22
16.

The TRC-II-15K SCSSV, PN 101091732, that is the subject

of this lawsuit was designed in 2012, but most of its components
were validated under an earlier valve design, the TRC-DH-15F, PN
23439-000-00001, 23 which passed validation requirements of API 14A,
Tenth Edition, for Class 1 and 2 service, as confirmed by Southwest
Research Institute ("SWRI") Test Report No. 1662, dated March 29,
2002. 24

20

Agreed Finding of Fact 48.

Agreed Finding of Fact 84. See also GoM - Tubular Bells &
Llano 4 Bid SCSSV Requirements, April 16, 2012, p. 9 of 17, PTX 2,
Exhibit 2 to Hess's Motion for Judgment, Docket Entry No. 222-2,
p. 10.
21

22

Agreed Findings of Fact 51-52.

Rebuttal Expert Report of David E. McCalvin ("McCalvin
Rebuttal Report"), p. 51, Exhibit 28 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-30, p. 58.
23

24

Agreed Finding of Fact 152.
-12-

17.

The design of the 5-1/2" TRC-II-15K SCSSV, PN 101091732,

was therefore "grandfathered" from the design of the 5-1/2" TRC-DH15F as explained in Schlumberger

Justification Document, PDM

#101134016, dated June 6, 2012.25
18.
applying

Grandfathering is a common means of interpreting and
the

Design

Change

section

of

API

14A

for

existing

products.26
19.

The Schlumberger 5-1/2" TRC-II-15K SCSSV, PN 101091732,

is approximately 15 feet long, about 8-1/2" in diameter, and weighs
about 1,600 pounds.27
20.

The 5-1/2" TRC-II-15K SCSSV, PN 101091732, contains two

separate rod piston systems connected to indivictual hydraulic
pressure control lines.28

Andrew Johnston, TT 6-216:9-19, Docket Entry No. 207, p. 216.
Hess FF 148 (recognizing that Schlumberger "grandfathered" the 51/2" TRC-II-15K safety valve to previously certified safety valves
and components). See also Hess's Proposed Finding of Fact 151
(recognizing that "Schlumberger represented that it grandfathered
the safety valve itself from the 'exceptionally reliable' TRC-DH
safety valve, which Schlumberger designed and certified for a
different client in the early 2000s.").
25

McCalvin Rebuttal Report, pp. 25-27, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, pp. 32-34 ( "Bridging and Grandfathering under API
14A").
26

27

David Hirth, TT 2-101:10-13, Docket Entry No. 203, p. 101.

David Hirth, TT 2-110:24-111:4, Docket Entry No.
pp. 110-111 (describing 2 pistons on the TRC-II-15K SCSSV).
28

-13-

203,

21.

By applying hydraulic pressure through the control lines,

the rod piston systems may be used simultaneously or independently
to open and close the valve. 29
22.

Each rod piston system includes five (5) Metal Spring

Energized ( "MSE") Seal Assemblies for a total of ten (10) in each

scssv. 30
23.

The MSE Seal Assembly is cylindrical in shape and smaller

in diameter than a quarter-dollar coin. 31
24.

When fitted onto a piston the MSE Seal Assembly is

capable of holding pressure from one direction by creating a seal
between the rod piston system and the bore through which the rod
piston moves as the valve opens and closes. 32

29

David Hirth, TT 2-111:13-25, Docket Entry No. 203, p. 111.

DavidHirth, TT 2-112:9-121:7, Docket Entry No. 203, pp. 112121 (describing the MSE Seals in the TRC-II-15K SCSSV). See also
Field Return Analysis Revision 7, p. 18 of 55, Exhibit 49 to Hess
Corporation's Motion for Judgment, Docket Entry No. 222-51, p. 19.
30

David Hirth, TT 2-117:18-21, Docket Entry No. 203, p. 117
(describing MSE seal as "cylindrical"). See also Mccalvin Rebuttal
Report, pp. 175-76, DX 71, Exhibit 28 to Schlumberger's Response to
Motion for Judgment, Docket Entry No. 223-31, pp. 62-63 (photos
comparing size of MSE Seal and MSE Seal component parts to a
quarter dollar coin).
31

David Hirth,
pp. 119-20.
32

TT 2-119:22-120:12,
-14-

Docket Entry No.

203,

25.

MSE Seal Assemblies are comprised of the following four

components: (1) a hat ring,

(2) a MSE Assembly,

(3) a V-ring, and

(4) a female adapter. 33
26.

The MSE Assembly34 consists of four components:

jacket enclosing two metal rosette springs,

(1) a

(2) an inner (nose)

rosette spring and (3) an outer (tail) rosette spring, and (4) a
support ring separating the two rosette springs. 35
27.

When

operating

correctly

the

rosette

springs

press

outward against the jacket forcing the outer surface of the jacket
against the inner surface of the piston bore to form a seal between
the piston and the piston bore. 36

33

David Hirth, TT 2-115:18-119:17, Docket Entry No. 203,
See also Plaintiff's
pp. 115-19 (describing MSE seals).
Demonstrative Exhibit 4 (demonstrative photo of MSE seal showing
component
parts); Andrew Johnston, TT 8-7:14-23, Docket Entry
No. 209, p. 7; Field Return Analysis Revision 7, p. 18 of 55,
Exhibit 49 to Hess Corporation's Motion for Judgment, Docket Entry
No. 222-51, p. 19; Greene Tweed MSE Seal Assembly Drawings, DX 27
(MSE Seal with Teflon V-Ring), and DX 28 (MSE Seal with Chemraz V­
Ring).
An MSE Seal Assembly differs from an MSE Assembly which is
a component of an MSE Seal Assembly.
34

David Hirth, TT 2-116:16-117:8, Docket Entry No. 203,
pp. 116-17.
See also Plaintiff's Demonstrative Exhibit 4
(demonstrative photo of MSE seal showing component parts).
35

David Hirth, TT 2-117:11-118:12, Docket Entry No. 203,
pp. 117-18. See also David Mccalvin, TT 8-215:22-24, Docket Entry
No. 209, p. 215 (stating that the MSE jacket component of the MSE
seal assembly is the actual seal).
36

-15-

28.

The MSE Assembly jacket is graphite filled Teflon.37

29.

The V-ring is a secondary sealing element.38

30.

V-rings are made of either (1) Chemraz, a type of rubber

resistant to chemicals; or (2) PTFE, a rigid plastic also known as
Teflon.39
31.

The

MSE

Seal

Assembly

with

Chemraz

V-ring

is

PN 100066417. 40
32.

The MSE Seal Assembly with

PTFE

(Teflon) V-ring is

PN 23550-028-0001. 41
33.

Apart from the V-ring material,

MSE Seal Assemblies

PN 100066417 and PN 23550-028-00001, are the same.42
34.

The

sealing

surfaces

of

the

MSE

Seal

Assemblies

PN 100066417 and PN 23550-028-00001 are composed entirely of non­
metallic substances.43
Agreed Finding of Fact 162.
See also David Hirth, TT 2118:5-6, and 2-203:5-9, Docket Entry No. 203, pp. 118 and 203
(stating that MSE jackets are made of PTFE, a rigid plastic also
known as Teflon).
37

38

David Hirth, TT 2-119:1-2, Docket Entry No. 203, p. 119.

David
pp. 155-56.
39

Hirth,

TT

2-155:24-156:7,

Docket

Entry

No.

203,

Andrew Johnston, TT 6-214:1-3, Docket Entry No. 207, p. 214.
See also David Mccalvin, TT 8-186:22-187:4, Docket Entry No. 209,
pp. 186-87.
40

Andrew Johnston, TT 6-213:24-214:1, Docket Entry No. 207,
pp. 213-14. See also David Mccalvin, TT 8-186:22-187:4, Docket
Entry No. 209, pp. 186-87.
41

Andrew Johnston, TT 6-214:4-7, Docket Entry No. 207, p. 214.

42

43

Patrick Hyde, TT 8-88:22-89:8, Docket Entry No. 209, pp. 88(continued...)
-16-

35.
qualified

Schlumberger
testing

of

successfully
MSE

Seal

completed

Assemblies,

API
PN

14A

dynamic

100066417

and

PN 23550-028-00001, in February of 2004, as documented in a report
numbered ET20049950. 44
36.

The Bill of Materials listing all of the components

needed to build a SCSSV, PN 101091732, lists both types of MSE Seal
Assembly, Chemraz, PN 100066417, and Teflon, PN 23550-028-00001. 45

B.

The Parties' Agreement for SCSSVs

37.

Hess agreed to purchase Schlumberger's 5-1/2" TRC-II-15K

SCSSVs, PN 101091732, for $572,430.00 per valve. 46

( ••• continued)
89.
See also David Hirth, TT 2-203:5-9, Docket Entry No. 203,
p. 203 (Q: Now, the seal in this case is the plastic jacket that we
talked about, correct? A. That is correct. Q. It's obviously, a
non-metallic seal? A. Correct.").
43

Andrew Johnston, TT 6-213:12-214:10, Docket Entry No. 207,
pp. 213-14. See also David Mccalvin, TT 8-186:17-187:4, Docket
Entry No. 209, pp. 186-87; Mccalvin Rebuttal Report, pp. 65-71, DX
71, Exhibit 28 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-20, pp. 73-78 (describing validation
of MSE Seals used in Schlumberger TRC-II-15K SCSSV); DX 29, Test
TRC SCSSV Hydraulic Seal Dynamic Test, ET
Plan/Report
# ET20049950, February 6, 2004, Exhibit 21 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-23;
and David Hirth, TT 2-180:11-13, Docket Entry No. 203, p. 180
(acknowledging that the MSE Seal Assemblies were API qualified in
2004).
44

Andrew Johnston, TT 6-217:24-218:5, TT 7-18:17-20:10,
744:20-45:4, Docket Entry No. 207, pp. 217-18, and Docket Entry
No. 208, pp. 18-20, 44-45 (explaining what a Bill of Materials is
and how the industry uses part numbers to maintain control over
various designs). See also, DX 33, Bill of Materials for 5-12"
TRC-II-15K SCSSV, PN 101091723.
45

46

Jason Sapp, TT 5-70:1-22, Docket Entry No. 206, p. 70.
-17-

i.
38.

The Commercial Agreement

The

parties

Schlumberger's

sale

of

memorialized
5-1/2"

their

agreement

TRC-II-15K

SCSSVs

regarding

to

Hess

in

Commercial Agreement Number 46000010410, effective April 18, 2012. 47
39.
Hess

with

The Commercial Agreement required Schlumberger to provide
SCSSVs

that

met "the

latest

editions

of"

certain

specifically enumerated and other generally identified industry
standards

and

specifications,

including

American

Institute Specification for Subsurface Safety Valve
ANSI/API Specification 14A

("API 14A")

Petroleum
Equipment

a commonly accepted

industry specification for subsurface safety valve equipment. 48
40.

The Commercial Agreement is an unambiguous, valid, and

enforceable contract between the parties. 49
ii.
41.

Exhibit A to the Commercial Agreement-Scope of Work

Exhibit A to the Commercial Agreement titled "Scope of

Work General" incorporates by reference Revision

Five of the

Tubular Bells Bid Request dated April 16, 2012. 50
Commercial Agreement, PTX 1, Exhibit 1 to Hess's Motion for
Judgment, Docket Entry No. 222-1.
47

48

Agreed Finding of Fact 64.

49

Agreed Finding of Fact 63.

50

Agreed Finding of Fact 83.
-18-

See also Commercial Agreement
(continued... )

42.

Revision Five of the Tubular Bells Bid Request states

that "SCSSVs shall be manufactured, tested, and monogrammed to the
latest edition of API 14A."51
iii. Exhibit J
Standards
43.

to

the

Commercial

Agreement-Quality

Exhibit J to the Commercial Agreement sets out general

Quality Standards agreed upon by the parties. 52
44.

Section 2.4 of Exhibit J to the Commercial Agreement

states that Schlumberger "shall demonstrate its Quality Assurance
of activities through all stages of the Agreement in a contract
specific

Quality

Plan

which

upon

[Hess's]

request

shall

be

submitted for [Hess's] review within 4 weeks of contract award." 53
iv.
45.

The Quality Control Plan

The Quality Control Plan ("QCP"), 101087146 Revision AA,

for the Tubular Bells safety valves was approved by Schlumberger
and Hess on March 22, 2012. 54
continued)
Exhibit A, PTX 1, Exhibit 1 to Hess's Motion for Judgment, Docket
Entry No. 222-1, p. 12.
50 (
•••

Agreed Finding of Fact 84. See also GoM - Tubular Bells &
Llano 4 Bid SCSSV Requirements, p. 9 of 17, PTX 2, Exhibit 2 to
Hess's Motion for Judgment, Docket Entry No. 222-2, p. 10.
51

Commercial Agreement, Exhibit J, PTX 1, Exhibit 1 to Hess's
Motion for Judgment, Docket Entry No. 222-1, pp. 71-81.
52

53

Id. at § 2.4, Docket Entry No. 222-1, p. 75.

Agreed Finding of Fact 128. See also Quality Control Plan,
DX 16, Exhibit 15 to Schlumberger's Response to Hess's Motion for
(continued...)
54

-19-

46.

The QCP states that "CHPC [Completions Houston Product

Center] Quality Management Systems are certified to ISO 9001 and
ISO 29001.

CHPC is also certified by the American Petroleum

Institute to API Spec Ql and authorized to apply the API monogram
to products manufactured in accordance with API Specs 14A, 14L, and
1101. This QCP includes all standard manufacturing requirements. " 55
47.

Peter Koopmans approved the QCP on behalf of Hess. 56
v.

48.

The Inspection Matrix

The Inspection Matrix for QCP 101087146 Revision AA for

the Tubular Bells SCSSVs was approved by Schlumberger and by Hess
on June 3, 2013. 57
49.

Chad Brasseaux approved the Inspection Matrix on behalf

of Hess. 58

continued)
Judgment, Docket Entry No. 223-16.
54 (
•••

Agreed Finding of Fact 129. See also Quality Control Plan,
DX 16, Exhibit 15 to Schlumberger's Response to Hess's Motin for
Judgment, Docket Entry No. 223-16, p. 2; Andrew Johnston, TT 6207: 24-208: 12, Docket Entry No. 207: 207-08 (defining "CHPC" as
Schlumberger's Completions Houston Product Center).
55

56

Agreed Finding of Fact 130.

Agreed Finding of Fact 131.
Inspection Matrix, DX 17,
Exhibit 16 to Schlumberger's Motion for Judgment, Docket Entry
No. 223-17.
57

58

Agreed Finding of Fact 132.
-20-

50.

The Inspection Matrix assigns a Class to each part and

identifies the possible Class designations as 1. Critical, 2. Non­
critical, 3. Elastomer, or 4. Hardware. 59
51.

The Inspection Matrix identifies the MSE Seal Assemblies

used in the SCSSVs purchased by Hess as PN 100066417 and PN 23550028-0001.60
52.

The Inspection Matrix designates MSE Seal

Assembly,

PN 10006417, as Class 3, Elastomer, not as Class 1, Critical.61
53.

The Inspection Matrix designates MSE Seal

PN 23550-028-00001,

as

Class

3,

Elastomer,

not

as

Assembly,
Class

1,

Critical. 62

Inspection Matrix, p. 1, DX 17, Docket Entry No. 223-1 7,
p. 2. See also Andrew Johnston, TT 7-33:13-34:21, and 7-39:2540:5, Docket Entry No. 208, pp. 33-34, and 39-40 (stating that
Schlumberger's clients have full control as to these class
definitions).
59

60Inspection Matrix, DX 17, Exhibit 16 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-17.
See also Andrew Johnston, TT 7-44:20-45:7, Docket Entry No. 208,
pp. 44-45.

61Inspection Matrix, p. 2, Exhibit 16 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-17,
p. 3.
See also Andrew Johnston, TT 7-40:14-41:1, Docket Entry
No. 208, pp. 40-41.
Inspection Matrix, p. 1, Exhibit 16 to Schlumberger's
Response to Hess's Motion for Judgment, , Docket Entry No. 223-17,
p. 2.
See also Andrew Johnston, TT 7-34:22-35:4, Docket Entry
No. 208, pp. 34-35.
62

-21-

vi.
54.

The Master Service Contract

The Commercial Agreement incorporates by reference Master

Service Contract

No.

7525

("MSC")

entered

into

by

Hess

and

Schlumberger effective February 6, 2000. 63
55.

The

MSC

is

an

unambiguous,

valid,

and

enforceable

contract between the parties. 64
56.

The MSC states that it "shall control and govern all work

performed by [Schlumberger] for [Hess], and shall be deemed to be
incorporated in full in every subsequent oral and/or written work
or purchase order, service agreements or other project documents. " 65
57.

The MSC contains the following express warranty:

[Schlumberger] warrants that all equipment, products,
materials and other iterns furnished hereunder shall:
(1) be new if specified by [Hess]; (2) be free from
defects in design, materials, fabrication and other
workmanship; and (3) conform to [Hess]'s specifications,
drawings or other descriptions contained in the
applicable service agreement, purchase order, work order
or other project document. [Schlumberger] warrants that
all work and other services performed hereunder (whether
by [Schlumberger], its subcontractors or other parties
for whom it is responsible) shall be free from all faults
and defects and of a quality consistent with the
prevailing standards of workmanship for experienced
contractors with expertise in the particular type of work
or service being performed In the event of a breach of
any of the foregoing warranties, [Schlumberger] shall,
promptly after receipt of written notice thereof from
Agreed Finding of Fact 69-7 0. See also Commercial Agreement,
§ 2, PTX 1, Exhibit 1 to Hess's Motion for Judgment, Docket Entry
No. 222-1, pp. 4-5.
63

64

Agreed Finding of Fact 68.

MSC, § 1, Exhibit 68 to Schlumberger's Response to Hess's
Motion for Judgment, Docket Entry No. 223-72, p. 3.
65

-22-

[Hess] and at [Schlumberger]'s sole cost, repair or
replace (as determined by Schlumberger) all applicable
equipment, products, materials, work, services, and other
iterns necessary to cure the breach of warranty, as
confirmed by [Hess], whose approval shall be unreasonably
withheld.66
58.

The MSC limits Schlumberger's warranties to "a period of

one (1) year after [Schlumberger]'s delivery and/or installation
lf67

(if performed by Schlumberger)
59.

The MSC expressly and conspicuously disclaims all other

express or implied warranties:
[SCHLUMBERGER] MAKES NO OTHER WARRANTY AS TO PRODUCTS,
WORKMANSHIP OR MERCHANTABILITY, WHETHER EXPRESSED OR
IMPLIED (INCLUDING, WITHOUT LIMITATION, THAT THE PRODUCTS
OR SERVICES SHALL BE FIT FOR ANY PARTICULAR PURPOSE),
EXCEPT AS EXPRESSLY STATED HEREIN OR IN AN EXPRESS
AMENDMENT HERETO.68
60.

Section 13 of the MSC contains a series of indemnity and

release provisions.69
61.

Section 13 (b) of the MSC provides that both Hess and

Schlumberger agreed that the "release" and "indemnity obligations"
were:
Without regard to the negligence . . . breach of warranty
[or] defective condition (whether pre-existing or
otherwise) of any . . . equipment, materials, tools, or
other item whatsoever" and that "it is the specific and
expressed intent and agreement of the company and the
contractor that all release, defense, hold harmless and
66Id., Docket Entry No. 223-72, pp. 3-4.

67Id., Docket Entry No. 223-72, p. 4.
68Id.

69Agreed Finding of Fact 76.
-23-

indemnity obligations and other liabilities assumed by
[Hess] and [Schlumberger] respectively under Sections
13(c) and (d) shall be without regard to the negligence
(whether sole, joint, or concurrent, active or passive),
breach of warranty, strict liability, premises liability,
defective condition (whether pre-existing or otherwise)
of any facilities, equipment, materials, tools, or other
item whatsoever, the unseaworthiness of any vessel or
unairworthiness of any aircraft and appurtenant equipment
furnished, chartered, operated or otherwise utilized
hereunder or any other fault of the indemnified parties
or any other party excepting only the gross negligence,
recklessness or willful misconduct of the [Hess] group or
[Schlumberger] group. 70
62.

Section 13(c)(1) of the MSC provides in relevant part

that Hess
SHALL FULLY RELEASE,
DEFEND,
INDEMNIFY AND HOLD
[ SCHLUMBERGER] HARMLESS FROM AND AGAINST ALL CLAIMS
BROUGHT BY OR ON BEHALF OF ANY PARTY OR PERSON FOR ANY
AND ALL:
(iii) DAMAGE TO OR LOSS OF PROPERTY OF [HESS] AND ITS
EMPLOYEES, WHETHER REAL OR PERSONAL (INCLUDING, WITHOUT
LIMITATION, PRODUCTION AND DRILLING EQUIPMENT, WELLBORE,
CASING, SUBSURFACE RESERVOIRS AND ANY OIL AND GAS OR
OTHER HYDROCARBON SUBSTANCES LOCATED THEREIN) WHENEVER
AND WHEREVER OCCURRING, ARISING DIRECTLY OR INDIRECTLY
OUT OF OR IN ANY WAY INVOLVING [SCHLUMBERGER]'S WORK AND
OTHER OPERATIONS (INCLUDING ACTS AND OMISSIONS), THE
PRESENCE AT [HESS]'S WORK LOCATIONS HEREUNDER OF
[SCHLUMBERGER]'S EMPLOYEES AND ALL VEHICLES, VESSELS,
EQUIPMENT, TOOLS, MATERIALS, AND OTHER ITEMS WHATSOEVER
FURNISHED, DELIVERED, STORED, OR OTHERWISE HANDLED BY
[SCHLUMBERGER] (INCLUDING ALL TRANSPORTATION OF PERSONNEL
AND PROPERTY TO AND FROM THE WORK LOCATIONS AND LOADING
AND UNLOADING OPERATIONS), WITHOUT LIMIT AND REGARDLESS
OF CAUSE OR FAULT, AS PARTICULARLY DESCRIBED IN SECTION
13(b) ABOVE. . . . 71

Agreed Finding of Fact 51 (quoting MSC, § 13(b), Docket Entry
No. 223-72, p. 7).
70

71

MSC, § 13(c)l, Docket Entry No. 223-72, pp. 7-8.
-24-

63.

Section 13(c)(2) provides in relevant part that Hess

SHALL FULLY RELEASE,
DEFEND,
INDEMNIFY AND HOLD
[SCHLUMBERGER] HARMLESS ON ACCOUNT OF LOSS OF OR DAMAGE
TO [SCHLUMBERGER]'S PROPERTY, EQUIPMENT, MATERIALS, OR
PRODUCTS WHEN SUCH LOSS OR DAMAGE OCCURS:
(i) IN THE WELLBORE OR BELOW THE ROTARY TABLE (E.G. IF
[SCHLUMBERGER]'S EQUIPMENT OR OTHER PRODUCT BECOMES
IRRETRIEVABLE, AS DETERMINED BY [HESSS] AS OPERATOR OF
THE WELL)[;]

(iv) WHILE LOCATED AT THE WELL SITE WHEN [SCHLUMBERGER]
PERSONNEL AR ENOT PRESENT; OR
(v) WHILE BEING USED BY ANY PERSON OTHER THAN A MEMBER
OF [SCHLUMBERGER] GROUP, WHETHER IN AN EMERGENCY OR
OTHERWISE;
In the event any of Contractor's tools, instruments or
other equipment are damaged, lost or determined to be
irretrievable by [Hess], as operator of the well, [Hess]
shall reimburse [Schlumberger] for the reasonable,
documented costs to repair or replace said equipment,
whichever is less (or if said equipment is lost or
otherwise determined to be irretrievable by [Hess], the
72
costs to replace same).
64.

Section 13(i) provides that

IN THE EVENT THAT EITHER PARTY HERETO IS REQUIRED TO SEEK
JUDICIAL ENFORCEMENT OF THE CONTRACTUAL INDEMNITIES AND
OTHER OBLIGATIONS AND LIABILITIES OF THE OTHER PARTY, THE
PARTY ENTITLED TO SUCH PROTECTION HEREUNDER SHALL RECOVER
ALL REASONABLE ATTORNEYS' FEES, COURT COSTS AND OTHER
EXPENSES INCURRED IN CONNECTION WITH PURSUING THAT CLAIM
THROUGH LITIGATION OR OTHERWISE.73

72
73

Id. § 13(c)2, Docket Entry No. 223-72, p. 8.
Id. § 13(c)2(i), Docket Entry No. 223-72, p. 13.
-25-

C.

Hess Failed to Establish by a Preponderance of the
Credible Evidence that It Justifiably Revoked Its
Acceptance of the Four SCSSVs

65.

The SCSSVs at issue are Serial Numbers:

installed in Well D;

(1) H13S-0010

(2) H13S-0011 installed in Well B;

0022 installed in Well C; and

(4) H13S-0025,

(3) H13S-

the second SCSSV

installed in Well B after H13S-0011 failed.
i.

Hess Established by a Preponderance of the Credible
Evidence that Its Acceptance of the SCSSVs was
Induced by Schlumberger's Assurances that They
Complied with API 14A, and by the Inherent
Difficulty of
Discovering
the
Alleged
Non­
Conformities
a.

66.

Hess's 2013 Acceptance of the Four SCSSVs

Schlumberger produced each of the SCSSVs sold to Hess in

Houston, Texas, at its CHPC facility. 74
67.

A Valve Data Book maintained for each SCSSV documents the

production of each SCSSV:
(Well B); 76
B ( 2) ) •

(

3) H13S-0022

(1) H13S-0010 (Well D); 75 (2) Hl3S-0011
(Well C); 77 and

(4) H13S-0025

(Well

78

74

Agreed Finding of Fact 165.

5

DX 23, Excerpts included in Exhibit 19 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-20.
7

76

DX 37, Excerpts included in Exhibit 23 to Schlumberger' s
Response to Hess's Motion for Judgment, Docket Entry No. 223-25.
77 DX
39, Excerpts included in Exhibit 24 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-26.

78

DX 46,

Excerpts included in Exhibit 25 to Schlumberger' s
(continued... )
-26-

68.

Each

SCSSV

Schlumberger

produces

undergoes

three

screening tests before being installed in a well: (1) a Functional
or Factory Acceptance Test ("FAT") performed at Schlumberger's CHPC
in Houston, Texas; (2) a make-up test performed in Schlumberger's
service center in Houma, Louisiana; and (3) a deck test performed
on site prior to installation in the well. 79
69.

Each of the SCSSVs at issue passed a FAT as follows:

(1) H13S-0010 (Well D) on April 20, 2013; 80 (2) H13S-0011 (Well B)
on April 9, 2013; 81 (3) H13S-0022 (Well C) on May 15, 2013; 82 and
(4) H13S-0025 (Well B(2)) on September 13, 2013. 8 3
70.

Schlumberger stamped the API 14A monogram on each SCSSV

as follows: (1) H13S-0010 (Well D) on April 22, 2013; 84 (2) H13S-

continued)
Response to Hess's Motion for Judgment, Docket Entry No. 223-27.
78

( •••

Dwayne May, TT 4-9:21-10:12, Docket Entry No. 205, pp. 9-10
(listing the screening tests Schlumberger performed on each SCSSV).
79

Valve Databook, DX 23, Excerpts included in Exhibit 19 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-20, p. 4.
80

Valve Databook, DX 37, Excerpts included in Exhibit 23 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-25, p. 5.
81

Valve Databook, DX 39, Excerpts included in Exhibit 24 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-26, p. 4
82

83

Valve Databook, DX 46, STC-00255935.

84

Agreed Finding of Fact 176.
-27-

0011 (Well B) on April 11, 2013; 8 5 (3) H13S-0022 (Well C) on May,
17, 2013; 86 and (4) H13S-0025 (Well B(2)) on September 13, 2013. 87
71.

Schlumberger issued a Certificate of Compliance for each

SCSSV: (1) Hl3S-0010 (Well D) on April 24, 2013; 8 8 (2) Hl3S-0011
(Well B) on April 12, 2013; 89 (3) Hl3S-0022 (Well C) on May, 16,
2013; 90 and (4) Hl3S-0025 (Well B(2)) on September 17, 2013. 91
72.
providing

By stamping the API 14A monogram onto each SCSSV, and
Hess

a

Certificate

of

Compliance

for

each

SCSSV,

Schlumberger assured Hess that each SCSSV complied with API 14A.
73.

Once each SCSSV was stamped with the API 14Am

monogram,

Schlumberger sent Hess a field ticket indicating that the SCSSV had
been completed, and that the risk of loss passed from Schlumberger
to Hess as follows: (1) H13S-0010 (Well D) on April 25, 2013; 92
(2) Hl3S-0011 (Well B) on April 18, 2013; 93 (3) H13S-0022 (Well C)

85

Agreed Finding of Fact 208.

86

Agreed Finding of Fact 238.

87

Agreed Finding of Fact 421.

88

Agreed Finding of Fact 175.
Agreed Finding of Fact 207.

89
90

Agreed Finding of Fact 237.

91

Agreed Finding of Fact 420.

92

Hess Finding of Fact 178; Schlumberger Finding of Fact 179.

93

Hess Finding of Fact 211; Schlumberger Finding of Fact 210.
-28-

on September 18, 2013; 94 and (4) H13S-0025 (Well B(2)) on October
9, 2013.95
74.

Hess accepted each SCSSV by acknowledging receipt of the

field tickets as follows: (1) H13S-0010 (Well D) on April 25,
2013; 96 (2) H13S-0011 (Well B) on April 18, 2013; 97 (3) Hl3S-0022
(Well C) on September 18, 2013; 98 and (4) H13S-0025 (Well 8(2)) on
October 9, 2013. 99
75.

Following Hess's acknowledgment of each field ticket,

Schlumberger invoiced Hess, and Hess paid Schlumberger $572,430.00
for each of the four SCSSVs. 100
76.

Hess's

acceptance

of

the

SCSSVs

was

induced

by

Schlumberger's assurance that each SCSSV complied with API 14A by
passing a Functional Acceptance Test, bearing a stamped API 14A
monogram, and receiving a Certificate of Compliance.

94

Hess Finding of Fact 240; Schlumberger Finding of Fact 241
(placing date of acceptance on September 17, 2013).
95Agreed

Finding of Fact 424.

9 6 Hess

Finding of Fact 178; Schlumberger Finding of Fact 179.

97 Hess

Finding of Fact 211; Schlumberger Finding of Fact 210.

9 8 Hess

Finding of Fact 240; Schlumberger Finding of Fact 241
(placing date of acceptance on September 17, 2013).
99Agreed

Finding of Fact 424.

Agreed Findings of Fact 197 (SCSSV Hl3S-0010 installed in
Well D); 227 (SCSSV H13S-0011 installed in Well B); 267 (SCSSV
H13S-0022 installed in Well C), and 425 (SCSSV H13S-0025 installed
in Well D) •
100

-29-

77.

Hess's acceptance of each of the four SCSSVs manufactured

in 2013 was also induced by the difficulty of discovering the
alleged non-conformity with the MSE Assemblies because the MSE
Assemblies could not have been dimensionally inspected without
disassembling the entire SCSSV.

b.
78.

Hess's Second Acceptance of SCSSV H13S-0025
Following Retrofit of MSE Seal Assemblies

In January 2016 Schlumberger issued a worldwide recall of

TRC-II l0K and 15K safety valves in inventory for retrofit with
reproductions

of

MSE

Seal

Assemblies

PN

23550-028-00001

and

PN 100066417 manufactured to new drawings .101
79.

The recall included SCSSV H13S-0025, which Hess had in

inventory and later became the second SCSSV installed in Well B,
i.e., Well B(2). 102
80.

The

retrofit

of

SCSSV

H13S-0025

was

performed

at

Schlumberger's CHCP in Houston under Return Authorization Number
("RAN") 02284 . 103

A. LaDouceur, TT 5-37:20-38:24, 5-55:21-56:10, Docket Entry
No. 206, pp. 37-38, and 55-56.
101

Agreed Finding of Fact 427-28. See also Andrew Johnston,
TT 7:131:6-16, Docket Entry No. 208, p. 131.
102

Agreed Finding of Fact 426. See also Andrew Johnston, TT 7155:2-12, Docket Entry No. 208, p. 155 (explaining that RAN is an
abbreviation of Return Authorization Number).
103

-30-

81.

Schlumberger

qualification

testing

successfully
for

completed

Reproduction

MSE

API

14A dynamic

Seal

Assemblies,

PN 23550-028-00001 and PN 100066417, in January and February of
2016 as documented in report numbered ET 201600464. 104
82.

On March 2,

2016,

Schlumberger replaced the MSE Seal

Assemblies, PN 23550-028-00001 and PN 100066417, in SCSSV Hl3S-0025
with the 2016 reproduction MSE Seal Assemblies, PN 23550-028-00001
and PN 100066417. 105
83.

On March 3, 2016, SCSSV H13S-0025 successfully passed a

Functional Acceptance Test. 106
Andrew Johnston, TT 7-128:1-132:16 (explaining that the 2016
Reproduction MSE Seal Assemblies went through four separate valve
qualifications and therefore were validated four separate times),
8-16:23-17:8 (explaining that the effort to reverse engineer the
rosette spring resulted in numerous iterations, i.e., drawings),
Docket Entry No. 208, pp. 128-32, and Docket Entry No. 209, p. 17.
See also David Mccalvin, TT 8-186:17-187:4; Mccalvin Rebuttal
Report, pp. 128-31, DX 71, Exhibit 28 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-31, pp. 16-18
(describing validation of MSE Reproduction Seals in 2016); DX 42,
MSE Investigation Seal Life Cycle Qualification, ET# 2016004 64,
January 22 to February 16, 2016, p. 15 § 8.1.1 ("The MSE seals have
successfully passed a test replicating API 14A 12th edition Vl
lifecycle test and will be rated to 15ksi at 40-300 ° F."); and DX
44, Engineering Report TRC-II MSE Lifecycle Qualification Prepared
for bp, p. 15 § 8.1.1 ("The MSE seals have successfully passed a
test replicating API 14A 12th edition Vl lifecycle test and will be
rated to 15ksi at 40-300 ° F."); David Hirth, TT 3-21:4-6, Docket
Entry No. 204, p. 21 ("Schlumberger performed an API qualification
test on this reproduction seal and spring.
And according to
Schlumberger, it passed.").
104

105

Agreed Findings of Fact 428-29.

Valve Databook, DX 46, STC-00255787-00255790, Exhibit 25 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
(continued...)
106

-31-

84.
a

On March 5, 2016, Schlumberger issued and Hess received

Certificate

and

Shipping

Form

for

SCSSV

H13S-0025,

which

identifies API 14A, Eleventh Edition, as the reference standard for
retrofit of the SCSSV installed in Well B (2) . 107
85.

On March 5, 2016, Hess accepted delivery of the retrofit

SCSSV H13S-0025. 108
86.
induced

Hess's acceptance of the retrofit SCSSV H13S-0025 was
by

Schlumberger's

assurance

that

the

retrofit

SCSSV

complied with API 14A, Eleventh Edition, by passing a Functional
Acceptance Test, and receiving a Certificate and Shipping Form
assuring Compliance with API 14A, Eleventh Edition.
87.

Hess's acceptance of retrofit SCSSV H13S-0025 was also

induced by the difficulty of discovering the alleged failure of the
MSE Seal Assemblies to conform with API 14A, Eleventh Edition.
ii.

Hess Established by a Preponderance of the Credible
Evidence that It Timely Revoked Acceptance of the
SCSSVs
a.

SCSSV Hl3S-0010 Installed in Well D
(I)

88.

Installation, Production, and Failure

On April 7, 2014, SCSSV Hl3S-0010 was installed in Well

D at a depth of approximately 8,700 feet below sea level. 109
continued)
No. 223-27, pp. 4-7.
106 ( •••

Agreed Findings of Fact 446-47.
Shipping Form, DX 46, p. STC-00255791.
107

108

Agreed Finding of Fact 448.

109

Agreed Findings of Fact 202-203.
-32-

See also Certificate and

89.

Production from Well D began on January 14, 2015. 110

90.

Production from Well D continued until July 22, 2015,

when SCSSV H13S-0010 experienced a non-command closure that blocked
all production. 111

(II)
91.

Investigation of Failure

In January 2016 Schlumberger initiated an investigation

into the failure of SCSSV H13S-0010 installed in Well 0. 112
92.

On or around January 27,

2016,

SCSSV Hl3S-0010 was

retrieved from Well D and delivered to Schlumberger's CHPC. 113
93.

Schlumberger's investigation into the failure of SCSSV

Hl3S-0010 resulted in eight separate drafts (an initial draft and
seven revised drafts) of an investigative report titled Field
Return Analysis ("FRA").
94.

The FRA only addressed the failure of SCSSV H13S-0010

installed in Well D.

noAgreed Finding of Fact 204.
n 1 Field Return Analysis Revision 7 ("FRA Rev. 7") , p. 4 of 55,
PTX 556, Exhibit 49 to Hess's Motion for Judgment, Docket Entry
No. 222-51, p. 5.
112 Agreed

Finding of Fact 301.

113 Agreed

Findings of Fact 299-300.
-33-

95.

The seventh and final revision of the FRA is dated April

29, 2016 ("FRA Rev. 7).114
96.

FRA Rev. 7 concluded that "[t]he primary root cause of

the failure is the quality of the MSE Seal."115
97.

"Root cause" is the cause that initiated the failure. 116

98.

FRA Rev. 7 explained its conclusion as follows:

On July 23, 2015, a Valve (not Hl3S-0010) experienced a
leak coming from the bore into hydraulic port A. Once
the Valve returned to CHPC the leakage was replicated and
the Valve was then disassembled. Various MSE Seal Sets,
specifically, the MSE Seal Sets that seal against bore
pressure, were found to be extruded and allowed a free
flow of fluid.
Extensive testing was performed in search for the root
cause. The root cause identified was that the quality of
the seal, specifically the spring within the MSE seal,
delivered by the supplier has been compromised.
It was found that the supplier was no longer providing
the same qualified spring as to the 2004 MSE Seal Set
qualification. The non-conformance in the spring altered
the performance of the MSE and compromised the sealing
capability of the seal stack. Corrective action has been
implemented to ensure the quality of the product through
a controlled manufacturing and quality process at the
supplier, as well as at CHPC. These critical components
now all require 100% dimensional inspection. The 100%
critical dimension check of the MSE Assembly is performed
by both Greene Tweed and [Schlumberger]. The dimensional
check by [Schlumberger] is documented and recorded in
FRA Rev. 7, p. 40 of 55, PTX 556, Exhibit 49 to Hess's
Motion for Judgment, Docket Entry No. 222-51, p. 41.
114

FRA Rev. 7, p. 3 of 55, Docket Entry No. 222-51, p. 4. See
also id. at 28 of 55 ("The primary root cause is the MSE Seal
Spring."), and 39-40 of 55 (same), Docket Entry No. 222-51, pp. 29,
40-41.
5
11

6
11

Dwayne May, TT 4-14:2-13, Docket Entry No. 205, p. 14.
-34-

eQuality ([Schlumberger]'s internal traceability system).
Greene Tweed provides their inspection documentation to
us as well. [Schlumberger] previously only performed a
visual inspection.
Greene Tweed performed sample
inspections on each production batch. The results were
not documented for traceability.
In this particular Valve, H13S-0010, it was determined
that the seals were using the suspect spring. As seen in
Figure 20, the Spring was not matching the required
dimensions. This would decrease the reliability of the
MSE Seal, allowing for leak into the back pressure zone
and cause secondary damage through extrusion.
Once
extruded, the seals are compromised.
We know that the MSE seals from 2014 and 2015 were not
per our specifications based on physical analysis of the
seal. Based on the ongoing MSE Seal investigation, the
dates for the suspect MSE Seals now includes 2012 and
2013.
Because this was only discovered during this
investigation, this has not been shared previously with
HESS. Continued investigation is in process to identify
the exact timeline, however as a precautionary measure,
[Schlumberger] has recalled all non-installed TRCs for
retrofit of MSE Seals.117
FRA Rev. 7 was qualified by the statement that "[t]his is

99.

the final report based on all the information [Schlumberger] had
access to.
future,

If any information, or questions, are provided in the

[Schlumberger] will make all efforts to provide proper

analysis and answers." 118
100. The parties both knew that FRA Rev. 7 was not complete. 119
7
11 FRA

pp. 29-30.
1 18 F

Rev. 7,

pp. 28-29 of 55,

Docket Entry No. 222-51,

RA Rev. 7, p. 40 of 55, Docket Entry No. 222-51, p. 41.

119

Andrew Johnston, TT 7-144: 3-8, Docket Entry No. 208, p. 144.
See also May 17, 2016, Well D and B Revocation Letter, pp. 1-2,
PTX 313, Exhibit 38 to Hess's Motion for Judgment, Docket Entry
(continued ...)
-35-

101. The FRA was not complete because Schlumberger repeatedly
asked Hess for the complete operational history and environmental
data for Wells D and B for the period from the SCSSVs' installation
through

retrieval,

but

Hess

failed

to

provide

the

complete

operational history or environmental data for either well.120
(III) Hess's Revocation of Acceptance
102. On May 17, 2016, eighteen days after FRA Rev. 7 issued,
Hess sent Schlumberger a notice revoking acceptance of SCSSV H13S0010 installed in Well D pursuant to§ 2.608 of the Texas Business
and Commerce Code. 121
103. Asserting

that

the

SCSSV

"did

not

conform

to

the

requirements of the contract with Schlumberger," Hess's Notice of
Revocation stated "[b]ased on the Schlumberger report, [i.e., FRA
Rev. 7], the Schlumberger safety valves were defective at the time
of delivery. Hess was not aware of the defects at that time. . .122

No.
its
may
the

continued)
222-38, pp. 2-3 ( "Schlumberger provided Hess with Revision 7 of
report on April 29, 2016, which Schlumberger has indicated it
still revise further with respect to the closing pressure on
defective valve.").
119( •••

Andrew Johnston, TT 7-138:2-142:9, Docket Entry No. 208,
pp. 138-42.
120

Revocation Letter, PTX 313, Exhibit 38 to Hess Corporation's
Motion for Entry of Judgment, Docket Entry No. 222-38.
121

122

Id. at p. 2, Docket Entry No. 222-38, p. 3.
-36-

104. Hess sent the Notice of Revocation because it reasonably
believed that SCSSV Hl3S-0010 was non-conforming when delivered.
105. By revoking acceptance of SCSSV H13S-0010 less than three
weeks week after Schlumberger issued FRA Rev. 7 concluding that the
root cause of the SCSSV's failure was the non-conforming MSE Seal
Assembly, Hess's revocation occurred within a reasonable time.
b.

SCSSV H13S-0011 Installed in Well B
(I)

Installation, Production, and Failure

106. Around May 8, 2014, SCSSV H13S-0011 was installed in Well
B at a depth of approximately 8,400 feet below sea level. 123
107. Production from Well B began on December 14, 2014. 124
108. Production from Well B continued until January 30, 2016,
when SCSSV Hl3S-0011 experienced a non-command closure that blocked
all production. 125
(II)

Hess's Revocation of Acceptance

109. On May 17, 2016, Hess sent a Notice of Revocation under
§ 2.608 of the Texas Business and Commerce Code to Schlumberger
revoking acceptance of SCSSV H13S-0011. 126

123

Agreed Findings of Fact 232-33.

124

Agreed Finding of Fact 234.

125

Agreed Finding of Fact 310.

126

Agreed Finding of Fact 709.
-37-

110. Asserting

that

the

SCSSVs

"did

not

conform

to

the

requirements of the contract with Schlumberger," Hess's Notice of
Revocation stated "[b]ased on the Schlumberger report, [i.e., FRA
Rev. 7], the Schlumberger safety valves were defective at the time
of delivery. Hess was not aware of the defects at that time. .

127

111. Hess sent the Notice of Revocation because it reasonably
believed that SCSSV H13S-0011 was non-conforming when delivered.
112. By revoking acceptance of SCSSV H13S-0011 less than three
weeks week after Schlumberger issued FRA Rev. 7 concluding that the
root cause of SCSSV H13S-0010's failure was the non-conforming MSE
Seal Assembly, Hess's revocation occurred within a reasonable time.
c.

SCSSV H13S-0022 Installed in Well C
(I)

113. On

or

around

Installation, Production, and Failure
April

15,

2015,

SCSSV

H13S-0022

was

installed in Well C at a depth of approximately 8,700 feet below
sea level. 128
114. Production from Well C began on July 21, 2015. 129

Revocation Letter, p. 2, PTX 313, Exhibit 38 to Hess
Corporation's Motion for Entry of Judgment, Docket Entry No. 22238, p. 3.
127

128

Agreed Findings of Fact 272-73.

129

Agreed Finding of Fact 274.
-38-

115. Production from Well C continued until July 17, 2016,
when SCSSV H13S-0022 experienced a non-command closure that blocked
all production.130
(II)

Hess's Revocation of Acceptance

116. On July 29, 2016, Hess sent a Notice of Revocation under
§ 2.608 of the Texas Business and Commerce Code to Schlumberger
revoking acceptance of SCSSV H13S-0022.131
117. Asserting

that

the

SCSSVs

"did

not

conform

to

the

requirements of the contract with Schlumberger," Hess's Notice of
Revocation stated "[b]ased on the Schlumberger report, [i.e., FRA
Rev. 7], the Schlumberger safety valves were defective at the time
of delivery. Hess was not aware of the defects at that time. .

132

118. Hess sent the Notice of Revocation because it reasonably
believed that SCSSV H13S-0022 was non-conforming when delivered.
119. By revoking acceptance less than two weeks week after
SCSSV H13S-0022' s failure, Hess's revocation of SCSSV H13S-0022
occurred within a reasonable time.

Agreed Findings of Fact 321-22.

13 0

Agreed Finding of Fact 715. See also Revocation Letter, PTX
329, Exhibit 39 to Hess Corporation's Motion for Entry of Judgment,
Docket Entry No. 222-39.
131

132

p. 3.

Revocation Letter, p. 2, PTX 329, Docket Entry No. 222-39,
-39-

d.

SCSSV H13S-0025 Installed in Well B(2)
(I)

Installation, Production, and Failure

120. On or around May 20, 2016, SCSSV Hl3S-0025 was installed
as a replacement for the failed Well B safety valve at a depth of
approximately 8,680 feet below sea level. 133
121. Production from Well B resumed on June 14, 2016. 134
122. Production from Well B continued until March 18, 2018,
when SCSSV Hl3S-0025 experienced a non-command closure and blocked
all production. 135
(II)

Hess's Revocation of Acceptance

123. On March 23, 2018, Hess sent a Notice of Revocation under
§ 2.608 of the Texas Business and Commerce Code to Schlumberger
revoking acceptance of SCSSV H13S-0025. 136
124. Hess sent the Notice of Revocation because it reasonably
believed that SCSSV H13S-0025 was non-conforming when delivered.
125. By revoking acceptance less than one week after SCSSV
H13S-0025 failed, Hess's revocation of SCSSV H13S-0025 occurred
within a reasonable time.

Agreed Findings of Fact 456-45 7.

133

Stephen Dunn, TT 2-18:19-24, Docket Entry No. 203, p. 18.

134

Agreed Finding of Fact 461.

135
136

Agreed Finding of Fact 721.
-40-

iii. Hess Failed to Establish by a Preponderance of the
Credible Evidence that the SCSSVs Did Not Conform
to API 14A, Eleventh Edition
Hess claims that the SCSSVs did not conform to API 14A,
Eleventh Edition, as required by the parties' agreement, because
the MSE Seal Assemblies in the SCSSVs were not substantially the
same as the MSE Seal Assembly that Passed the API 14A validation
test in 2004. 137 Alternatively, Hess claims that the SCSSVs did not
conform to API 14A, Eleventh Edition, because neither Schlumberger
nor Greene Tweed had dimensional drawings of the MSE seal assembly
that passed the API 14A validation test in 2004. 138
a.

Hess's Claims that the SCSSVs Were Not
Manufactured in Conformity with API 14A,
Eleventh Edition, Are Based on Schlumberger's
Investigations of the Failure of SCSSV H13S0010 Installed in Well D, and of the Failure
of a Valve Owned by British Petroleum to Pass
a Pre-Installation Make-Up Test
(I)

Investigation of H13S-0010 Failure

126. Hess's claim that the MSE Seal Assemblies were not API
qualified is based on the conclusion reached in FRA Rev. 7 that
"[t]he primary root cause of the failure is the quality of the MSE
Seal. nl39
137

Hess's Motion for Judgment, Docket Entry No. 222, p. 16.

38
1

Id. at 18-21 (Wells D, B, and C), and pp. 25-26 (Well B (2)).

139

FRA Rev. 7, p. 28 of 55, Docket Entry No. 222-51, p. 29
("The primary root cause is the MSE Seal Spring.").
See also
(continued...)
-41-

127. FRA Rev. 7 neither addressed API 14A, nor concluded that
the SCSSV Hl3S-0010 installed in Well D or any its components were
not API 14A qualified.
128. FRA Rev. 7's conclusion that the MSE Seal was the primary
root cause for the failure of SCSSV Hl3S-0010 installed in Well D
was nearly identical to the conclusion reached in Schlumberger's
investigation of a TRC-II valve manufactured in 2015 for British
Petroleum ("BP") that leaked during a pre-installation make-up test
in July of 2015.140
(II)

Investigation of BP Valve Failure

129. Schlumberger's investigation of the BP valve leak lasted
more than five months and is documented by the January 15, 2016,
TRC

MSE

Investigation

Presentation

prepared

for

BP

("BP

Presentation"), 141 and by the February 13, 2016, engineering report
prepared for BP titled, "TRC-II MSE Seal Qualified and Reproduction
Bridging Document" ("BP Bridging Document").142
( ••• continued)
("The primary root cause is the MSE Seal Spring.").
See also
Revocation Letters, PTX 313 (for SCSSVs installed in Wells D and B,
Hl3S-0010 and Hl3S-0011), PTX 329 (for SCSSV Hl3S-0022 installed in
Well C), and PTX 358 (for SCSSV Hl3S-0025 installed in Well B(2)).
139

140

Dwayne May, TT 4-10:13-22, Docket Entry No. 205, p. 10.

PTX 156, Exhibit 24 to Hess's Motion for Judgment, Docket
Entry No. 223-24.
141

142

PTX 58, Exhibit 5 to Hess's Motion for Judgment, Docket
(continued...)
-42-

130. Schlumberger's

investigation

of

the

BP

valve

leak

concluded that:
The root cause identified was that the quality of seal,
specifically the spring within the MSE seal, delivered by
Greene Tweed has been compromised.
It was found that the supplier was no longer providing
the same qualified spring as to the 2004 MSE seal set
qualification. The non-conformance in the spring altered
the performance of the MSE and compromised the sealing
capability of the seal stack. 143
131. The term "qualified" as used in the BP Presentation and
Bridging Document means the 2004 "Original MSE seal set design." 144
132. The term "non-conformance" as used in the BP Presentation
and Bridging Document means non-conformance with drawings provided
by Greene Tweed; not non-conformance with API 14A. 145

continued)
222-5, p. 4. The BP Bridging Document is dated February
but that is a typographical error as its actual date is
13, 2016.
Alexander LaDouceur, TT 5-13:15-23, Docket
206, p. 13.

142 ( •••

Entry No.
13, 2015,
February
Entry No.

BP Bridging Document, pp. 3 and 16, PTX 58, Exhibit 5 to
Hess's Motion for Judgment, Docket Entry No. 222-5, pp. 4 and 17.
143

BP Presentation, PTX 156, Exhibit 24 to Hess's Motion for
Judgment, Docket Entry No. 223-24, p. 5; BP Bridging Document,
p. 4, PTX 58, Exhibit 5 to Hess's Motion for Judgment, Docket Entry
No. 222-5, p. 5. See also Dwayne May, TT 4-59:16-21, Docket Entry
No. 205, p. 59.
144

Alexander LaDouceur, TT 5-15:2-20, Docket Entry No. 206,
p. 15; Andrew Johnston, TT 7-212:5-8, Docket Entry No. 208, p. 212.
145

-43-

133. The term "Recent" as used in the BP Presentation and
Bridging Document means "[s]eals delivered by Greene Tweed between
2014 and 2015." 146
134. The term "seals" means MSE Seal Assemblies.
135. The term "Reproduction" used in the BP Presentation and
Bridging Document means "seals delivered by Greene Tweed in 2016
[ intended to] replicate the QUALIFIED seals." 147
136. The purpose of the BP Bridging Document was to evaluate
whether the Reproduction MSE Seal Assemblies produced in 2016 could
be used without being independently qualified to API 14A. 148
137. Ultimately,

Schlumberger

decided

to

qualify

the

Reproduction MSE Seal Assemblies to API 14A independently, negating
the need for the BP Bridging Document.149
138. Schlumberger

successfully

completed

API

14A

dynamic

qualification testing of the 2016 Reproduction MSE Seal Assemblies,
BP Presentation, PTX 156, Exhibit 24 to Hess's Motion for
Judgment, Docket Entry No. 223-24, p. 5; BP Bridging Document,
p. 4, PTX 58, Exhibit 5 to Hess's Motion for Judgment, Docket Entry
No. 222-5, p. 5. See also Dwayne May, TT 4-59:22-23, 4-61:1113Docket Entry No. 205, pp. 59 and 61.
146

BP Presentation, PTX 156, Exhibit 24 to Hess's Motion for
Judgment, Docket Entry No. 223-24, p. 5; BP Bridging Document,
p. 4, PTX 58, Exhibit 5 to Hess's Motion for Judgment, Docket Entry
No. 222-5, p. 5. See also Dwayne May, TT 4-59:24-4-60:3, Docket
Entry No. 205, pp. 59-60.
147

Andrew
p. 212.
148

Johnston,

Andrew Johnston,
p. 212.
149

TT

7-212:9-12,

TT 7-212:13-15,
-44-

Docket

Entry

No.

208,

Docket Entry No. 208,

PN 23550-028-00001 and PN 100066417, in January and February of
2016, as documented in report numbered ET 201600464. 150
139. Schlumberger's

investigation

of

the

BP

valve

leak

involved comparing information contained in the validation package
for the original MSE Seal Assembly qualification test performed in
2004 with inspection drawings provided by Greene Tweed, and various
tests performed on MSE Seal Assemblies delivered by Greene Tweed in
2008 and 2015.151
140. Schlumberger

determined

that

"[t]he

Recent

design

features the dimensions that were part of the original design
package from Greene Tweed.152
141. But

comparison

of

dimensions

recorded

in

the

2004

validation package to inspection drawings provided Greene Tweed
lead Schlumberger to conclude that "the [MSE Seal Assemblies] that
were

originally

qualified

did

not

conform

to

the

inspection

drawings provided by Greene Tweed."153
Andrew Johnston, TT 7-128:1-132:16, 7-212:9-15, 8-16:2317:8, Docket Entry No. 208, p. 128-32, and 212, and Docket Entry
No. 209, pp. 16-17. See also David Hirth, TT 3-21:4-6, Docket
Entry No. 204, p. 21 ("Schlumberger performed an API qualification
test on this reproduction seal and spring. And accordingly to
Schlumberger, it passed."); Mccalvin Rebuttal Report, pp. 128-31,
Exhibit 28 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-31, pp. 16-18.
150

BP Bridging Document, p. 6, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 7.
151

BP Bridging Document, p. 9, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 10.
152

BP Bridging Document, p. 6, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 7. See also Dwayne
(continued... )
153

-45-

142. The validation package from the original qualification
test performed in 2004 contained both the MSE Seal Assemblies
tested and hand written records of their outer and inner dimensions
before and after testing. 154
143. MSE Seal Assemblies that are tested are "spent" and no
longer dimensionally comparable to untested MSE Seal Assemblies
because the test changes the geometry of the MSE Seal Assembly. 155
144. The 2004 validation package did not contain any untested,
i.e., unused, MSE Seal Assemblies delivered in 2004. 156
145. Comparison of dimensions of Recent, i.e., 2015, MSE Seal
Assemblies to dimensions recorded in the 2004 validation package
caused Schlumberger to conclude that "[t]he outer dimension of the

( ••• continued)
May, TT 4-41:10-11, Docket Entry No. 205, p. 41 ("The dimensions
were deviant from the drawings that were available.").
153

BP Bridging Document, p. 6, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 7. See also PTX
126, Email from A. Johnston to H. Kohli re Critical
Topics November 20th Update, Exhibit 15 to Hess's Motion for Judgment,
Docket Entry No. 222-15, p. 12 (STC_00126234_0005, slide showing
"Inspection Record for 2004 Certification MSE Seals").
154

Dwayne May, TT 4-46:17-20, Docket Entry No. 205, p. 46
("Once a seal goes through a qualification test, its considered
spent or used.
At that point, there's no comparison to the
original document -- or the original seal itself. There is no way
to compare it because it changes geometry.").
155

Andrew Johnston, TT 7-105:15-17, Docket Entry No. 208,
So, we were physically
p. 105 ("We did not have a 2004 seal.
comparing a 2008 seal that was unused to a 2015 seal that was
unused. So, that was the comparison that we used at the time.").
156

-46-

Recent[,

i.e.,

2015] MSE seals were .

approximately .033"

smaller than the Qualified[, i.e., 2004]
146. Schlumberger

reasoned

that

D[imension] of the Recent[, i.e.,

. seals. n1s7
"[t]he

smaller

O[uter]

2015] seals results in lower

squeeze of the seal in the piston bore."158
147. The outer dimension of the MSE Seal Assembly is driven by
two sub-components: the MSE jacket and the rosette springs enclosed
in the jacket.159
148. Finding that "[t]he MSE jacket conforms to the qualified
standard, "160 Schlumberger "narrowed the [cause of the] resulting
difference in O[uter] D[imension] to the MSE jacket spring."161
BP Bridging Document, p. 6, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 7. See also Dwayne
May,
TT
4-61:9-16,
Docket
Entry
No.
205,
p.
61;
Alexander LaDouceur, TT 5-17:14-18:9, Docket Entry No. 206, pp. 1718 (when used in the BP Bridging Document, the term "recent seals"
meant seals made in 2014 and 2015); Andrew Johnson, TT 7-105:4-6,
Docket Entry No. 208, p. 105 ("The outer dimension of the seal that
we had in 2015 was different from the outer dimension of the seal
from 2004.").
157

BP Bridging Document, p. 6, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 7. See also BP
Presentation, PTX 156, Exhibit 24 to Hess's Motion for Judgment,
Docket Entry No. 223-24, p. 13.
158

BP Presentation, PTX 156, Exhibit 24 to Hess's Motion for
Judgment, Docket Entry No. 222-24, p. 13. See also Dwayne May,
TT 4-61:17-4-62:3, Docket Entry No. 205, pp. 61-62 (stating the
same).
159

BP Bridging Document, p. 8, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 9. See also BP
Presentation, PTX 156, Exhibit 24 to Hess's Motion for Judgment,
Docket Entry No. 222-24, p. 13 ("MSE jacket are the same between
Recent and Qualified").
160

161

BP Bridging Document, p. 9, PTX 58, Exhibit 5 to Hess's
(continued... )
-47-

149. "Through a process audit at Greene Tweed," Schlumberger
determined that "the base rosette used to form the spring was of
the correct material and dimensions[, but that g]aps were found in
the forming and inspection process at the Greene Tweed Houston
facility that allowed the spring radius, and subsequent dimensions
to deviate from nominal."162
150. "Base rosette" is the flat rosette that is pressed to
form a spring.163
151. "Spring radius" is the bend made when the base rosette is
pressed to form a spring.164
152. Once a rosette spring is pressed into an MSE jacket, the
only way to determine the spring radius and other spring dimensions
is to preserve the MSE Assembly in acrylic, cross section it, i.e.,
cut it in half, use an optical comparator to project an image of
the cross section, and measure the image.165

continued)
Motion for Judgment, Docket Entry No. 222-5, p. 10. See also id.
at 7, Docket Entry No. 222-5, p. 8 (recognizing that "the main
component in the MSE stack driving the outer dimension of the MSE
jacket is the MSE spring"); Dwayne May, TT 4-62:8, Docket Entry
No. 205, p. 62 ("The jacket did not change.").
161 (
•••

BP Bridging Document, p. 8, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 9.
162

163

p. 24.

Alexander LaDouceur, TT 5-24:17-20, Docket Entry No. 206,

See BP Presentation, PTX 156, Exhibit 24 to Hess's Motion
for Judgment, Docket Entry No. 222-24, p. 14.
164

See Colloquy between the Court and Schlumberger's Counsel,
TT 4-185:11-14, Docket Entry No. 205, p. 185.
165

-48-

153. Before the process audit Schlumberger only required - and
Greene Tweed only performed - Acceptable Quality Limit

("AQL")

inspections of a predefined number of springs from each batch. 166
154. Following the process audit Schlumberger implemented
"[c]orrective action

. to ensure the quality of the product

[by] requir[ing] 100% documented dimensional inspection." 167
155. Schlumberger decided to address the difference found
between the dimensions recorded in the 2004 validation package and
Greene

Tweed's

inspection

drawings

by

creating

new

MSE

Seal

Assembly drawings.
156. Because the 2004 validation package did not contain any
new, i.e., untested, MSE Seal Assemblies delivered in 2004, and
because the earliest MSE Seal Assemblies Schlumberger had were
delivered in 2008,

Schlumberger cross sectioned 2008 MSE Seal

Assemblies as proxies for 2004 Qualified MSE Seal Assemblies. 168
Defense Counsel's Colloquy with the Court confirmed by
witness, TT 7-22:15-27:8, Docket Entry No. 208, pp. 22-27.
166

BP Bridging Document, p. 3, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 4. See also id. at
8, Docket Entry No. 222-5, p. 9 (" [All springs at the G[reene]
T[weed] facility are 100% inspected."), and id. at 15, Docket Entry
No. 222-5, p. 16 ("• All seal components are 100% inspected; • MSE
jacket spring is 100% inspected at the time of manufacture at
Greene Tweed.").
167

David Hirth, TT 2-180:8-10 (acknowledging "they didn't have
any new 2004 seals with springs in them"); Dwayne May, TT 4-182:416, 4-189:24-4-191:1, Docket Entry No. 205, pp. 182 and 189-91;
Alexander LaDouceur, TT 5-56:16-57:22, Docket Entry No. 206,
pp. 56-57; Andrew Johnston, TT 7-105:15-17, Docket Entry No. 208,
(continued...)
168

-49-

157. Comparison

of cross sections performed on MSE Seal

Assemblies delivered in 2008 and 2015 indicated that the spring
radius had increased over time from a V- to a CT-shape, and that the
increase in radius caused differences in height and leg spacing. 169
158. "Analysis of the cross sections show[ed] a reduction in
leg spacing of the Recent[, i.e., 2015] seals by about .013". 170
159. In 2015 Schlumberger used recorded MSE Seal Assembly
dimensions from the 2004 validation package, and rosette spring
dimensions

obtained

from

cross

sections

performed

on

seals

delivered in 2008, to reverse engineer a Reproduction design, i.e.,
to create new MSE Seal Assembly drawings intended to replicated the
Qualified MSE Seal Assembly.171
168 ( •••
continued)

So, we were physically
p. 105 ("We did not have a 2004 seal.
comparing a 2008 seal that was unused to a 2015 seal that was
unused. So, that was the comparison that we used at the time.").
See also Colloquy with Court during Fourth Day of Trial, TT 4-75:6
(Counsel for Hess acknowledges that "2008 was the first new spring
they actually had"); PTX 126, Email from A. Johnston to H. Kohli re
Critical
Topics - November 20th Update, Exhibit 15 to Hess's
Motion for Judgment, Docket Entry No. 222-15, p. 11 (slide of MSE
Seal Cross-Sections Showing Springs: 2005 vs. 2008 contains the
same photographs as seen in BP Presentation, PTX 156, Exhibit 24 to
Hess's Motion for Judgment, Docket Entry No. 222-24, p. 14).
169

BP Presentation, PTX 156, Exhibit 24 to Hess's Motion for
Judgment, Docket Entry No. 222-24, p. 14; BP Bridging Document,
p. 9, PTX 58, Exhibit 5 to Hess's Motion for Judgment, Docket Entry
No. 222-5, p. 10. See also Alexander LaDouceur, TT 5-42:6-43:20,
Docket Entry No. 206, pp. 42-43.
170 BP

Bridging Document, p. 11, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 12.
1

71 Alexander LaDouceur, TT 5-57:14-22, Docket Entry No. 206,
p. 57 ("Q And so, you had to use the -- you had -- you did have
some new '08 seals, and you had to use that as a proxy to try to
(continued...)

-50-

160. Schlumberger's reverse engineering yielded an asymmetric
rosette spring design with a smaller radius and wider leg spacing
than found in either the 2008 or the 2015 rosette springs.
161. "[T]he Reproduction seal has a formed [spring] radius of
0.12"

whereas

the

original

Recent

design

featured

a

0.14"

radius." 172
162. In 2016 the Reproduction design, i.e., the new drawing,
was used to manufacture Reproduction MSE Seal Assemblies. 173
163. Reproduction MSE Seal Assemblies were used to retrofit
the TRC-II l0K and 15K SSVs that were recalled in January of 2016.
164. Failure of SCSSV H13S-0010 installed in Well D in August
2015, which contained MSE Seal Assemblies delivered in 2013 caused
Schlumberger

to

suspect

that

changes

in

the

rosette

spring

identified during the BP valve investigation may have occurred in
rosette springs that were made before 2015.174
171 ( •••
continued)

figure out what the spring design was originally in '04, correct,
sir? A Well, we would have used both because, as we discussed
earlier, you can't use a used seal; and so, we would have used the
information being the dimensions from the pre- and post-testing
that was done on those seals from 2004 as well as the unused
seal."). See also PTX 200, February 16, 2016, Email from Alexander
LaDouceur to Karl Wong with BP Bridging Document attached; BP
Presentation, Exhibit 15 to Hess's Motion for Judgment, Docket
Entry No. 222-15, p. 13 (slide showing drawing titled "Reverse­
engineered 2004 Spring"); BP Bridging Document, p. 10, Exhibit 5 to
Hess's Motion for Judgment, Docket Entry No. 222-5, p. 11 Fig. 7:
Reproduction MSE spring design.
17
2

BP Bridging Document, p. 10, PTX 58, Exhibit 5 to Hess's
Motion for Judgment, Docket Entry No. 222-5, p. 11.
17

3

174

Id. at 9, Docket Entry No. 222-5, p. 10.
Andrew Johnston, TT 7-210:24-211:20, Docket Entry No. 208,
(continued...)
-51-

b.

Schlumberger's Expert Witnesses Were
Qualified than Hess's Expert Witness

More

165. Schlumberger's experts regarding API 14A and industry
standards, David Mccalvin and Patrick Hyde, were more qualified to
render their opinions than Hess's expert, David Hirth.
166. David Mccalvin is an active member of the API 14A task
group and has been since the early 1980s. 175
167. David Mccalvin served as Chairman of the API 14A task
group for 9 years. 176
168. Patrick Hyde is an active member of the API 14A task
group. 111
169. David Hirth has never been a member of the API 14A task
group, and has minimal experience with API 14A compared to David
McCalvin and Patrick Hyde. 178

174 (
•••

pp. 210-11.

continued)

5

Docket Entry No. 209,

6

David Mccalvin, TT 8-174:3-5, Docket Entry No. 209, p. 174.

David Mccalvin, TT 8-172:7-173:18,
pp. 172-73.
17

17

76.

1
77

Patrick Hyde, TT 8-75:19-76:7, Docket Entry No. 209, pp. 75-

8
17

David Hirth, TT 3-73:25-74:20, Docket Entry No. 204, pp. 7374 (admitting no experience drafting API 14A or applying API 14A to
the manufacture of safety valves).
-52-

c.

Application of API 14A, Eleventh Edition

170. API 14A, Eleventh Edition, was issued on October 1, 2005,
with an effective date of May 1, 2006. 179
171. API 14A, Eleventh Edition, was reaffirmed in June 2012. 180
172. API 14A, Eleventh Edition, was the latest edition of API
14A in effect in 2013 when Schlumberger manufactured the SCSSVs
sold to Hess at issue in this case. 181
173. API
manufacturing,

14A

governs

the

and

testing

SCSSVs

processes
by

for

designing,

establishing

minimum

requirements that must be met to apply the API 14A monogram. 182
174. API 14A is "intended to give requirements and information
to both parties in the selection, manufacture, testing and use of
subsurface safety valves. " 183
175. API 14A cautions users that "this International Standard
addresses

the

minimum

requirements

179

which

the

supplier/

Agreed Finding of Fact 92.

180

with

Agreed Finding of Fact 93.

See Memorandum Opinion and Order, Docket Entry No. 158,
pp. 56-58. See also Hess's Contentions, Exhibit A to Amended Joint
Pretrial Agreement,
Docket Entry No. 163-1,
p. 3 � 12
(Acknowledging that "[t]he 'latest edition' of API 14A when the
Well B2 safety valve was retrofitted was the Twelfth Edition. At
the time the Commercial Agreement was entered, however, the
'latest' edition of API 14A was the Eleventh Edition and it
governed the retrofit and delivery of the Well B2 safety valve.").
181

182

Patrick Hyde, TT 8-98: 9-16, Docket Entry No. 209, p. 98.

API 14A, Eleventh Edition, Introduction, PTX 3, Exhibit 3 to
Hess's Motion for Judgment, Docket Entry No. 222-3, p. 8.
183

-53-

manufacturer is to comply so as to claim conformity," and that
"requirements above those outlined in this International Standard
may be needed for indivictual applications."184
176. Terms that are not defined in API 14A, Eleventh Edition,
have their plain, ordinary meaning. 185
177. Common terms are defined in API 14A "only if they are
used with a specific meaning in the relevant context." 186
(I)

Section 6.3.2.2 of API 14A

178. Section 6.3.2.2 of API 14A, Eleventh Edition, states:
"SSSV equipment conforming to this International Standard
shall be manufactured to drawings and specifications that
are substantially the same as those of the size, type,
and model SSSV equipment that has passed the validation
test. ,,1s7
179. "Substantially the same" is not a defined term in API
14A, Eleventh Edition.
180. "Substantially the same" used in § 6.3.2.2 of API 14A,
Eleventh Edition, means "for the most part," or "to a large

1s4Id.

David Mccalvin, TT 8-179:9-13, 8-212: 8-11. Docket Entry
No. 209, p. 179 (referring to "dictionary meaning") and p. 212
(referring to "common meaning").
185

David Mccalvin, TT 8-204:18-8-206:1, Docket Entry No. 209,
pp. 204-06.
186

API 14A, Eleventh Edition, § 6.3.2.2, PTX 3, Exhibit 3 to
Hess's Motion for Judgment, Docket Entry No. 222-3, p. 20.
187

-54-

degree,"

not

"the

same"

or

"nearly

exactly

the

same,"

or

"equivalent." 188
181. The word "those" used in§ 6.3.2.2 of API 14A, Eleventh
Edition,

refers

to

"drawings

and

specifications,"

not

"equipment." 189
182. Hess's contention that the word "those" used in§ 6.3.2.2
refers to equipment is not supported by the evidence that§ 6.3.2.2

David Mccalvin, TT 8-179:9-182:1, Docket Entry No. 209,
pp. 179-82; Mccalvin Rebuttal Report, p. 13, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, p. 20 ("'Substantially the same" is not a defined term
in API 14A, Eleventh Edition, and applying the common meaning of
the word 'substantially,' the term means 'for the most part,' or
'to a large degree,' not 'the same' or 'nearly exactly the same,'
or 'equivalent in its capacity to meet design and performance
requirements under the jurisdiction of 14A.'"). See also Patrick
Hyde, TT 8-79:15-20, Docket Entry No. 209, p. 79; Expert Report of
Patrick C. Hyde ("Hyde Report"), p. 7, DX 246, Docket Entry
No. 223-63, p. 10 ("The term 'substantially the same' was never
intended to mean identical.
When interpreting the term
'substantially the same' the task group hopes sound engineering
judgment will be applied, and relies on the commonly understood
definition of the term.").
188

Patrick Hyde, TT 8-81:14-82:22, Docket Entry No. 209,
pp. 81-82; Hyde Report, p. 8, DX 246, Exhibit 59 to Schlumberger's
Response to Motion for Judgment, Docket Entry No. 223-63, p. 11
("[The§ 6.2.3.3] requirement is not for the component parts to be
substantially the same, but for the manufacturing drawings and
specifications to be substantially the same as for the valve
passing validation test.
While we may not be comfortable with
[§] 6.3.2.2, it is the statement in the specification that governs
compliance. The other concept that often comes into consideration
is the definition of what constitutes 'substantially the same.'
When we evaluate furnished goods against qualified goods, there is
often the question of substantially the same. We could look at the
two MSE seals and ask if one was substantially different from the
other, which is the purpose of the visual quality control
inspection.").
189

-55-

of API 14A, Eleventh Edition is a design requirement, not a quality
control provision.190
183. Inspection

for compliance

with

design

criteria

and

specifications is found in§ 7.6.2 of API 14A, Eleventh Edition. 191
184. The phrase "substantially the same as those" used in
§ 6.3.2.2 of API 14, Eleventh Edition, means that the drawings and
specifications used to manufacture new valves are "for the most
part" or "to a large degree" the same as the drawings and
specifications used to manufacture the validated valve. 192
185. Compliance with§ 6.3.2.2 of API 14A, Eleventh Edition,
requires controlling changes to drawings and specifications to
ensure that the drawings and specifications remain substantially
the same as the drawings and specifications to which the validated
valve and its components were manufactured. 193
David Mccalvin, TT 8-184:19-185:8, Docket Entry No. 209,
pp. 184-85; Mccalvin Rebuttal Report, p. 30, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, p. 37 ("API 14A governs the design of a compliant SCSSV
by identifying design concerns that are typically shared by both
the user and the manufacturer (see, for example, API 14A, Eleventh
Edition, Section 6.3.2).").
190

David Hirth, TT 2-202:22-203:4, Docket Entry No. 203,
pp. 202-03 (" [Section] 7.6.2 deals with component dimensional
inspection.").
191

David Mccalvin, TT 8-179:9-182:1, Docket Entry No. 209,
pp. 179-82; Mccalvin Rebuttal Report, p. 13, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, p. 20. See also Patrick Hyde, TT 8-82:15-22, Docket
Entry No. 209, p. 82; Hyde Report, p. 8, DX 246, Exhibit 59 to
Schlumberger's Response to Motion for Judgment, Docket Entry
No. 223-63, p. 11.
192

193

Patrick Hyde, TT 8-82:8-14, Docket Entry No. 209, p. 82,
(continued...)
-56-

(A)

Hess Failed to Establish by a
Preponderance
the
Credible
of
Evidence that Schlumberger Failed to
Manufacture SCSSVs Hl3S-0010 (Well
D), H13S-0011 (Well B), and H13S0022 (Well C) in Conformity with API
14A § 6.3.2.2

186. The Bill of Materials and Inspection Matrix listing all
of the components in each SCSSV, PN 101091732, at issue in this
case include two types of MSE Seal Assembly, Chemraz, PN 100066417,
and Teflon, PN 23550-028-00001. 194
187. Schlumberger successfully completed

API

14A

dynamic

qualification testing of MSE Seal Assemblies, PN 100066417 and
PN 23550-028-00001,

in February of 2004,

as documented in the

report numbered ET20049950. 195
continued)
Hyde Report, p. 8, DX 246, Exhibit 59 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-63, p. 11. See
also David Mccalvin, TT 8-185:9-186:6, 8-226:12-20, Docket Entry
No. 209, pp. 185-86 and 226; Mccalvin Rebuttal Report, pp. 12-13,
DX 71, Exhibit 28 to Schlumberger's Motion for Judgment, Docket
Entry No. 223-30, pp. 19-20.
193

( •••

Inspection Matrix for Hess,
DX 17, Exhibit 16 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-17, pp. 2-3; Bill of Materials for PN 101091732, DX 33,
pp. STC_00130203,
STC 00130215,
STC 00130220,
STC_00130224,
STC 00130226.
194

Andrew Johnston, TT 6-213:12-214:10, Docket Entry No. 207,
pp. 213-14. See also David Mccalvin, TT 8-186:17-187:4, Docket
Entry No. 209, pp. 186-87; Mccalvin Rebuttal Report, pp. 65-71, DX
71, Exhibit 28 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-20, pp. 73-78 (describing validation
of MSE Seals used in Schlumberger TRC-II-15K SCSSV); DX 29, Test
TRC SCSSV Hydraulic Seal Dynamic Test, ET
Plan/Report
# ET20049950, February 6, 2004, Exhibit 21 to Schlumberger's
(continued...)
195

-57-

188. The specifications for MSE Seal Assemblies, PN 100066417
and PN 23550-028-00001, were developed jointly by Schlumberger,
which provided parameters such as the environmental conditions and
dimensions of the space to be sealed, and by Greene Tweed, who
determined the seal dimensions. 196
189. The MSE Seal Assemblies, PN 100066417 and PN 23550-02800001, are proprietary parts supplied by Greene Tweed.
190. A proprietary part is a part the supplier sells by part
number and maintains the design in its own organization. 197
191. Section 6.3.2.2 of API 14A, Eleventh Edition, does not
require purchasers to possess dimensional drawings of proprietary
parts such as the MSE Seal Assemblies that Greene Tweed supplied to
continued)
Response to Hess's Motion for Judgment, Docket Entry No. 223-23;
and David Hirth, TT 2-180:11-13, Docket Entry No. 203, p. 180
(acknowledging that the MSE Seal Assemblies were API qualified in
2004).
195

( •••

Andrew Johnston, TT 7-17:3-20:10, Docket Entry No. 208,
pp. 17-20. See also McCalvin Rebuttal Report, pp. 56-62 (PN 23550028-0001), 63-64 (PN 100066417), Exhibit 28 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-30,
pp. 63-71.
19
6

McCalvin Rebuttal
Report,
p.
194,
Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-31, p. 81.
See also David Mccalvin, TT 8-207:24-209:10
(drafters of API 14A recognize and allow for the use proprietary
parts and the practice of letting suppliers hold back some
information); Dwayne May, TT 4-36:21-37:1, Docket Entry No. 205,
pp. 36-37 ("[E]ven though this is a proprietary seal design where
Greene Tweed owns the seal design itself, Schlumberger qualifies
and develops this seal for a specific application. So, it's what
I would call a joint design in itself even though Greene Tweed
specifically owns the design rights.").
197

-58-

Schlumberger,

as

long

as

the

supplier

maintains

dimensional

drawings of the proprietary part used in the validation test, and
supplies the purchaser with a certificate of conformance certifying
that the part numbers ordered and supplied were manufactured to
drawings and specifications that are substantially the same as the
drawings and specifications used to manufacture the SSSV equipment
that passed the validation test. 198
192. A Certificate of Conformity certifies that the part
supplied has been manufactured, inspected, and produced to meet the
drawings and specifications that supplier has for that product. 199
(1)

MSE Seal Assembly Drawings

193. Greene Tweed provided Schlumberger "high level" drawings
of MSE Seal Assemblies, PN 100066417 and PN 23550-028-00001, that
contained some but not all dimensions of the MSE Seal Assembly
because the MSE Seal Assembly is a proprietary part. 200
David Mccalvin,
p. 226.
198

Andrew Johnston,
pp. 54-55.
199

TT 8-226:12-25,

Docket Entry No. 209,

TT 7-54:2-55:3,

Docket Entry No. 208,

DX 27 (Greene Tweed Drawing No. MSE70-100535-004 depicting
PN 23550-028-0001); DX 28 (Greene Tweed Drawing No. Drawing of
PN 100066417). See also Andrew Johnston, TT 7-14:19-16:12, Docket
Entry No. 208, pp. 14-16.
See also id. at TT 7-15:1-4, Docket
Entry No. 208, pp. 14-15 (explaining that a high level drawing
"doesn't include all the critical dimensions. They consider that
proprietary. So, they provide us with a document that we use to
verify that we receive the part number that we ordered from
(continued...)
200

-59-

194. Greene Tweed maintains dimensional drawings of MSE Seal
Assemblies, PN 100066417 and PN 23550-028-00001. 201
195. Greene Tweed's dimensional drawings show that MSE Seal
Assemblies, PN 23550-028-00001 and PN 100066417, were manufactured
to drawings and specifications that were substantially the same
from December 3, 2003, until at least March 3, 2016. 202
196. Because drawings of MSE Seal Assemblies, PN 23550-0280001 and PN 100066417,

remained substantially the same from

December of 2003 until March of 2016, the MSE Seal Assemblies,
PN 23550-028-0001 and PN 100066417, supplied by Greene Tweed to
Schlumberger for the SCSSVs that Schlumberger manufactured for Hess
in 2013 (H13S-0010 installed in Well D, H13S-0011 installed in Well
B,

and Hl3S-0022 installed in Well C),

were manufactured to

drawings and specifications that are substantially the same as the
drawings and specifications of the MSE Seal Assemblies that passed
the validation test in 2004.

200 ( •••

them.").

continued)

Greene Tweed Drawings, DX 55-A, GTC-00064-082, 0514-0545.
See also Mccalvin Rebuttal Report, pp. 56-62 (PN 23550-028-0001),
63-64 (PN 100066417), Exhibit 28 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-30, pp. 63-71.
201

McCalvin Rebuttal Report, pp. 56-64, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, pp. 63-71 (describing development of MSE Seal
Assemblies, PN 23550-028-0001 and PN 100066417).
202

-60-

(2)

MSE Assembly Drawings

197. The Bill of Materials on the drawings of MSE Seal
Assemblies, PN 23550-028-00001 and PN 100066417, maintained by both
Schlumberger and Greene Tweed, specify MSE Assembly, Greene Tweed
PN MSE70-100372-A. 203
198.

Greene Tweed maintains dimensional drawings

of MSE

Assembly, Greene Tweed PN MSE70-100372-A. 204
199. Greene Tweed's drawings show that MSE Assembly, Greene
Tweed PN MSE70-100372-A, was manufactured to the same drawings and
specifications from April of 1998 to September of 2015. 205
200. Because drawings of MSE Assembly, Greene Tweed PN MSE70100372-A, remained the same from April of 1998 until September of
2015, the MSE Assemblies, Greene Tweed PN MSE70-100372-A, in the
SCSSVs that Schlumberger manufactured for Hess in 2013 (Hl3S-0010
installed in Well D, H13S-0011 installed in Well B, and Hl3S-0022
installed

in

Well

C),

were

manufactured

to

drawings

and

specifications that are the same as the drawings and specifications
of the MSE Assembly that passed the validation test in 2004.
DX 27, MSE Seal Assembly Drawing - Teflon (PN 23550-02800001); and DX 28, MSE Seal Assembly Drawing - Chemraz (PN
100066417). See also Andrew Johnston, TT 7-112:25-114:23, Docket
Entry No. 208, pp. 112-14.
203

Greene Tweed MSE Seal Assembly Drawings, DX 55-A, GTC-00520
(April 1998). See also Andrew Johnston, TT 7-114:24-119:3, Docket
Entry No. 208, pp. 114-19.
204

Greene Tweed MSE Seal Assembly Drawings, DX 55-A, GTC-00521
(September 2015).
205

-61-

(3) Rosette Spring Drawings
201. The Bill of Materials on the drawings of MSE Assembly,
Greene Tweed PN MSE70-100372-A,

specify rosette spring,

Greene

Tweed PN RS-111-1-E. 206
202. The drawings and specifications for Rosette Spring,
Greene Tweed PN RS-111-1-E,

are maintained by Greene Tweed on

Drawing Number RS-111-1-X-X/MFG Revision B. 207
203. Greene Tweed Drawing Number RS-111-1-X-X/MFG Revision B
went into effect in April of 2003, and remained in effect until
August 20, 2014, when Revision C went into effect. 208
204. Because Drawing Number RS-111-1-X-X/MFG Revision B for
rosette spring, Greene Tweed PN RS-111-1-E, remained the same from
April of 2003 until August of 2014, the rosette springs in the
SCSSVs that Schlumberger manufactured for Hess in 2013 (H13S-0010
installed in Well D, Hl3S-0011 installed in Well B, and H13S-0022
installed in Well C),

and the rosette springs that passed the

Andrew Johnston, TT 7-114:24-115:6, Docket Entry No. 208,
pp. 114-15.
See also Greene Tweed MSE Seal Assembly Drawings,
DX 55-A, p. GTC 00520.
206

Andrew Johnston, TT 7-115:7-116:11, Docket Entry No. 208,
See also Greene Tweed MSE Seal Assembly Drawings,
pp. 115-16.
DX 55-A, p. GTC_00527, Exhibit 26 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-28, p. 5.
207

Andrew Johnston, TT 7-116:13-118:15, Docket Entry No. 208,
pp. 116-18 (explaining that Revision C changed the leg spacing).
See also Greene Tweed MSE Seal Assembly Drawings, DX 55-A,
p. GTC_00527 (Revision B) and GTC_00526 (Revision C), Exhibit 26 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-28, p. 5 (Revision B).
208

-62-

validation test in 2004 were manufactured to the same drawings and
specifications.
205. Alternatively, the geometry of the rosette springs in the
SCSSVs sold to Hess at issue in this case (Hl3S-0010 installed in
Well D, Hl3S-0011 installed in Well B, and Hl3S-0022 installed in
Well C), was substantially the same as the geometry of the rosette
springs that passed the validation test in 2004.
206. Hess argues that neither Schlumberger nor Greene Tweed
had dimensional drawings of the MSE Seal Assembly that passed the
API 14A validation test in 2004 because the recorded dimensions of
MSE Seal Assemblies that passed the API
contained

in

the

validation

package

from

14A

validation

2004

differed

test
from

dimensions in the inspection drawings provided by Greene Tweed. 209
207.

Hess's argument is not persuasive because the difference

between the outer dimension of the MSE Seal Assemblies found
recorded in the 2004 validation package and the outer dimension of
MSE

Seal

Assemblies

shown

on

Greene

Tweed's

drawings

and

specifications is an insubstantial difference of O.033". 210
Hess's Motion for Judgment, Docket Entry No. 222, pp. 18-19
(Wells D, B, and C), and pp. 25-26 (Well B(2)).
209

BP Bridging Document, p. 6, Exhibit 5 to Hess's Motion for
Judgment, Docket Entry No. 222-5, p. 7 ("The outer dimension of the
Recent MSE seals were nominally measured to be approximately .033"
smaller than the Qualified and Reproduction seals across many
different tests throughout the investigation.").
See also
Alexander LaDouceur, TT 5-17: 6-19: 9 (stating that the initial
belief was that the .033" difference was significant); PTX 126,
(continued...)
210

-63-

208. Hess also argues that the difference in outer dimension
was caused by the geometry of the rosette spring, which changed
over time as illustrated in Hess's Demonstrative Exhibit No. 6.
209. Hess's argument that the geometry of the rosette spring
changed over time is not persuasive for several reasons: (1) When
the investigation of the BP and Hess valve failures occurred in
2015 neither Schlumberger nor Greene Tweed had any rosette springs
from 2004; (2) the only contemporary record for the geometry of the
2004

rosette

springs

were

maintained by Greene Tweed;

the

drawings

and

specifications

(3) the drawing that Hess contends

represents the geometry of the rosette spring qualified in 2004 was
created in 2015 and merely "surmises"
qualified

spring

as

it

was

"reverse

to

represent

engineered"

the 2004

from

outer

dimensions of MSE Seal Assemblies found recorded in the 2004
validation package and cross sections of MSE Seal Assemblies
delivered in 2008; 211 and

(4) even if the geometry of the 2004

rosette spring was as illustrated in the 2015 drawing that was
"reverse engineered," that geometry was substantially the same as
the

geometry

of

the

rosette

springs

that

were

supplied

to

Schlumberger in 2012 and used to manufacture the SCSSVs sold to
Hess in 2013.
210 ( •••

continued)
Email from A. Johnston to H. Kohli re Critical Topics - November
20th Update, Exhibit 15 to Hess's Motion for Judgment, Docket Entry
No. 222-15, p. 12 (STC 00126234 0005, slide showing "Inspection
Record for 2004 Certification MSE Seals").
11 Dwayne May, TT 9-80:14-16, Docket Entry No. 216, p. 80
("We
didn't have the springs for the 2004 seals.
So, it was - we
surmised only that those probably did not match, the components
didn't - may not have matched the actual drawing.").

2

-64-

(4)
210. Greene
Conformity

for

Tweed
each

Certificates of Conformity

provided

MSE

Seal

Schlumberger
Assembly

in

Certificates
the

SCSSVs

of
that

Schlumberger manufactured for Hess in 2013 as follows:212 H13S-0010
installed in Well D; 213 Hl3S-0011 installed in Well B; 214 and Hl3S0022 installed in Well C.2 15
211. The Certificates of Conformity that Greene Tweed provided
to Schlumberger certify that the MSE Seal Assemblies and their
component parts were manufactured in conformance with current
specifications for the applicable part numbers.216
Andrew Johnston,
TT 7-43:22-44:2
certificates of conformity for each SCSSV).
212

(databooks

contain

See McCalvin Rebuttal Report, pp. 82-89, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, pp. 89-96. See also DX 23, Valve Databook for SCSSV
H13S-0010, pp. STC 00259883-9886.
213

See Mccalvin Rebuttal Report, pp. 100-104, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-30, pp. 107-111. See also DX 37, Valve Databook for SCSSV
H13S-0011.
214

See McCalvin Rebuttal Report, pp. 114-28, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-31, pp. 1-15. See also DX 39, Valve Databook for SCSSV
Hl3S-0022.
215

Andrew Johnston, TT 7-54:4-55:13, Docket Entry No. 208,
pp. 54-55 (a certificate of conformity guarantees that the part
was manufactured, inspected, and produced to current drawings and
specifications). See also id. at 7-19:25-20:9, Docket Entry
No. 208, pp. 19-20 (Schlumberger's counsel explaining that "the
fundamental nature of the industry is that traceability is tracked
by part number. And so, maintaining rigid control over that part
number is how the industry maintains control over the various
(continued ...)
216

-65-

(5)

Conclusions

212. Because the MSE Seal Assemblies, PN 23550-028-0001 and
PN 100066417, and their component parts, MSE Assembly, Greene Tweed
PN MSE70-100372-A, and Rosette Spring, Greene Tweed PN RS-111-1-E,
with which Schlumberger manufactured SCSSV Hl3S-0010 installed in
Well D, SCSSV H13S-0011 installed in Well B, and SCSSV Hl3S-0022
installed

in

Well

C,

were

manufactured

to

drawings

and

specifications that are substantially the same as the drawings and
specifications of the MSE Seal Assemblies and component parts that
passed the validation test in 2004,

and because Schlumberger

received Certificates of Conformity from Greene Tweed for the MSE
Seal Assemblies, PN 23550-028-0001 and PN 100066417, and component
parts, MSE Assembly, Greene Tweed PN MSE70-100372-A, and Rosette
Spring,

Greene

Tweed

PN

RS-111-1-E,

with

which

Schlumberger

manufactured the SCSSVs at issue (Hl3S-0010 (Well D), Hl3S-0011
(Well B), and Hl3S-0022 (Well C), the credible evidence establishes
that the MSE Seal Assemblies and component parts in each of these
SCSSVS were manufactured in conformity with the requirements of API
14A, Eleventh Edition, § 6.3.2.2.
213. Hess

has

therefore

failed

to

carry

its

burden

to

establish by a preponderance of the credible evidence that the
SCSSVs at issue (H13S-0010 (Well D), Hl3S-0011 (Well B), and Hl3S0022

(Well C),

were not manufactured in conformity with the

requirements of API 14A, Eleventh Edition, § 6.3.2.2.
continued)
designs."); and 7-20: 8-9 (Andrew Johnston confirming that what
Schlumberger's counsel said is true).
216 ( •••

-66-

(B)

Hess Failed to Establish by a
Credible
of
the
Preponderance
Evidence that Schlumberger Failed to
Manufacture SCSSV Hl3S-OO25 (Well
B(2)) in Conformity with§ API 14A,
§ 6.3.2.2

214. In January of 2016 Schlumberger issued a worldwide recall
of TRC-II lOK and 15K safety valves in inventory for retrofit with
2016 Reproduction MSE Seal Assemblies,

PN 23550-028-00001 and

PN 100066417.217
215. As part of the worldwide recall, Schlumberger retrofitted
SCSSV Hl3S-OO25, which Hess had in inventory and planned to use in
another Tubular Bells well. 218
216. SCSSV Hl3S-OO25 was retrofitted with 2016 Reproduction
MSE Seal Assemblies under Return Authorization Number ("RAN") 02284
at Schlumberger's CHPC.219
217. Greene
Reproduction

MSE

Tweed
Seal

produced

new

Assemblies,

drawings
PN

for

the

2016

23550-028-0001

and

PN 100066417, and their components, the MSE Assembly, PN MSE7O1OO372-A, and the rosette springs which received a new PN, PN 5670129897-9759.220
217D. Hirth, TT 2-177:2-8, Docket Entry No. 203, p. 177;
Alexander LaDouceur, TT 5-36:16-5-38:24, 5-56:3-5-57:22, Docket
Entry No. 206, pp. 36-38, and 56-57.
218Agreed Finding of Fact 427-28.
219Agreed Finding of Fact 426.

220DX 55A, GTC 000666-69 (drawings of MSE Assembly PN MSE7O­
(continued...)
-67-

218. Schlumberger

successfully

completed

API

14A dynamic

qualification testing of 2016 Reproduction MSE Seal Assemblies,
PN 23550-028-00001 and PN 100066417, and their components including
the rosette springs, PN 5670-12897-9750, in January and February of
2016 as documented in report numbered ET 201600464.221

continued)
100372-A and jacket PN MSE70J-100372-A dated February 18, 2016),
and GTC 00071-72 (drawings of Rosette Spring dated January 27,
2016); and David Hirth, TT 2-182:10-14 ("Schlumberger had Greene
Tweed produce new drawings for the [2016 reproduction] springs."),
TT 2-188:18-22 (explaining that "the source of that red drawing for
the 2016 reproduction spring" on Hess's Demonstrative No. 6, "is
from the Greene Tweed manufacturing drawing," and that "[Greene
Tweed] made a new drawing for this 2016 reproduction spring."),
Docket Entry No. 203, pp. 182 and 188.
See also Hess's
Demonstrative No. 6, showing citing DX 55-A at GTC_00072, which is
Greene Tweed's rosette spring drawing for the 2016 Reproduction MSE
Assembly, as the source for the "2016 Reproduction Seal" depicted.
220

( •••

Andrew Johnston, TT 7-128:1-132:16 (explaining that the 2016
Reproduction MSE Seal Assemblies went through four separate valve
qualifications and therefore were validated four separate times),
8-17:1-8 (explaining that the effort to reverse engineer the
rosette spring resulted in numerous iterations, i.e., drawings),
Docket Entry No. 208, pp. 128-32, and Docket Entry No. 209, p. 17.
See also David Mccalvin, TT 8-186:17-187:25; Mccalvin Rebuttal
Report, pp. 129-31, DX 71, Exhibit 28 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-31, pp. 16-18
(describing validation of MSE Reproduction Seals in 2016); DX 42,
MSE Investigation Seal Life Cycle Qualification, ET# 201600464,
January 22 to February 16, 2016, p. 15 § 8.1.1 ("The MSE seals have
successfully passed a test replicating API 14A 12th edition Vl life
cycle test and will be rated to 15ksi at 40-300 ° F."); and DX 44,
Engineering Report TRC-II MSE Life cycle Qualification Prepared for
bp, p. 15 § 8.1.1 ("The MSE seals have successfully passed a test
replicating API 14A 12th edition Vl life cycle test and will be
rated to 15ksi at 40-300 ° F."); David Hirth, TT 3-21:4-6, Docket
Entry No. 204, p. 21 ("Schlumberger performed an API qualification
And according to
test on this reproduction seal and spring.
Schlumberger, it passed.").
221

-68-

219. On March 2, 2016, Schlumberger replaced the MSE Seal
Assemblies, PN 23550-028-00001 and PN 100066417, in SCSSV H13S-0025
with 2016 Reproduction MSE Seal Assemblies, PN 23550-028-00001 and
PN 100066417.222
220. Greene Tweed's 2016 drawings were used to manufacture
both the 2016 Reproduction MSE Seal Assemblies that completed API
14A qualification testing in January and February of 2016, and the
2016 Reproduction MSE Seal Assemblies with which SCSSV H13S-0025
was retrofitted.223
221. Greene

Tweed

provided

Schlumberger

Certificates

of

Conformity for each of the 2016 Reproduction MSE Seal Assemblies,
PN 23550-028-00001 and PN 100066417, in SCSSV Hl3S-0025. 224
222. The Certificates of Conformity that Greene Tweed provided
to Schlumberger for the MSE Seal Assemblies, PN 23550-028-00001 and
PN 100066417, in SCSSV H13S-0025 that Schlumberger retrofitted in
March of 2016 certify that the MSE Seal Assemblies and their

Agreed Findings of Fact 428-29. See also David Hirth, TT 2212:11-14 ("Schlumberger had a new valve in inventory with the old
seals, the non-conforming seals. They took that valve, and they
retrofitted it with the 2016 reproduction seals."); Andrew
Johnston, TT 7-155:19-158:4, Docket Entry No. 208, pp. 155-58
(describing the replacement of the MSE seals in SCSSV H13S-0025)).
222

David Hirth, TT 2-182:15-20, Docket Entry No. 203, p. 182 (Q
And were the new springs used in the B(2) well? A They were.").
223

See Mccalvin Rebuttal Report, pp. 141-49, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-31, pp. 28-36. See also DX 46, Valve Databook for SCSSV
H13S-0025, pp. STC 00255895-8910.
224

-69-

component parts were manufactured in conformance to current Greene
Tweed specifications applicable to those part numbers. 225
223. Because

the

2016

Reproduction

MSE

Seal

Assemblies,

PN 23550-028-0001 and PN 100066417, and their component parts, MSE
Assembly,
Greene

Greene Tweed PN MSE70-100372-A,

Tweed

PN

5670-12987-9750,

with

and Rosette Spring,
Schlumberger

which

retrofitted SCSSV H13S-0025, were manufactured to the same drawings
and specifications used to manufacture the 2016 Reproduction MSE
Seal Assemblies, PN 23550-028-00001 and PN 100066417, and component
parts

that

passed

validation

tests

in

2016,

and

because

Schlumberger received Certificates of Conformity from Greene Tweed
for the MSE Seal Assemblies, PN 23550-028-0001 and PN 100066417,
and component parts, MSE Assembly, Greene Tweed PN MSE70-100372-A,
and Rosette Spring, Greene Tweed PN 5670-12987-9750, with which
Schlumberger retrofitted SCSSV Hl3S-0025, the credible evidence
establishes that Schlumberger manufactured the MSE Seal Assemblies
and component parts in SCSSV H13S-0025 in conformity with the
requirements of API 14A, Eleventh Edition, § 6.3.2.2.
224. Hess has failed to establish by a preponderance of the
credible evidence that Schlumberger did not manufacture the MSE
Seal Assemblies and component parts with which SCSSV Hl3S-0025 was
retrofitted in 2016 in conformity with the requirements of API 14A,
Eleventh Edition, § 6.3.2.2.
Andrew Johnston, TT 7-19:25-20:9, 7-54:4-55:13, Docket Entry
No. 208, pp. 19-20, 54-55 (describing certificates of conformity).
225

-70-

225. Hess's argument that the 2016 Reproduction MSE Seal
Assemblies with which SCSSV Hl3S-0025 was retrofitted were not
manufactured

in

conformity

with

API

14A,

Eleventh

Edition,

§ 6.3.2.2 because the rosette springs in the 2016 Reproduction MSE
Seal Assemblies differ in size, type, and model from the rosette
springs validated in 2004, fails because Hess's expert witness
acknowledged that the 2016 Reproduction MSE Seal Assemblies passed
API 14A validation testing in 2016, 226 and Hess has failed to
present any evidence to the contrary.
226. Hess

argues

that

the

2016

Reproduction

MSE

Seal

Assemblies were not independently qualified as required by API 14A
because the qualification tests were performed by Schlumberger not
by a third party.
227. Hess's argument is not persuasive because

(a) Hess's

expert witness, David Hirth, testified that the 2016 Reproduction
MSE Seal Assemblies had passed a API 14A qualification test,
(b) Schlumberger performed the API 14A qualification test on the
MSE Seal Assemblies in 2004, and (c) Hess does not argue that the
MSE Seal Assemblies were not properly qualified in 2004.

See Statement of Hess's Counsel, TT 3-21: 14-17, Docket Entry
No. 204, p. 21 ("Our argument is going to be that because they are
substantially different and are different from size, type, and
model of the 2004, that, indeed, they are - they rep roduction
springs do, indeed, violate API 6.3.2.2), and testimony of Hess's
expert, David Hirth, TT 3-21:4-6, Docket Entry No. 204, p. 21
("Schlumberger performed an API qualification test on this
reproduction seal and spring. And according to Schlumberger, it
passed.") .
226

-71-

(II) Section 7.6.2 of API 14 A
228. Section 7.6.2 of API 14A, Eleventh Edition, states:
"All traceable components, except non-metallic seals,
shall be dimensionally inspected to assure proper
function and compliance with design criteria and
specifications. Inspection shall be performed during or
after the manufacture of the components but prior to
assembly,
unless assembly is required for proper
measurement. " 227
229. Section

7.6.2

exempts

non-metallic

seals

from

its

dimensional inspection requirement.228
230. Non-metals are covered under § 7.6.3 of API 14A.229
231. Section 7.6.2 does not apply to the MSE Seal Assemblies,
PN 23550-028-00001 and PN 100066417, because they have non-metallic
sealing surfaces and the entire MSE Seal Assembly is recognized by
the industry as a non-metallic seal even though ithas two metal
rosette springs inside them.230
Agreed Finding of Fact 99 (quoting API 14A, Eleventh
Edition, § 7.6.2, PTX 3, Exhibit 3 to Hess's Motion for Judgment,
Docket Entry No. 222-3, p. 27).
227

Patrick Hyde, TT 8-88:14-89:3, Docket Entry No. 209, pp. 8889; Hyde Report, p. 8, DX 246, Exhibit 59 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-63,
p. 11.
228

Hyde Report, p. 8, DX 246, Exhibit 59 to Schlumberger' s
Response to Hess's Motion for Judgment, Docket Entry No. 223-63,
p. 11.
229

Andrew Johnston, TT 7-71:19-72:4, Docket Entry No. 208,
pp. 71-72; Patrick Hyde, TT 8-88:22-89:3, 8-131:5-10, Docket Entry
No. 209, pp. 88 and 131; Hyde Report, p. 8, DX 246, Exhibit 59 to
Schlumberger's Response to Motion for Judgment, Docket Entry
No. 223-63, p. 11 ("In my opinion, the MSE seal is a non-metallic
(continued... )
230

-72-

232. MSE Seal Assemblies were also considered to be non­
metallic seals by both Hess and Schlumberger as evidenced by the
MSE Seal Assemblies' designation on the Inspection Matrix of Hess's
Quality Control Plan as "Class 3," which stands for "elastomers." 231
233. The traceable components for purposes of§ 7.6.2 are the
MSE Seal Assemblies, not the rosette springs.232
234. MSE Seal Assemblies supplied by Greene Tweed, PN 23550028-00001 and PN 100066417, are the lowest level of traceable
continued)
seal because the metal part (the spring) is not part of the sealing
surface; it is part of the assembly that serves to energize the
actual component doing the actual sealing - the jacket assembly.").
See also Andrew Johnston, TT 8-10:11-12, Docket Entry No. 209,
p. 10; and David McCalvin, TT 8-199:13-15, Docket Entry No. 209,
p. 199 ("Q Do you agree with Mr. Hyde and Mr. Johnston that the MSE
seal is a non-metallic seal? A Yes. That's an industry standard.").
230 ( •••

Inspection Matrix, DX 17, Exhibit 16 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-17,
pp. 2 and 3.
231

Patrick Hyde, TT 8-89:14-15 ("Q Do you believe the rosette
spring is traceable? A No, I do not."), 8-91:12-15 ("[Section]
7.6.2 . . . talks about traceable components in non-metallic seals.
The MSE seal is a non-metallic seal, and the rosette spring is not
a traceable component."), Docket Entry No. 209, pp. 89 and 91;
David Mccalvin, TT 8-198:24-199:10
(identifying the lowest
traceable component of the MSE Seal as the MSE Seal Assembly),
Docket Entry No. 209, pp. 198-99. See also Andrew Johnston, TT 741:20-7-42:6 (the traceable component for Schlumberger is the MSE
seal assembly); Bill of Materials, DX 33, p. 4 of 28, (listing MSE
Seal Assemblies, PN 23550-028-00001 and PN 100066417, but not
listing component parts of either the MSE Seal Assembly, i.e., the
V-ring, the female adapter, the hat ring, or the MSE Assembly and
its components, i.e., the jacket, the two rosette springs, and the
spacer); Inspection Matrix, DX 17, Exhibit 16 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-17,
p. 2 line 12.9 and p. 3 line 12.25 (listing MSE Seal Assemblies,
but not their components).
232

-73-

component identified both in Schlumberger's Bill of Materials for
SCSSVs, PN 101091732, sold to Hess, and in the Inspection Matrix of
Hess's Quality Control Plan. 233
235. Hess could have - but did not - require the rosette
spring be a traceable component by identifying it as such in the
Inspection Matrix of Hess's Quality Control Plan. 234
236. Schlumberger requires its suppliers,

including Greene

Tweed, to have a quality management system pursuant to which they
perform

dimensional

inspections,

and

provide

certificates

of

conformity certifying that applicable specifications, including
dimensional inspections, have been met. 235

Andrew Johnston, TT 8-7:4-10, Docket Entry No. 209, p. 8;
Patrick Hyde, TT 8-164:25-165:7, Docket Entry No. 209, pp. 164-65.
See also Inspection Matrix, DX 17, Exhibit 16 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-17, p.
2 line 17.9 (identifying PN 23550-028-00001 (Teflon MSE Seal
Assembly), and p. 3 line 12.25 (PN 100066417 (Chemraz MSE Seal
Assembly)); Bill of Materials, DX 33, p. 4 of 28 (identifying MSE
Seal Assemblies PN 23550-028-00001 and PN 100066417 but not
identifying any component parts of the MSE Seal Assemblies).
233

Patrick Hyde, TT 8-89:14-24, 8-131:25-132:8, 8-139:2-3,
Docket Entry No. 209, pp. 89, 131-32 and 139; David Mccalvin, TT 8198:24-199:12, Docket Entry No. 209, pp. 198-99. See also
Inspection Matrix, DX 17, Exhibit 16 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-17, p. 2 line 17.9
(identifying PN 23550-028-00001 (Teflon MSE Seal Assembly), and
p. 3 line 12.25 (PN 100066417 (Chemraz MSE Seal Assembly)); Bill of
Materials, DX 33, p. 4 of 28 (identifying MSE Seal Assemblies PN
23550-028-00001 and PN 100066417 but not identifying any component
parts of the MSE Seal Assemblies).
234

235

Andrew Johnston, TT 7-18:5-16, Docket Entry No. 208, p. 18.
-74-

237. Greene Tweed provided certificates of conformity

to

Schlumberger certifying that the MSE Seal Assemblies used to
manufacture the SCSSVs sold to Hess were made in conformity with
Greene Tweed's applicable drawings and specifications.236
238. The credible

evidence

establishes

that

Schlumberger

manufactured SCSSV Hl3S-0010 installed in Well D, SCSSV Hl3S-0011
installed in Well B, and SCSSV Hl3S-0011 installed in Well C in
conformity with the requirements of API 14A, Eleventh Edition,
§ 7. 6. 2. 237
239. Accordingly,

Hess

has

failed

to

establish

by

a

preponderance of the credible evidence that Schlumberger did not
manufacture the SCSSVs Hl3S-0010 installed in Well D, Hl3S-0011
installed in Well B, or Hl3S-0011 installed in Well C in conformity
with the requirements of API 14A, Eleventh Edition, § 7.6.2.
(III) Section 7.6.3 of API 14A
240. Section 7.6.3 of API 14A, Eleventh Edition, states:
a)
Sampling procedures and the basis for acceptance or
rejection of a batch lot shall be in accordance with ISO
2859-1, general inspection level II at a 2,5 A[cceptance]
Q[uality] L[imit] for O-rings and a 1,5 A[cceptance]
236

Andrew Johnston, TT 7-19:25-20:3, Docket Entry No.
pp. 19-20.
237

208,

Hess does not contend that SCSSV H13S-0025 installed in Well
B(2) was manufactured in violation of § 7.6.2 of API 14A. See
TT 3-20:7-20, Docket Entry No. 203, p. 20 (Hess's counsel stating
that the only API 14A violation alleged with respect to Well B(2)
is a violation of§ 6.3.2.2).
-75-

Q [uality] L [imit] for other sealing elements until a
documented variation history can be established.
Sampling procedures shall then be established based on
the documented variation history.
b)
Visual inspection of O-rings shall be in accordance
with OSP 3601-3.
Other sealing elements shall be
visually inspected in accordance with the manufacturer's
documented specifications. .
c)
Dimensional tolerances of O-rings shall be in
accordance with ISO 3601-1. Other sealing elements shall
meet dimensional tolerances of the manufacturer's written
238
specifications.
241. API 14A defines the term "manufacturer" as the "principal
agent in the design, fabrication and furnishing of equipment, who
chooses to comply with this International Standard."239
242. Schlumberger is the principal agent in the design,
fabrication, and furnishing of the TRC-II SCSSVs and is the only
entity who chose to comply with API 14A. 240

Agreed Finding of Fact 106 (quoting API 14A, § 7.6.3, PTX 3,
Exhibit 3 to Hess's Motion for Judgment, Docket Entry No. 222-3,
p. 27) .
238

API 14A, § 3.14,
PTX 3, Exhibit 3 to Hess's Motion for
Judgment, Docket Entry No. 222-3, p. 13.
239

Patrick Hyde, TT 8-92:21-25, Docket Entry No. 209, p. 92.
See also Hyde Report, p. 8, DX 246, Exhibit 59 to Schlumberger's
Response to Motion for Judgment, Docket Entry No. 223-63, p. 11
("For the purpose of API 14A, manufacturer is defined in [§] 3.14
as the 'principle agent in the design, fabrication and furnishing
of equipment, who chooses to comply with this international
standard.' Since Schlumberger is the 'principle agent i[n] design,
fabrication, and furnishing of equipment,' the governing document
would be the Schlumberger documented specification.").
240

-76-

243. Schlumberger is the manufacturer of the SCSSVs for
purposes of § 7.6.3 of API 14A.241
244. Section 7.6.3(b) requires sealing elements other than 0rings, including the MSE Seal Assemblies, to "be visually inspected
in accordance with the manufacturer's documented specifications. 11242
245. Schlumberger's procedures required each MSE Seal Assembly
to be visually inspected before being put onto a piston as follows:
"Using a microscope set to 20X magnification,

inspect the MSE

piston seals and verify that there are not cuts, scratches, or
surface irregularities on the OD and ID of the seal. 11243
246. Schlumberger visually inspected the MSE Seal Assemblies
both before and after installing them into a piston. 244
247. Section 7.6.3(c) requires MSE Seal Assemblies to "meet
dimensional

tolerances

of

the

manufacturer's

written

specifications. " 245

Patrick Hyde, TT 8-92:13-18, Docket Entry No. 209, p. 92;
David McCalvin, TT 8-206:18-207:9, 8-227:1-22, Docket Entry
No. 209, pp. 206-207, and 227. See also Mccalvin Rebuttal Report,
pp. 35-36, Exhibit 28 to Schlumberger's Response to Motion for
Judgment, Docket Entry No. 223-30, pp. 42-43.
241

API 14A, § 7.6. 3(b), PTX 3, Exhibit 3 to Hess's Motion for
Judgment, Docket Entry No. 222-3, p. 27.
242

243

Andrew Johnston, TT 7-82:4-14, Docket Entry No. 208, p. 82.

Andrew Johnston, TT 7-82:15-7-83:8, Docket Entry No. 208,
pp. 82-83.
244

API 14A, § 7.6.3(c), PTX 3, Exhibit 3 to Hess's Motion for
Judgment, Docket Entry No. 222-3, p. 27.
245

-77-

248. Schlumberger did not specify dimensional tolerances of
the MSE Seal Assemblies or any of their components in its written
specifications. 246
249. The MSE Seal Assemblies in the SCSSVs sold to Hess are
proprietary

parts

for

which

Greene

Tweed, not

Schlumberger

determines actual dimensions of component parts.247
250. A proprietary part is one for which a supplier holds the
design and sells as part numbers manufacturers.248
251. API 14A, Eleventh Edition, did not require Schlumberger
to specify dimensional tolerances for the MSE Seal Assemblies or
their component parts supplied by Greene Tweed. 249
David McCalvin, TT 8-207: 19-23, Docket Entry No. 209,
p. 207.
See also Hyde Report, p. 8, DX
246, Exhibit 59 to
Schlumberger's Response to Motion for Judgment, Docket Entry
No. 223-63, p. 11 ("Whether that Schlumberger specification was
adequate or not is not a matter of API 14A compliance.
Schlumberger has a documented specification to visually inspect all
seals installed in any SCSSV and has evidence of completing that
inspection. See,�, STC-00257461 (AC-35, Section 3.6) If an
operator reviews the Schlumberger specification and judges it to be
inadequate, the operator has the right to require whatever
inspection they deem necessary and to document that action within
the company specific quality [control] plan. It is my impression
Hess has an operator specific quality [control] plan, and that
reviewed and approved plan does not include any inspection other
than the Schlumberger standard.").
246

McCalvin Rebuttal Report, p. 194, Exhibit 28 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-31, p. 81. See also David Mccalvin, TT 8-208:17-209:10
(drafters of API 14A recognize and allow for the use proprietary
parts and the practice of letting suppliers hold back some
information).
247

David Mccalvin, TT 8-207:24-208:24, Docket Entry No. 209,
pp. 207-08.
248

249

Patrick Hyde, TT 8-93:6-8, Docket Entry No. 209, p. 93;
(continued... )
-78-

Schlumberger

252. Because

did

specify

not

dimensional

tolerances for the MSE Seal Assemblies supplied by Greene Tweed,
Schlumberger did not have to perform dimensional inspections of the
MSE Seal Assemblies or their components to comply with§ 7.6.3.250
253. As

long

as

Schlumberger

received

Certificates

of

Conformity for the MSE Seal Assemblies supplied by Greene Tweed,
Schlumberger complied with the requirements of§ 7.6.3 for the MSE
Seal Assemblies supplied by Greene Tweed.251
254. Certificates of Conformity are provided to Schlumberger
by a third party suppliers, including Greene Tweed, to certify that
the part supplied has been manufactured, inspected, and produced to
meet the applicable drawings and specifications for that product. 252
255. Greene

Tweed

provided

Schlumberger

Certificates

of

Conformity for each of the MSE Seal Assemblies used in the SCSSVs
that Schlumberger sold to Hess. 253

( ••• continued)
David Mccalvin, TT 8-207:19-23, Docket Entry No. 209, p. 207.
249

250

95.

Patrick Hyde, TT 8-93:2-95:9, Docket Entry No. 209, pp. 93-

David Mccalvin,
p. 226.
251

Andrew Johnston,
pp. 54-55.
252

TT 8-226:12-25,
TT 7-54:2-55:3,

Docket Entry No. 209,
Docket Entry No. 208,

Andrew Johnston, TT 7-43:22-7-44:2, Docket Entry No. 208,
pp. 43-44 (describing databooks maintained for each valve).
253

-79-

256. Greene Tweed's Certificates of Conformity state that all
the requirements of the purchase order and of the Greene Tweed
requirements that apply to the applicable product have been met. 254
257. The

credible

evidence

establishes

that

Schlumberger

manufactured SCSSV Hl3S-0010 installed in Well D, SCSSV Hl3S-0011
installed in Well B, and SCSSV H13S-0011 installed in Well C in
conformity with the requirements of API 14A,

Eleventh Edition,

§ 7. 6. 3.
258. Hess has failed to establish by a preponderance of the
credible evidence that Schlumberger did not manufacture the SCSSVs
H13S-0010 installed in Well D, H13S-0011 installed in Well B, or
H13S-0011 installed in Well C in conformity with the requirements
of API 14A, Eleventh Edition, § 7.6. 3.255
iv.

Hess Failed to Establish by a Preponderance of the
Credible Evidence that the Alleged Violations of
API 14A, Eleventh Edition, Either Caused the SCSSVs
to Fail or Substantially Impaired the Value of the
SCSSVs to Hess

Hess alleges that the SCSSVs at issue failed because they were
not manufactured in conformance with API 14A, Eleventh Edition, and
that the failures substantially impaired the value of the SCSSVs to

254

David Mccalvin, TT 8-191:7-14, Docket Entry No. 209, p. 191.

Hess does not contend that SCSSV Hl3S-0025 installed in Well
B(2) was manufactured in violation of § 7.6.2 of API 14A. See
TT 3-20:7-20, Docket Entry No. 203, p. 20 (Hess's counsel stating
that the only API 14A violation alleged with respect to Well B(2)
is a violation of§ 6.3.2.2).
255

-80-

Hess.

Schlumberger argues that the SCSSVs failed because of the

way Hess operated the wells not because of any violation of API
14A,

Eleventh Edition.

For the reasons explained in § III.C,

above, the court has already found that Hess failed to establish by
a preponderance of the credible evidence that the SCSSVs were not
manufactured in conformance with API 14A, Eleventh Edition.
the reasons explained below,

For

the court finds that the alleged

violations of API 14A, Eleventh Edition, neither caused the SCSSVs
to fail nor substantially impaired their value to Hess.
a.

The Alleged Violations of API 14A Did Not
Cause the SCSSVs to Fail
(I)

The BP Valve Failure During a Pre­
Installation Test is Not Comparable to
the Post-Installation Hess Valve Failures

259. Hess's argument that the MSE Seal Assemblies caused the
SCSSVs at issue to fail is based primarily on the conclusion
reached in FRA Rev. 7 that "[t]he primary root cause of the failure
is the quality of the MSE Seal."256
260. FRA Rev. 7's conclusion that the MSE Seal was the primary
root cause for the failure of SCSSV Hl3S-0010 installed in Well D
FRA Rev. 7, p. 28 of 55, Docket Entry No. 222-51, p. 29
See also
( "The primary root cause is the MSE Seal Spring.").
Revocation Letters, PTX 313 (for SCSSVs installed in Wells D and B,
Hl3S-0010 and Hl3S-0011), PTX 329 (for SCSSV Hl3S-0022 installed in
Well C), and PTX 358 (for SCSSV Hl3S-0025 installed in Well B(2));
Patrick Hyde, TT 8-104:9-22, Docket Entry No. 209, p. 104 (opining
that Hess's argument is based solely on conclusions reached in FRA
Rev. 7) •
256

-81-

was based on and nearly identical to the conclusion reached in
Schlumberger's investigation of a TRC-II valve manufactured in 2015
for British Petroleum ("BP") that leaked during a pre-installation
make-up test in July of 2015. 257
261. Following the failure of the BP valve during a pre­
installation make-up test and the failure of SCSSV Hl3S-0010
installed in Well D approximately one month later, Schlumberger
feared that a catastrophic number of SCSSV failures could follow,
and that fear prompted Schlumberger to issue the world-wide recall
of all TRC-II lOK and 15K valves in inventory.
262. The

catastrophic

number

of

SCSSV

failures

that

Schlumberger feared never occurred.
263. The successful operation of TRC-II SCSSVs by operators
other than Hess throughout the Gulf of Mexico, and data from Hess's
operations of Wells D, B, and C show that FRA Rev. 7's conclusion
regarding the root cause for the failure of SCSSV H13S-0010
installed in Well D was wrong.
264. The BP valve failure,

which occurred during a pre­

installation test above ground, was not comparable to the Hess
SCSSV failures, which occurred post-installation downhole. 258

257

Dwayne May, TT 9-21:22-22:10, Docket Entry No. 216, pp. 21-

258

Dwayne May, TT 9-22:11-26:4, Docket Entry No. 216, pp. 22-

22.
26.

-82-

265. Unlike the BP valve,

each of the Hess SCSSVs passed

multiple pressure tests prior to being run downhole. 259
(II) Hess
Failed
to
Establish
by
a
Preponderance of the Credible Evidence
that the Rosette Springs Caused the
SCSSVs to Fail
266. Hess argues that the SCSSVs at issue failed because "the
MSE seal assemblies lacked 'sufficient force to initiate

. an

effective seal with the seal bore' when installed, which 'allowed
pressure to leak past.' " 260
267. The purpose of the rosette spring is to initiate a seal
at low pressures, which means that rosette springs are significant
for opening and closing the SCSSVs above ground where the rosette
springs are needed to hold an SCSSV open.261
268. Rosette springs lose their significance once the SCSSVs
are installed downhole because

once the

hydraulic

system

is

pressurized, pressure holds an SCSSV open.262
259

Dwayne May, TT 9-26:5-14, Docket Entry No. 216, p. 26.

Hess' s Motion for Judgment, p. 17, Docket Entry No. 222,
p. 27 (citing David Hirth, TT 2-210:1-3, Docket Entry No. 203,
p. 210, and Dwayne May, TT 4-33:1-3, Docket Entry No. 205, p. 33).
260

David Hirth, TT 3-133:3-5, Docket Entry No. 204, p. 133;
Dwayne May, TT 9-22:14-26:14, Docket Entry No. 216, pp. 22-26
(explaining that a spring provides only 3.2 to 5.7 pounds of force,
and helps during testing above ground, where pressure is turned off
and on) .
261

262

Dwayne May, TT 4-157:8-159:2, Docket Entry No. 205, pp. 157(continued...)
-83-

269. Once energized, the minimum pressure sealing force on the
MSE Seal Assembly is significantly - i.e.,

approximately one

hundred times - higher than the spring force of the rosette
springs.263
270. Hess's expert witness,

David Hirth,

opined that the

rosette spring might be needed downhole if pressure equalized due
to "weeping, "264 but failed to explain how a weeping seal could pass
testing above ground, work downhole for over a year before failing,
or not cause SCSSVs purchased by other operators to fail.

continued)
59, and 9-8:12-14, Docket Entry No. 216, p. 8; Expert Report of
Dwayne May ("May Report"), p. 6, Exhibit 50 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-53, p.
7 ("[T]he rosette springs play an insignificant role in MSE
performance in a production-mode service application. As a result,
the rosette springs in the MSE seals simply cannot be the root
cause of the Hess Valve failure."). See also Patrick Hyde, TT 8112:17-25, Docket Entry No. 209, p. 112 ("The spring is on the
inside, and it's pushing out on the walls of the MSE jacket
slightly to make contact with the wall. Once you get pressure
inside, the pressure force acts on the cup, forces the lips outward
at a force much, much greater than the spring could ever place on
the seal.
And as long as the pressure force pushing the seal
outward against the bore is greater than the force the spring can
exert, then the spring is redundant.
It's redundant, not
needed.").
262 ( •••

Dwayne May, TT 9-22:14-25:7, Docket Entry No. 216, pp. 22-25
(see especially, p. 9-23:10-16 (describing spring pressure as only
3.2 to 5.7 pounds of force, and needed to help during testing above
ground, where pressure is turned off and on), and 9-25:1-2
(describing minimum bore-side pressure as 476 pounds, and minimum
hydraulic pressure as approximately 850 pounds).
263

David
pp. 166-68.
264

Hirth,

TT

3-166:10-168:3,
-84-

Docket

Entry

No. 204,

271. Hirth also acknowledged that his opinion that the rosette
springs in the MSE Seal Assemblies caused the SCSSVs to fail is
based solely on consideration of Schlumberger documents, and that
he did not consider any Hess documents or any factors other than
the springs in the MSE Seal Assemblies.265
272. The opinions of Schlumberger's experts that the MSE Seal
Assemblies played no role downhole once the SCSSV was installed in
service are more credible than the opinion of Hess's expert to the
contrary.266
(III)

The Credible Evidence Establishes that
Hess's Operating Practices Caused the
SCSSVs to Fail
(A)

Hess's Operating Practices

273. Hess lacked experience operating safety valves at the
Tubular Bells Field,

and its offshore operators had inadequate

experience and training since a high percentage of them had not
previously worked on a live platform.267
David Hirth, TT 3-121:15-122:3, Docket Entry No. 204,
pp. 121-22. See also Schlumberger TRC-II 1-1/2" 15k SCSSV Failure
Analysis Report Tubular Bells Wells D, B & C by David E. Hirth
("Hirth Report"), PTX 361, Exhibit 47 to Hess's Motion for
Judgment, Docket Entry No. 222-47, pp. 71-78 (Appendix M - Material
Considered).
265

See Patrick Hyde, TT 8-112:17-25, Docket Entry No. 209,
p. 112; Dwayne May, TT 9-26:3-4, Docket Entry No. 216, p. 26 ("the
spring played no role downhole once the valve was installed in
service").
266

Stephen Dunn, TT 2-55:10-56:9, Docket Entry No. 203, pp. 5556. See also Tubular Bells Operations Phase Lessons Learned from
5-Operator Training held on October 26, 2015, pp. 6-7, DX 118a,
(continued...)
267

-85-

274. Hess intentionally closed each of the SCSSVs at least
four times per year, despite the fact that the Bureau of Safety and
Environmental Enforcement regulations only require that they be
closed twice per year. 268
275. Hess shutdown its wells an "uncommonly high" number of
times during periods that the SCSSVs were operating. 269
276. Hess could not state the number of times that each of the
SCSSVs was closed during the "uncommonly high" number of shutdowns
because Hess did not track the number of SCSSV closures. 270
277. When a well is shutdown, it stops flowing, but that does
not normally mean that the SCSSV is closed. 271
278. Well shutdowns and SCSSV closures subject the SCSSVs to
significant temperature swings. 272

continued)
Exhibit 42 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-45, pp. 8-9 (detailing deficiencies
in the effective transfer of knowledge from design and testing to
operations personnel, and in having properly trained and
experienced operators who are prepared to operate the asset).
267 ( •••

268

46.

Stephen Dunn, TT 2-45:25-46:6, Docket Entry No. 203, pp. 45-

Stephen Dunn, TT 2-39:10-14, Docket Entry No. 203, p. 39;
Dwayne May, TT 4-148:13-25, Docket Entry No. 205, p. 148.
269

270

43.

Stephen Dunn, TT 2-42:19-43:1, Docket Entry No. 203, pp. 42-

Stephen
pp. 35-36.
271

272

Dunn,

TT 2-35:19-36:22,

Docket Entry No.

203,

Dwayne May, TT 4-148:13-25, Docket Entry No. 205, p. 148.
-86-

279. Hess's hydraulic power unit was frequently operated at
pressures lower than recommended. 273
280. Hess contends that the wells were operated at inadequate
pressure for only a two-week period and that the inadequate
pressure affected only Wells D and B, and could not have affected
Wells C and subsequently B(2), which were not on-line during that
two-week period. 274

The court is not persuaded by this argument

because Schlumberger presented credible evidence that the wells
were operated at inadequate pressure for a six-month period that
would have affected all of the SCSSVs at issue. 275

Stephen Dunn, TT 2-52:6-21, Docket Entry No. 203, p. 52;
Patrick Hyde, TT 8-105:5-112:1, Docket Entry No. 209, pp. 105-12.
Tubular Bells Operations Phase Lessons Learned from 5-Operator
Training held on October 26, 2015, pp. 6-7, DX 118a, Exhibit 42 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-45, p. 8 ("1) HPU [Hydraulic Power Unit] Operating
Pressures: HPU was being operated for months at a lower pressure
than recommended - may have led to SCSSV closures").
273

Hess's Closing Argument,
No. 218, pp. 57-59.
274

TT 10-57:16-59:8,

Docket Entry

Patrick Hyde, TT 8-105:5-112:1, Docket Entry No. 209,
pp. 105-12.
See also Tubular Bells Operations Phase Lessons
Learned from 5-Operator Training held on October 26, 2015, pp. 6-7,
DX 118a, Exhibit 42 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-45, p. 8 ("l) HPU [Hydraulic Power
Unit] Operating Pressures: HPU was being operated for months at a
lower pressure than recommended - may have led to SCSSV closures") .
275

-87-

281. Hess's "inadequately experienced and trained" operators
who were "not familiar with

[d] eepwater operations," destroyed

other downhole equipment because they could not control pressure.276
282. The "uncommonly high" number of shutdowns combined with
low operating pressure, exposed the SCSSVs to debris that scratched
and compromised them. 277
283. Hess did not offer any testimony to show that the SCSSVs
would have failed if Hess had operated them properly.
284. Hess's expert witness, David Hirth, never considered how
Hess operated its SCSSVs. 278
Tubular Bells Operations Phase Lessons Learned from 5Operator Training held on October 26, 2015, pp. 7, 13, DX 118a,
Exhibit 42 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-45, pp. 9 ("Operators unfamiliarity
with equipment and processes led to some less than optimal
decision-making. These may have contributed to the frequent shut­
downs and issues with restarts."); and 15 ("One choke failure on
Well B and two failures on Well A. Both of these failures occurred
very early in the process of cleaning out or ramping up the
wells.").
See also Stephen Dunn, TT 2-49:1-51:7, Docket Entry
No. 203, pp. 49-51.
276

2

Andrew Johnston, TT 7-150:19-154:5, Docket Entry No. 208,
pp. 150-54; Dwayne May, TT 9-8:2-11, Docket Entry No. 216, p. 8
("The failure of the Hess valves was a combination of issues with
regard to - of operational issues as well as environmental issues.
What happened, the debris in the - from the wellbore migrated into
the hydraulic section of the safety valves and actually damaged the
That, in conjunction with the wide
MSE seals over time.
temperature and pressure excursions during the excessive number of
Hess shutdowns, facilitated that leakage across those MSE seals and
resulted in ultimate valve failure.").
77

David Hirth, TT 3-121:15-122:3, Docket Entry No. 204,
pp. 121-22. See also Schlumberger TRC-II 1-1/2" 15k SCSSV Failure
Analysis Report Tubular Bells Wells D, B & C by David E. Hirth
(continued...)
278

-88-

(B)

Hess's SCSSV
Failure Rate
Far
Exceeded the SCSSV Failure Rate of
Other Operators

285. Hess argues that "[w]hen rosette springs lack sufficient
sealing force and allow pressure to leak past the [] seal assembly,
catastrophic piston, or safety valve, failure almost inevitably
results. "279
286. In 2015 following the failure of the BP valve during a
pre-installation make-up test and the failure of SCSSV H13S-0010
installed in Well D approximately one month later, Schlumberger
feared that a catastrophic number of SCSSV failures could follow,
and that fear prompted Schlumberger to issue the world-wide recall
of all TRC-II l0K and 15K valves in inventory.
287. Although the parties disagree about how to count SCSSV
failures, regardless of how SCSSV failures are counted, all of the
SCSSVs sold to Hess failed while the SCSSVs sold to other operators
during the same time period failed at substantially lower rates. 280

continued)
("Hirth Report"), PTX 361, Exhibit 47 to Hess's Motion for
Judgment, Docket Entry No. 222-47, pp. 71-78 (Appendix M - Material
Considered).
278 ( •••

Hess's Motion for Judgment, p. 17, Docket Entry No. 222,
p. 27 (citing David Hirth, TT 2-131:23-132:6, Docket Entry No. 203,
pp. 131-32).
279

See Schlumberger's Response to Hess's Motion for Judgment,
pp. 3, 21-24, Docket Entry No. 223, pp. 13, 32-34 (arguing that
failure rates for other operators were 5.0% or less); Hess's Reply
in Support of Motion for Judgment, pp. 8-10, Docket Entry No. 224,
pp. 14-16 (arguing that Schlumberger "distorts the data").
280

-89-

288. Schlumberger has presented credible evidence that the
high failure rate of the SCSSVs sold to Hess was caused by the way
that Hess operated the wells and not by any failure of the SCSSVs
or the rosette springs in the MSE Seal Assemblies to have been
manufactured in conformity with API 14A, Eleventh Edition.
(C)

Hess's Operations of the Wells
(1)

Well D

289. SCSSV H13S-0010 was installed in Well D at a depth of
approximately 8,700 feet below sea level around April 7, 2014. 281
290. Production from Well D began on January 14, 2015. 282
291. Around July 22, 2015, SCSSV Hl3S-0010 installed in Well
D experienced a non-commanded closure and could not be reopened,
blocking all production. 283
292. SCSSV Hl3S-0010 was installed in Well

D

for approximately

465 days before it experienced the non-commanded closure that
blocked all production. 284

281

Agreed Findings of Fact 202-203.

282

Agreed Finding of Fact 204.

FRA Rev. 7, p. 4 of 55, PTX 556, Exhibit 49 to Hess's Motion
for Judgment, Docket Entry No. 222-51, p. 5.
283

May Report, p. 6, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 7.
284

-90-

293. Hess shutdown Well D at least 87 times, subjecting SCSSV
Hl3S-0010 to numerous thermal and pressure transients.285
294. The MSE Seal Assemblies in SCSSV H13S-0010 evidenced
scratching from downhole debris. 286
295. Schlumberger provided Hess with minimum recommended hold­
open pressure for SCSSV Hl3S-0010 from 10,000-11,000 psi. 287
296. From November of 2014 to August of 2015, Hess operated
Well D at surface hydraulic pressures that fluctuated between 7,248
and 8,750 psi, i.e., pressures that were much lower than the
minimum hold-open pressure recommended by Schlumberger. 288
285

Stephen Dunn, TT 2-42:16-18, Docket Entry No. 203, p. 42.

Dwayne May, TT 9-44:2-47:24, Docket Entry No. 216, pp. 4447; May Report, pp. 16-18, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 17-19. See
also DX 78, Well D Photographs, Exhibit 33 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-36.
286

Dwayne May, TT 9-68:4-69:6, Docket Entry No. 216, pp. 68-69
(describing minimum operating pressure as 10,000 psi);
DX 115,
February 9, 2016, Email from Sam Brown to Rob Fast re Initial
Inspection H13S0010 (confirming that Hess had been informed of the
minimum operating pressure).
See also May Report, pp. 22-23,
Exhibit 50 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-53, p. 23-24 (stating recommended
hold-open pressure for Well D was 10,700 psi, and explaining its
significance); Patrick Hyde, TT 8-106:2-23 (wells were operated
under minimum recommended by the manufacturer's software for the
valve for six months), 8-146:2-9 (identifying minimum recommended
operating pressure as 11,000 psi at surface), Docket Entry No. 209,
pp. 106 and 146.
287

Stephen Dunn, TT 2-34:21-35:7, 2-52:6-21, Docket Entry
No. 203, pp. 21-35 and 52; Patrick Hyde, TT 8-106:2-111:7, Docket
Entry No. 209, pp. 106-111; Hyde Report, pp 17-22, DX 246, Exhibit
59 to Schlumberger's Response to Motion for Judgment, Docket Entry
(continued... )
288

-91-

297. From July 1 to 15, 2015, Hess operated Well D at surface
hydraulic pressures that fluctuated between 7,271 and 8,662 psi. 289
298. Several days later, on July 22, 2015, SCSSV Hl3S-0010
installed in Well D experienced a non-commanded closure. 290
299. The hydraulic pressure applied from July 1 to 15, 2015,
was not sufficient to hold SCSSV H13S-0010 in the full open
position. 291
300. Hess's inadequate hold-open pressures left the pistons
vulnerable to pressure cycling and valve vibrations, conditions

continued)
No. 223-63, pp. 17-22. See also May Report, p. 22, Exhibit 50 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-53, p. 23 ("The recommended hold-open pressure for the Well
D Valve was 10,700 psi. However, Hess operated the Valve at a much
lower pressure, fluctuating the surface hydraulic pressures between
7,248 psi and 8,800 psi from November 2014 to August 2015. From
July 1, 2015 to July 15, 2015, at a production rate of 16,800 BOBO,
Hess applied surface hydraulic pressure from 7271 psi to 8662 psi.
Seven days later, on July 22, 2015, the Hess Well D Valve
experienced a non-command closure.").
288 ( •••

May Report, p. 22, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 23.
246, Exhibit 59 to
Seealso Hyde Report, pp. 13-22, DX
Schlumberger's Response to Motion for Judgment, Docket Entry
No. 223-63, pp. 16-25.
289

°FRA Rev. 7, p. 4 of 55, PTX 556, Exhibit 49 to Hess's Motion
for Judgment, Docket Entry No. 222-51, p. 5.
29

Dwayne May, TT 9-64:1-66:20, Docket Entry No. 208, pp. 6466; Patrick Hyde, TT 8-109:21-110:25, Docket Entry No. 209,
pp. 109-110.
291

-92-

that can compromise the MSE Seal Assemblies' ability to seal and
shorten their effective life. 292
301. The thermal and pressure transients from Hess's operation
and the scratching from downhole debris caused the failure of SCSSV
Hl3S-0010 installed in Well D. 293

(2)

Well B

302. SCSSV Hl3S-0011 was installed in Well B at a depth of
approximately 8,400 feet below sea level on May 28, 2014. 294
303. Production from Well B began on December 14, 2014. 295
304. On January 30, 2016, SCSSV Hl3S-0011 installed in Well B
failed, blocking all production. 296
305. SCSSV H13S-0011 was installed in Well B for approximately
575 days before it experienced the non-commanded closure that
blocked all production. 297

Patrick Hyde, TT 8-103:23-110:25, Docket Entry No. 209,
pp. 103-10. See also May Report, pp. 22-23, Exhibit 50 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-53, pp. 23-24.
292

Dwayne May, TT 9-7:24-8:11, and 9-43:2-9,
No. 208, pp. 7-8, and 43.
293

294

Docket Entry

Agreed Findings of Fact 232-233.
Agreed Finding of Fact 234.

295

296

Agreed Finding of Fact. 310.

May Report, p. 6, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 7.
297

-93-

306. Hess shutdown Well B at least 139 times, subjecting SCSSV
Hl3S-0011 to numerous thermal and pressure transients. 298
307. Hess performed an acid stimulation through SCSSV Hl3S0011 on January 4,

2016, 299 which also subjected the SCSSV to

thermal and pressure transients. 300
308. The MSE Seal Assemblies in SCSSV Hl3S-0011 installed in
Well B evidence scratching from downhole debris. 301
309. From

November

of

2014

to

August

of

2015

Well

B

experienced the same low operating pressures as Well D. 302
310. The thermal and pressure transients from Hess's operation
and the scratching from downhole debris caused the failure of SCSSV
Hl3S-0011 installed in Well B. 303

Stephen Dunn, TT 2-42:11-13, Docket Entry No. 203, p. 42.

298

Agreed Finding of Fact 675.

299

Dwayne May, TT 9-111:1-16, Docket Entry No. 216, p. 111
(Well B was the only well at issue that Hess acidized).
300

Dwayne May, TT 9-50:6-23, Docket Entry No. 208, p. 50; Well
B Photographs, DX 75, Exhibit 30 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-33.
301

Dwayne May, TT 9-64:17-65:11, Docket Entry No. 208, pp. 6465; May Report, p. 23, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 24. See
also Hess Tubular Bells Downhole Valve Failure Summary dated July
28, 2016, Slide 4 HESS0159806, DX 299 Slide 4, Exhibit 60 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-64, p. 5.
302

Dwayne May, TT 9-7:24-8:11,
No. 208, pp. 7-8, and 43.
303

-94-

and 9-43:2-9,

Docket Entry

(3) Well C
311. SCSSV Hl3S-0022 was installed in Well C at a depth of
approximately 8,700 feet below sea level on or around April 15,
2015. 304
312. Production from Well C began on July 21, 2015. 305
313. Production from Well C continued until July 17, 2016,
when SCSSV Hl3S-0022 experienced a non-commanded closure that
blocked all production. 306
314. SCSSV Hl3S-0022 was installed in Well C for approximately
455 days before it experienced the non-commanded closure that
blocked all production. 307
315. Hess shutdown Well C at least 46 times, subjecting SCSSV
H13S-0022 to numerous thermal and pressure transients. 308
316. Schlumberger neither investigated nor issue a report on
the failure of SCSSV H13S-0022 installed in Well C. 309

304

Agreed Findings of Fact 272-73.

305

Agreed Finding of Fact 274.
Agreed Findings of Fact 321-22.

306

May Report, p. 6, Exhibit 50 to Schlumberger' s Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 7.
307

308

Stephen Dunn, TT 2-42:14-15, Docket Entry No. 203, p. 42.

Andrew Johnston, TT 7-145:7-8, Docket Entry No. 208, p. 145;
TT 8-45:1-3, Docket Entry No. 209, p. 45.
309

-95-

317. Hess argues that the periods during which Wells D and B
experienced low pressure are not relevant to Well C because Well C
was not online then.310
318. Well C was connected to the Hydraulic Power Unit on May
17, 2015.311
319. On May 22, 2015, and on June 3, 2015, Hess tried to start
up Hl3S-0022, but was unable to so because the FS-2 isolation valve
was over pressured. 312
320. Hess succeeded in starting up H13S-0022 on July 20,
2015.313
321. Hess operated Well C well below the recommended operating
pressure for the first month that Well C was on line.314
322. The MSE Seal Assemblies in SCSSV H13S-0022 evidence
scratching from downhole debris.315
°Counsel for Hess, TT 8-122:17-19,
p. 122.
31

Docket Entry No. 209,

311

Dwayne May, TT 9-65:14-19, Docket Entry No. 216, p. 65.

312

Dwayne May, TT 9-65:20-23, Docket Entry No. 216, p. 65.

313

Dwayne May, TT 9-65:24-66:1, Docket Entry No. 216, pp. 65-

66.

Dwayne May, TT 9-66:2-6, 9-142:11-17. Docket Entry No. 216,
pp. 66 and 142. See also Hess Tubular Bells Downhole Valve Failure
Summary (July 28, 2016), Slide 5, DX 299, Exhibit 60 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-64, p. 5.
314

Dwayne May, TT 9-50:6-23, Docket Entry No. 208, p. 50; Well
C Photographs, DX 77, Exhibit 32 to Schlumberger's Response to
(continued... )
315

-96-

323. The thermal and pressure transients from Hess's operation
and the scratching from downhole debris caused the failure of SCSSV
Hl3S-0011 installed in Well B. 316
(4)

Well B(2)

324. SCSSV Hl3S-0025 was installed as a replacement for the
failed Well B safety valve at a depth of approximately 8,680 feet
below sea level around or about May 20, 2016. 317
325. Production from Well B(2) resumed on June 14, 2016. 318
326. Production from Well B(2) continued until March 18, 2018,
when SCSSV Hl3S-0025 experienced a non-command closure and blocked
all production. 319
327. SCSSV

Hl3S-0025

was

installed

in

Well

B (2)

for

approximately 605 days before it experienced the non-commanded
closure that blocked all production on March 18, 2018. 320

( ••• continued)
Hess's Motion for Judgment, Docket Entry No. 223-35.
315

Dwayne May, TT 9-7:24-8:11, and 9-43:2-9,
No. 208, pp. 7-8, and 43.
316

Docket Entry

317

Agreed Findings of Fact 456-457.

318

Stephen Dunn, TT 2-18:19-24, Docket Entry No. 203, p. 18.

319

Agreed Finding of Fact 461.

May Report, p. 6, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 7.
320

-97-

328. Schlumberger neither investigated nor issue a report on
the failure of SCSSV Hl3S-0025 installed in Well B(2).321
329. The MSE Seal Assemblies in SCSSV Hl3S-0025 evidenced
scratching from downhole debris.322
330. The similarities in forensic evidence, i.e., scratches,
and failure sequences, i.e., non-commanded closures, experienced by
SCSSV Hl3S-0025 installed in Well 8(2), and the three other failed
Hess valves,

i.e.,

Hl3S-0010 installed in Well

D,

Hl3S-0011

installed in Well B, and H13S-0022 installed in Well C, persuade
the court that SCSSV Hl3S-0025 failed for the same reasons as did
the other Hess SCSSVs.323
331. The thermal and pressure transients from Hess's operation
and the scratching from downhole debris caused the failure of SCSSV
Hl3S-0025 installed in Well B(2).324

Andrew Johnston, TT 7-145:9-146:3, Docket Entry No. 208,
pp. 145-46; TT 8-45:1-3, Docket Entry No. 209, p. 45.
321

Dwayne May, TT 9-52:15-21, Docket Entry No. 208, p. 52. See
also DX 76, Well B(2); Photographs, Exhibit 31 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-34.
322

Dwayne May, TT 9-35:8-12, Docket Entry No. 208, p. 35 ("Q
Did you see similar forensic evidence on the other three safety
valves in Wells B, C, and B(2)? A Yes. When I looked at the
data, the failure sequence is very similar.
I can, basically,
mimic the failure modes of those particular seals.").
323

Dwayne May, TT 9-7:24-8:11,
No. 208, pp. 7-8, and 43.
324

-98-

and 9-43:2-9,

Docket Entry

b.

The Alleged Violations of API 14A, Eleventh
Edition, Did not Substantially Impair the
Value of the SCSSVs to Hess

332. Because the court has found in§ III.C, above, that Hess
failed to established by a preponderance of the credible evidence
that the SCSSVs did not conform to API 14A, Eleventh Edition, and
in §

III.D.i,

above,

that

Hess

failed

to

establish

by

a

preponderance of the credible evidence that the alleged violations
of API 14A, Eleventh Edition, caused the SCSSVs to fail, the court
finds that Hess has failed to establish by a preponderance of the
credible evidence that the alleged violations of API 14A, Eleventh
Edition, substantially impaired the value of the SCSSVs to Hess.
333. The only evidence that the value of the SCSSVs to Hess
was substantially impaired is evidence that the SCSSVs were rated
for 25-years but that they failed long before the 25-year rating
period expired.325
334. Alternatively, because the only evidence that the value
of the SCSSVs to Hess was substantially impaired is that the SCSSVs
failed to perform for the 25-year period for which they were rated,
and because the court has already held that Hess may not recover
damages arising from the failure of the SCSSVs to perform longer
than the one-year warranty period, 326 the court finds hat Hess
325

Dwayne May, TT 9-100:9-101:12, Docket Entry No. 216, p. 100.

For reasons stated in the June 29, 2017, Memorandum Opinion
and Order, Docket Entry No. 40, p. 17, the court has already
(continued... )
326

-99-

failed to establish by a preponderance of the credible evidence
that

the

alleged

violations

of

API

14A,

Eleventh

Edition,

substantially impaired the value of the SCSSVs to Hess, even if
Hess had established that the SCSSVs did not conform to API 14A,
Eleventh Edition, and the alleged violations of API 14A, Eleventh
Edition, caused the SCSSVs to fail.

v.

Hess Failed to Establish by a Preponderance of the
Credible Evidence that Revocation Occurred "before
Any Substantial Change in Condition of the [SCSSVs}
which [was] Not Caused by Their Own Defects" 327

335. Hess used each of the SCSSVs for more than one year
before they failed.
336. Hess's use of the SCSSVs substantially changed their
condition.
337. The substantial change in the SCSSVs' condition was not
caused

by

the

alleged

defects,

i.e.,

the

failure

have

been

manufactured in conformity with API 14A, Eleventh Edition.
338. Citing Deere & Co. v. Johnson, 271 F.3d 613, 620 (5th Cir.
2001), Hess argues that in almost all cases where courts have found
that a substantial change occurred, the buyer affirmatively engaged
••• continued)
dismissed Hess's claims for breach of warranty holding that "Hess
may proceed with its claims based on the alleged non-conformity of
the [SC]SSVs at the time of delivery. Hess may not proceed with
its claims based on the failure of the [SCJSSVs to function after
the warranty period had expired."
326 (

327

Tex. Bus. & Com. Code Ann. § 2.608 (b) .
-100-

in some unforeseen activity that altered the goods but that "Hess
engaged in no such activity here." 328
339. The credible evidence does not support Hess's argument.
Hess altered the SCSSVs by engaging in unforeseen activities, i.e.,
operating the wells with inexperienced and insufficiently trained
personnel, frequently operating the wells at lower than adequate
pressure to hold the SCSSVs open, and shutting down the wells an
"uncommonly high" number of times.
340. By operating the wells and the SCSSVs with inadequately
experienced or trained personnel, and by operating the wells at
less than adequate pressure to hold the SCSSVs open,

thereby

exposing the SCSSVs to "uncommonly high" numbers of shutdowns and
thermal swings, Hess routinely exposed the MSE Seal Assemblies to
wellbore fluids and debris that scratched them.329
341. Scratching

compromised

the

MSE

Seal

Assemblies

by

creating a path for pressure to leak between seal sets, pressuring
the seals from the wrong direction, and causing them to blow out.330
342. Hess observes that FRA Rev. 7 called the scratches on the
MSE Seal Assemblies in H13S-0010 installed in Well D "minor," but
that characterization was based on photographs taken at a low
328

Hess's Motion for Judgment, Docket Entry No. 222, p. 44.

Andrew Johnston, TT 7:150:13-154:5, Docket Entry No. 208,
pp. 150-54; Dwayne May, TT 4:155:13-161:9, Docket Entry No. 205,
pp. 155-61, and TT 9-39:6-43:12, Docket Entry No. 216, pp. 39-43.
329

330

Dwayne May, TT 4-159:10-19, Docket Entry No. 205, p. 159.
-101-

magnification, and photographs taken later at higher magnification
showed more extensive scratching. 33 1
343. Photographs taken of the MSE Seal Assemblies from each of
the failed Hess SCSSVs show that they all have similar scratching
and grooves: 332 (a) SCSSV H13S-0010 installed in Well D; 3 3 3 (b) SCSSV
Hl3S-0011 installed in Well B; 334 (c) SCSSV Hl3S-0022 installed in
Well C; 335 and ( d) SCSSV Hl3S-0025 installed in Well B ( 2) . 336
344. Hess argues that the scratching occurred after the MSE
Seal Assemblies failed, but the credible evidence established that
the scratching occurred while the pistons were still operable
before the SCSSVs failed, and could not have occurred once the
SCSSVs failed and the pistons stopped moving. 3 37
345. Hess's

unforseen

operating

activities

substantially

altered the SCSSVs by exposing them to debris that badly scratched
the MSE Seal Assemblies and made them useless for sealing.
50.

33 1 Dwayne
332

May, TT 9-4 9: 22-50: 5, Docket Entry No. 216, pp. 4 9-

Dwayne May, TT 9-50: 6-23, Docket Entry No. 216, p. 50.

Well D Photographs, DX 78, Exhibit 33 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-36.
333

Well B Photographs, DX 75, Exhibit 30 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-33.
33 4

Well C Photographs, DX 77, Exhibit 32 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-35.
335

Well D Photographs, DX 76, Exhibit 31 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-34.
33 6

337

Dwayne May, TT 9-47: 3-48: 22, Docket Entry No. 216, p. 48.
-102-

346. Hess's use of SCSSV H13S-0010 installed in Well D, for
approximately 465 days substantially changed its condition, which
was not caused by any alleged non-conformity.
347. Hess's use of SCSSV H13S-0011 installed in Well B, for
approximately 575 days substantially changed its condition, which
was not caused by any alleged non-conformity.
348. Hess's use of SCSSV H13S-0022 installed in Well C, for
approximately 455 days years substantially changed its condition,
which was not caused by any alleged non-conformity.
349. Hess's use of SCSSV H13S-0025 installed in Well B(2) for
approximately 605 days substantially changed its condition, which
was not caused by any alleged non-conformity.

D.

Damages

Because Hess failed to establish by a preponderance of the
credible evidence that it justifiably revoked its acceptance of any
of the four SCSSVs, Hess has failed to establish that Schlumberger
breached the parties' agreement or that it is entitled to recover
damages.

Nevertheless, because the legal issues in this case are

complicated, and because the attorneys, parties, and the court have
devoted substantial time and energy to Hess's claims for damages,
the court will address those claims so that if a higher court
disagrees with the court's rulings on liability, the parties and
the court will not then need to revisit them.
-103-

Hess seeks damages of $217,900,795.00 consisting of the cost
to purchase new SCSSVs, the cost to workover each well to retrieve
and replace the failed SCSSVs, and lost profits from Well B
deriving from the Gunflint tie-in to the Gulfstar One production
platform.338

Schlumberger argues that Hess has failed to prove its

claimed damages because Hess failed to prove that its' workover
costs were commercially reasonable, failed to reliably calculate
its' damages calculations, and failed to prove that Schlumberger
could foresee lost profits resulting from the Gunflint tie-in.
Schlumberger also argues that it is entitled to a credit for the
value of Hess's use of the SCSSVs.339
i.

Schlumberger Is Not Entitled to a Credit for Hess's
Use of the Failed SCSSVs

350. Schlumberger argues that it is entitled to a credit for
the value of Hess's use of the SCSSVs, 340 but failed to support that
argument by presenting evidence or methodology for calculating the
amount of value Hess obtained from using the four failed SCSSVs. 341
338

Hess's Motion for Judgment, Docket Entry No. 222, p. 45.

Schlumberger's Response to Hess's Motion for Judgment,
Docket Entry No. 223, pp. 47-50.
339

340

Id. at 49.

Citing two experts' reports and asserting that "Hess
received significant value from the valves," id., Schlumberger
argues that "using an average oil price of $45 per barrel, it
grossed over $175 million for Well B (1), $229 million for Well
8(2), $108 million for Well C, and $94 million for Well D." But
(continued... )
341

-104-

ii.

Failure of the SCSSVs Caused Hess to Incur the
Following Costs and Loss of Deferred Compensation
a.

Well D Damages

351. SCSSV H13S-0010 was installed in Well D on April 7,
2014. 342
352. Production from Well D began on January 14, 2015.343
353. SCSSV H13S-0010 was installed in Well D for approximately
465 days before it failed, blocking production on July 22, 2015.344
354. Production from Well D was restored around February 27,
2016.345
(I)

Cost of Cover for Failed SCSSV Hl3S-0010

355. Hess replaced SCSSV Hl3S-0010 with another 5-1/2" TRC-II15K SCSSV, Serial Number H15S-0088

(Well D (2)) purchased from

Schlumberger on November 24, 2014.346
356. SCSSV H15S-0088 cost $720,680.00.347
( ••• continued)
the SCSSVs were only one small part of the infrastructure needed to
produce hydrocarbons from the wells. Schlumberger fails to offer
evidence, methodology, are argument for how the cited information
should be used to calculate the value of Hess's use of the SCSSVs.
341

Agreed Finding of Fact 202.

342

343

Agreed Finding of Fact 204.

May Report, p. 6, Exhibit 50 to Schlumberger's Response to
Hess's Motion for Judgment, Docket Entry No. 223-53, p. 7.
344

Expert Report of Terry D. Payne ("Payne Report"), p. 18, PTX
375, Exhibit 80 to Schlumberger's Response to Hess's Motion for
Judgment, Docket Entry No. 223-84, p. 8.
345

346

Agreed Findings of Fact 306, 732, and 753.

347

Agreed Finding of Fact. 146.
-105-

See also Calculation of
(continued ...)

(II) Incidental Costs to Retrieve and Replace
Failed SCSSV Hl3S-0010
357. Restoring production to Well D required Hess to workover
the blocked well, a process that involved retrieving the production
equipment - including the SCSSV - and replacing it. 348
358. Workover operations are costly, time-intensive operations
that require the use of sophisticated drilling rigs manned by
experienced, well-equipped crews. 349
359. When SCSSV H13S-0010 failed, Hess had under contract and
operating in the Tubular Bells Field, the Stena Forth, a drillship
capable of drilling in water depths up to 10,000 feet staffed with
an experienced crew. 350
360. Before SCSSV H13S-0010 failed Hess had a pre-planned
exploration and production schedule for the Stena Forth that
extended through mid-2017 and possibly into 2018, and did not
include any workover operations. 351

( ••• continued)
Damages for the Cost of Non-Conforming Safety Valves Plus Cover,
PTX 605, Exhibit 52 to Hess's Motion for Judgment, Docket Entry
222-54; Barry Pullium, TT 6-94:16-96:15, Docket Entry No. 207,
pp. 94-96.
347

Jason Sapp, TT 5-92:6-97:24, Docket Entry No. 206, pp. 92-97
(describing the process for removing and replacing a failed SCSSV) .
348

349

Jason Sapp, TT 5-93:4-10, Docket Entry No. 206, p. 93.

Rolle Hogan, TT 5-146:4-149:13,
pp. 146-49.

Docket

Entry No.

206,

Rolle Hogan, TT 5-153:2-155:19,
pp. 153-55.

Docket

Entry No.

206,

350

351

-106-

361. Hess used the Stena Forth drillship to conduct the Well D
workover required to retrieve and replace the failed SCSSV.352
362. Using the Stena Forth was the most efficient, cost­
effective way to work the well over and mitigate damages because
seeking an alternative drillship or rig would have required Hess to
undertake a costly and time-consuming efforts to find a ship or rig
that was both suitable and available, negotiate a contract with the
owner, obtain necessary permits, and mobilize a new ship or rig to
the Tubular Bells Field.353
363. A few months before the SCSSV failures Hess negotiated a
lower day rate for the Stena Forth, PTX 425.-15, resulting in a
"market competitive rate" for the workovers.354
364. Schlumberger

argued,

but

failed

to

prove

by

a

preponderance of the evidence, that by using the Stena Forth to
workover Wells D, Well B, and Well C, Hess saved $74.6 million in
standby expenses.
365. The Stena Forth performed the Well D workover over a 65day period between December 23, 2015, and February 26, 2016.355
Jason Sapp, TT 5-125:21-23, and Rolle Hogan, TT 5-146:4149:13, Docket Entry No. 206, pp. 125 and 146-49.
352

Rolle Hogan, TT 5-151:6-153:1, 5:162:11-167:16, Docket Entry
No. 206, pp. 151-56, 162-67.
353

Rolle Hogan, TT 5-164:16-165:19, 5-185:5-9, Docket Entry
No. 206, pp. 164-65 and 185 (Hess negotiated the Stena Forth day
rate down from $563,000.00 to $498,000.00).
354

355

Jason Sapp, TT 5-90:6-10, 5-115:5-116:25,
-107-

Docket Entry
(continued... )

366. The Well D workover cost Hess $63,060,880.00.356
367. The cost of the Well D workover includes $600,000 for
"investigation expenses," which are pre-workover expenses that Hess
incurred for investigation or for troubleshooting Well B. 357
368. But for the failure of SCSSV H13S-0010 installed in
Well D, Hess would not have needed to replace SCSSV H13S-0010 or
conduct the required workover. 358
369. Hess has proved by a preponderance of the evidence that
the cost of new SCSSV H15S-0088 for Well D, and the cost to
retrieve and replace failed SCSSV H13S-0010 was $63,781,560.00. 359

( •••continued)
No. 206, pp. 90, and 115-16 (explaining that time allocated to
workover included time to mobilize and demobilize the drillship).
355

Retrieval and Replacement Expenses, PTX 606, Exhibit 53 to
Hess's Motion for Judgment, Docket Entry 222-55; Barry Pullium, TT
6-103:21-105:8, 6-121:12-123:25, Docket Entry No. 207, pp. 103-05,
and 121-23. See also Aladham Ismail, TT 6-62:2-63:19, Docket Entry
No. 207, pp. 62-63; Carmen Eggleston, TT 10-22:15-19 (workover
costs for Well D using her preferred numbers was $63,000,000.00).
356

Barry Pullium, TT 6-107:8-12, Docket Entry No. 207, p. 107.
See also Retrieval and Replacement Expenses, PTX 606, Exhibit 53 to
Hess's Motion for Judgment, Docket Entry 222-55.
357

Carmen Eggleston, TT 10-35:24-35:2, Docket Entry No. 218,
pp. 35-36.
358

Summary of Damages by Claim and Valve, PTX 604, Exhibit 51
to Hess's Motion for Judgment, Docket Entry 222-53; Barry Pullium,
TT 6-93:14-94:11, Docket Entry No. 207, pp. 93-94.
359

-108-

b.

Well B Damages

370. SCSSV H13S-0011 was installed in Well

B on May 28,

2014.360
371. Production from Well B began on December 14, 2014.361
372. SCSSV Hl3S-0011 was installed in Well B for approximately
575 days before it failed, blocking production around January 30,
2016.362
373. Well B production was restored around June 14, 2016.363
(I)

Cost of Cover for Failed SCSSV Hl3S-0011

374. Hess replaced SCSSV H13S-0011 with another 5-1/2" TRC-II15K SCSSV, Serial Number H13S-0025 (Well B (2)) that Hess had in
stock and intended to use in another well.
375. Hess purchased SCSSV

H13S-0025 from Schlumberger

in

October 2013 for $572,430.00.364

Agreed Findings of Fact 232-233.

360

361

Agreed Finding of Fact 234.

Agreed Finding of Fact 310; May Report, p. 6, Exhibit 50 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-53, p. 7.
362

Payne Report, p. 14, PTX 375, Exhibit 80 to Schlumberger's
Response to Hess's Motion for Judgment, Docket Entry No. 223-84,
p. 4.
363

Agreed Finding of Fact 227. See also Calculation of Damages
for the Cost of Non-Conforming Safety Valves Plus Cover, PTX 605,
Exhibit 52 to Hess's Motion for Judgment, Docket Entry 222-54,
p. 2; Barry Pullium, TT 6-94:16-96:15, Docket Entry No. 207,
pp. 94-96.
364

-109-

376. Pulling SCSSV H13S-0025 from inventory forced Hess to
incur an expedite fee of $173,000.00 paid to Baker Hughes to
replenish its then-depleted inventory. 365
377. Purchasing a valve needed to replenish Hess's depleted
inventory from Baker Hughes, even though replacing it required an
expedite fee, was a reasonable commercial decision by Hess. 366
378. The total cost of the new SCSSV purchased to replace the
failed SCSSV H134S-0011 installed in Well B was $745,430.00. 367
(II) Incidental Costs to Retrieve and Replace
Failed SCSSV H13S-0011
379. Hess used the Stena Forth drillship to conduct the Well B
workover required to retrieve and replace the failed SCSSV. 368
380. Using the Stena Forth was the most efficient, cost­
effective way to work the well over and mitigate damages because
seeking out an alternative drillship or rig would have required
Hess to undertake a costly and time-consuming effort to find a ship

Jason Sapp, 5-84:4-87:3, Docket Entry No. 206, pp. 84-87;
Barry Pullium, TT 6-95:21-96:15, 6-100:10-103:6, Docket Entry
No. 207, pp. 95-96, 100-103.
365

Barry
pp. 101-03.
366

Pullium, TT 6-101:3-103:6,

Docket

Entry No. 207,

Calculation of Damages for the Cost of Non-Conforming Safety
Valves Plus Cover, PTX 605, Exhibit 52 to Hess's Motion for
Judgment, Docket Entry 222-54; Barry Pullium, TT 6-94:16-96:15,
Docket Entry No. 207, pp. 94-96.
367

Jason Sapp, TT 5-125:21-23, and Rolle Hogan, TT 5-146:4149:9, Docket Entry No. 206, pp. 125 and 146-49.
368

-110-

or rig that was both suitable and available, negotiate a contract
with the owner, obtain necessary permits, and mobilize a new ship
or rig to the Tubular Bells Field.369
381. Schlumberger

argued,

but

failed

to

prove

by

a

preponderance of the evidence, that by using the Stena Forth to
workover Well D, B, and C, Hess saved $74.6 million in standby
expenses.
382. Hess performed the Well B workover over a 61-day period
from April to June of 2016.370
383. The Well B workover cost Hess $61,878,489.00. 371
384. The

cost of the Well

B workover to

Hess included

$1,840,000 of investigation expenses, and excluded $557,931 of
discretionary expenses. 372
385. Investigation expenses are pre-workover expenses that
Hess incurred for investigation or for troubleshooting Well B.373
Rolle Hogan, TT 5-151:6-153:1, 5:162:11-167:16, Docket Entry
No. 206, pp. 151-56, 162-67.
369

370

Jason Sapp, TT 5-90:6-91:11, Docket Entry No. 206, p. 90.

371

Barry Pullium, TT 6-104:2-107:7, Docket Entry No. 207,
pp. 104-07; Retrieval and Replacement Expenses, PTX 606, Exhibit 53
to Hess's Motion for Judgment, Docket Entry No. 222-55; ; Barry
Pullium, TT 6-103:21-105:8, 6-121:12-123:25, Docket Entry No. 207,
pp. 103-05, and 121-23.
37
2

Barry Pullium, TT 6-107:8-109:6, Docket Entry No. 207,
pp. 107-09; Retrieval and Replacement Expenses, PTX 606, Exhibit 53
to Hess's Motion for Judgment, Docket Entry No. 222-55; ; Barry
Pullium, TT 6-103:21-105:8, 6-121:12-123:25, Docket Entry No. 207,
pp. 103-05, and 121-23.
373

Barry Pullium, TT 6-107:8-12, Docket Entry No. 207, p. 107.
-111-

386. Discretionary projects are improvements made to the wells
not related to the SCSSV failures. 374
387. But for the failure of SCSSV H13S-0011 installed in Well
B,

Hess would not have needed to replace SCSSV H13S-0011 and

conduct the required workover. 375
(III)

Consequential
Compensation

Loss

of

Deferred

388. The Well B safety valve failure shutdown that Well B from
January until June of 2016.
389. Pursuant to a Production Handling Agreement ("PHA") that
Hess had with Williams, Williams had the right to require Hess to
shut it its wells while it connected production from other fields
to the Gulfstar One platform. 376
390. In exchange, Williams agreed to pay Hess thirty percent
of

the

estimated

value

of

the

shutdown

production

based

on

(1) production rates immediately before the shutdown and (2) the
market price for oil and gas during the shutdown. 377

374

Barry Pullium, TT 6-108:5-12, Docket Entry No. 207, p. 107.

375

Carmen Eggleston, TT 10-35:24-35:2, Docket Entry No. 218,
pp. 35-36.
3 6
7

Barry Pullium, TT 6-148:1-25, Docket Entry No. 207, p. 148.

3
77

Barry Pullium, TT 6-148:1-151:24, Docket Entry No. 207,
pp. 148-51. See also Production Handling Agreement, PTX 524.
-112-

391. Hess shutdown its Tubular Bells wells from April through
June 2016 while another field, the Gunflint Field, was tied in to
the Gulfstar One platform.378
392. Under

the

terms

of

the

PHA,

Williams

paid

Hess

approximately $4.3 million in deferred-production compensation
relating to all of Hess's Tubular Bells Wells. 379
393. Because when the Gunflint tie-in occurred Well B was
shutdown and not producing hydrocarbons due to the failure of SCSSV
Hl3S-0011, Hess received no deferred-production compensation for
Well B. 380
394. Had Well B been producing hydrocarbons at its average
rate immediately before the Gunflint tie-in occurred, Hess would
have

received

an

additional

$5,259,567.00

from

Williams

in

deferred-production compensation.381
395. In April of 2012 when the parties entered into their
agreement for SCSSVs, Schlumberger had reason to know that the
378

Barry Pullium, TT 6-149:1-25, Docket Entry No. 207, p. 149.

Barry Pullium, TT 6-151:25-160:3 Docket Entry No. 207,
See also Calculation of Gunflint Tie-In Damages,
pp. 151-60.
PTX 607, Exhibit 54 to Hess's Motion for Judgment, Docket Entry
No. 222-56.
379

380

Barry Pullium, TT 6-152:8-16, Docket Entry No. 207, p. 152.

Barry Pullium, TT 6-152:17-157:6, Docket Entry No. 207,
See also Calculation of Gunflint Tie-In Damages,
pp. 152-57.
PTX 607, Exhibit 54 to Hess's Motion for Judgment, Docket Entry
No. 222-56; Summary of Damages by Claim and Valve, PTX 604, Exhibit
51 to Hess's Motion for Judgment, Docket Entry No. 222-53; Barry
Pullium, TT 6-93:14-94:11, Docket Entry No. 207, pp. 93-94.
381

-113-

SCSSV failures could strip Hess of deferred-production compensation
under the PHA with Williams because PHAs are not only common in the
oil and gas industry and but also commonly provide for deferred
compensation, and the existence of the Williams-Hess Gulfstar One
PHA was publicly known.382
(IV) Conclusions as to Well B
396. Hess has proved by a preponderance of the evidence that
the cost of cover for SCSSV H13S-0011 that failed while installed
in Well B was $745,430, the cost to retrieve the replace the failed
SCSSV H13S-0011 with new SCSSV Hl5S-0025 was $61,878,489.00, the
amount of deferred compensation that Hess loss because Well B was
shutdown

during

the

period

of

the

Gunflint

tie-in

was

$5,259,567.00, and that the total amount of damages proved for Well
B was $67,883,486.00.383
Stephen Dunn, TT 2-13:16-16:10 (describing the PHA and
stating that such agreements common in the Gulf of Mexico); Barry
Pullium, TT 6-157:13-158:22, Docket Entry No. 207, pp. 157-58
(describing deferred compensation as a commonly known feature of
PHAs); Final Argument, TT 10-65:12-66:5. Docket Entry No. 218,
pp. 65-66 (summarizing the evidence on the issue of foresee
ability). See also Carmen Eggleston, TT 9-197:3-198:6; Rebuttal
Expert Report of Carmen R. Eggleston and Walter Bratic, pp. 13 �
33, 25 � 59, DX 222, Exhibit 55 to Schlumberger' s Response to
Hess's Motion for Judgment, Docket Entry No. 223-59, pp. 15 � 33
and 27 � 59(challenging Pullium's method of calculating deferred
compensation damages, and Pullium's failure to cite sufficient
evidence to establish that such damages were foreseeable, but not
challenging Hess's entitlement to deferred compensation as
consequential damages); Sur-Reply Expert Report of Carmen R.
Eggleston, DX 223, p. 27 �� 57-59 (same).
382

Summary of Damages by Claim and Valve, PTX 604, Exhibit 51
(continued... )

383

-114-

c.

Well C Damages

397. SCSSV H13S-0022 was installed in Well C on April 15,
2015.384
398. Production from Well C began on July 21, 2015.385
399. SCSSV was installed in Well C for approximately 455 days
before it failed, blocking production around July 17, 2016.386

(I)

Cost of Cover for Failed SCSSV H13S-0022

400. The Well C safety valve was replaced with a Baker Hughes
safety valve, Serial Number SN 1230710, purchased on August 2,
2016, for $600,312.387
(II) Incidental Costs to Retrieve and Replace
Failed SCSSV Hl3S-0022
401. Hess used the Stena Forth drillship to conduct the Well C
workover required to retrieve and replace the failed SCSSV.388
continued)
to Hess's Motion for Judgment, Docket Entry 222-53; Barry Pullium,
TT 6-93:14-94:11, Docket Entry No. 207, pp. 93-94.
383

( •••

384

Agreed Finding of Fact 272.

385

Agreed Finding of Fact 274.

Agreed Finding of Fact 322; May Report, p. 6, Exhibit 50 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-53, p. 7.
386

Agreed Finding of Fact 765; Calculation of Damages for the
Cost of Non-Conforming Safety Valves Plus Cover, PTX 605, Exhibit
52 to Hess's Motion for Judgment, Docket Entry 222-54, p. 2; Barry
Pullium, TT 6-94:16-96:15, Docket Entry No. 207, pp. 94-96.
387

388

Jason Sapp, TT 5-125:21-23, and Rolle Hogan, TT 5-146:4(continued...)
-115-

402. Using the Stena Forth was the most efficient, cost­
effective way to work the well over and mitigate damages because
seeking out an alternative drillship or rig would have required
Hess to undertake a costly and time-consuming effort to find a ship
or rig that was both suitable and available, negotiate a contract
with the owner, obtain necessary permits, and mobilize a new ship
or rig to the Tubular Bells Field.389
403. Hess performed the Well C workover over a 60-day period
from November to December of 2016.390
404. The Well C workover cost Hess $52,138,076.00.391
405. The Well C workover cost excluded $6,775,106, consisting
of

$4,375,069

of

discretionary

expenses,

$2,400,037

of

demobilization expenses,392 and $194,000 adjustment agreed to by
counsel following the cross-examination of Hess's damages expert. 393
continued)
149:9, Docket Entry No. 206, pp. 125 and 146-49.
388 ( •••

Rolle Hogan, TT 5-151:6-153:1, 5:162:11-167:16, Docket Entry
No. 206, pp. 151-56, 162-67.
389

Jason Sapp, TT 5-90:6-91:11, Docket Entry No. 206, p. 90;
Rolle Hogan, TT 5-159:22-25, Docket Entry No 206, p. 159.
390

See Retrieval and Replacement Expenses, PTX 606, Exhibit 53
to Hess's Motion for Judgment, Docket Entry No. 222-55; ; Barry
Pullium, TT 6-103:21-105:8, 6-121:12-123:25, Docket Entry No. 207,
pp. 103-05, and 121-23.
391

Retrieval and Replacement Expenses, PTX 606, Exhibit 53 to
Hess's Motion for Judgment, Docket Entry No. 222-55.
392

393

Retrieval and Replacement Expenses, PTX 606, Exhibit 53 to
(continued... )
-116-

406. Hess has proved by a preponderance of the evidence that
the cost of a new SCSSV for Well C was $600,312.00, and the cost to
retrieve the replace the failed SCSSV H13S-0022 with new SCSSV
SN1230710 was $52,138,076.00, for a total of $52,738,388. 394
407. But for the failure of SCSSV Hl3S-0022 installed in Well
C, Hess would not have needed to replace SCSSV H13S-0022 or conduct
the required workover. 395

d.

Well 8(2) Damages

408. SCSSV H13S-0025 was installed as a replacement for the
failed Well B safety valve at a depth of approximately 8,680 feet
below sea level around May 20, 2016. 396
409. Production from Well B(2)resumed in June of 2016. 397

continued)
Hess's Motion for Judgment, Docket Entry No. 222-55(showing Well C
workover cost was $52,332,076.00). Following cross examination of
Hess's damages expert, Barry Pullium, (TT 6-160:19-194:15, Docket
Entry No. 207, pp. 160-94,) Counsel for Hess agreed that the
workover costs for Well C should be reduced by $194,000.00 from
$52,332,076.00 to $52,138,076.00. See Colloquy with the Court,
TT 8-234:4-235:15, Docket Entry No. 209, pp. 234-35.
393

( •••

394

Summary of Damages by Claim and Valve, PTX 604, Exhibit 51
to Hess's Motion for Judgment, Docket Entry 222-53, adjusted by
$194,000.00 as agreed by counsel during trial. See Colloquy with
the Court, TT 8-234:4-235:15, Docket Entry No. 209, pp. 234-35.
Carmen Eggleston, TT 10-35:24-35:2, Docket Entry No. 218,
pp. 35-36.
395

3
96Agreed
397

Finding of Fact 456.

Stephen Dunn, TT 2-18:17-18, Docket Entry No. 203, p. 18.
-117-

410. SCSSV

H13S-0025

was

installed

in

Well

B(2)

for

approximately 605 days before it failed, blocking production on
March 18, 2018.398
(I)

Cost of Cover for Failed SCSSV Hl3S-0025

411. The Well B(2) safety valve was replaced with a Baker
Hughes safety valve, Serial Number SN1328137 (Well B(3)), purchased
on March 28, 2017, for $619,370.00. 399
(II) Incidental Costs to Retrieve and Replace
Failed SCSSV H13S-0025
412. In order to restore the well and resume production, Hess
had to retrieve and replace the failed SCSSV.
413. When SCSSV Hl3S-0025 installed in Well B(2) failed Hess
no longer had the Stena Forth drillship under contract.

Instead,

Hess extended the term of the Noble Paul Romano drillship to
conduct the workover and valve replacement.
414. Schlumberger argued but failed to prove that by using the
Noble Paul Romano to perform the workover on Well B(2), Hess saved
$3.8 million in standby expenses.

DX 222.

Agreed Finding of Fact 461; May Report, p. 6, Exhibit 50 to
Schlumberger's Response to Hess's Motion for Judgment, Docket Entry
No. 223-53, p. 7.
398

Agreed Findings of Fact 77 3-74. See also Summary of Damages
by Claim and Valve, PTX 604, Exhibit 51 to Hess's Motion for
Judgment, Docket Entry 222-53; Barry Pullium, TT 6-93:14-94:11,
Docket Entry No. 207, pp. 93-94.
399

-118-

415. Using the Noble Paul Romano was the most efficient, cost­
effective way to work the well over and mitigate damages. 400
416. Hess performed the Well B(2) workover over a 45-day
period from March to May of 2018 at a cost of $32,877,992.00. 401
417. Hess has proved by a preponderance of the evidence that
the cost of a new SCSSV for Well B(2) was $619,370.00, and the cost
to retrieve the replace the failed SCSSV H13S-0025 with new SCSSV
SN1328137 was $32,877,992.00, for a total of $33,497,362. 402
418. But for the failure of SCSSV H13S-0025 installed in Well
B(2), Hess would not have needed to conduct the Well B(2) workover
or replacement. 403

Rolle Hogan, TT 5-190:13-191: 8, Docket Entry No. 206,
pp. 190-91; Barry Pullium, TT 6-120:11-121:11, 128:19-130:9, Docket
Entry No. 207, pp. 120-21, 128-30.
400

Rolle Hogan, TT 5-189:9-190:18, Docket Entry No. 206,
pp. 189-90; Adalam Ismail, TT 6-36:25-37:4, Docket Entry No. 207,
pp. 36-37; Retrieval and Replacement Expenses, PTX 606, Exhibit 53
to Hess's Motion for Judgment, Docket Entry No. 222-55; ; Barry
Pullium, TT 6-103:21-105:8, 6-121:12-123:25, Docket Entry No. 207,
pp. 103-05, and 121-23.
401

Summary of Damages by Claim and Valve, PTX 604, Exhibit 51
to Hess's Motion for Judgment, Docket Entry 222-53, adjusted by
$194,000.00 as agreed by counsel during trial. See Colloquy with
the Court, TT 8-234:4-235:15, Docket Entry No. 209, pp. 234-35.
402

Carmen Eggleston, TT 10-35:24-35:2, Docket Entry No. 218,
pp. 35-36.
403

-119-

iii. Conclusions
419. Hess has established by a preponderance of the credible
evidence that it reasonably spent a total of $2,685,792.00 to
obtain the four replacement SCSSVs.
420. Hess has established by a preponderance of the credible
evidence that it reasonably spent $209,955,437 to investigate and
subsequently retrieve and replace the failed SCSSVs.
421. Hess has established by a preponderance of the credible
evidence that it actually incurred and paid these expenses, that
these

expenses

represent

the

cost

of

cover

plus

incidental

expenses, and that they commercially reasonable and reasonably
incurred to effect cover.
422. Hess has established by a preponderance of the credible
evidence that it would be entitled to an additional $5,259,567 in
consequential damages for deferred production compensation that it
would have received fram Williams had Well B not been shutdown
during the Gunflint tie-in period in 2016.
423. Hess would, therefore, be entitled to $217,900,796.00 in
damages, exclusive of interest, costs, and attorneys fees.

-120-

Damages Summary Table
Well

D

B

C

8(2)

Failed SCSSV

H13S-0010

H13S-0011

H13S-0022

H13S-0025

Replacement

H15S-0088

H13S-0025

SN1230710

SN1328137

Total

scssv
Cost of New

$720,680.00

$745,430.00

$600,312.00

$619,370.00

$2,685,792.00

$63,060,880.00

$61,878,489.00

$52,138,076.00

$32,877,992.00

$209,955,437.00

$63,781,560.00

$62,623,919.00

$52,738,388.00

$33,497,362.00

$212,641,229.00

scssv
Cost to Retrieve
and Replace
(Workover)
Total to
retrieve and
replace failed
SCSSVs
Deferred

$5,259,567.00

$5,259,567.00

Compensation
Total

$63,781,560.00

$67,883,486.00

$52,738,388.00

-121-

$33,497,362.00

$217,900,796.00

III. Conclusions of Law
Hess argues that it is entitled to judgment on its breach of
contract

claims as to all four of the

failed

Schlumberger delivered nonconforming SCSSVs.

SCSSVs

because

Hess argues that the

SCSSVs were non-conforming when delivered because "[t] he Metal
Spring Energized ("MSE") Seal Assemblies used in [them] were not
API qualified as the parties' contract required

(liability) and

that non-conformity caused the failures (causation)."404 Hess moves
the

court

to

$217,900,795.00

enter

judgment

exclusive

its

"favor

interest,

of

in

costs,

and
and

award

it

attorneys'

Schlumberger urges the court not to enter judgment in

fees. n405

Hess's favor because "Hess failed to carry its burden on three
scores:

one, it failed to show breach;

two, it failed to show

causation; and three, it failed to show that it revoked acceptance
before

it

substantially

changed

the

valves'

condition."406

Asserting that Hess did not justifiably revoke, and that the entry
of summary judgment on its defense of release and its counterclaim
for indemnity assumes Hess's justifiable revocation, Schlumberger
seeks partial judgment on its indemnity counterclaim in an amount
be determined after it submits evidence of attorneys' fees.407

Hess's Motion for Judgment, Docket Entry No. 222, p. 11.

404

4osrd.
Schlumberger's Response
Docket Entry No. 223, p. 11.
406

407

to

Id. at 47 & n. 17.
-122-

Hess's

Motion

for

Judgment,

A.

1.
28

Jurisdiction

The court has jurisdiction over this action pursuant to

u.s.c.

§ 1332.

2.

The court has jurisdiction over the parties.

3.

Venue is proper pursuant to 28 U.S.C. § 1391.

B.

Claims for Breach of Contract Under Texas Law

4.

The elements of breach of contract under Texas law are:

(a) the existence of a valid contract; (b) performance or tendered
performance by the plaintiff;
defendant; and
breach."

(c) breach of the contract by the

(d) damages to the plaintiff resulting from the

IAS Services Group, L.L.C. v. Jim Buckley & Associates,

Inc., 900 F.3d 640, 652 (5th Cir. 2018).
5.

The final element requires causation.

breach of contract claim,

To recover on a

"the evidence must show that

Hess

suffered damages and that the damages are the 'natural, probable,
and foreseeable consequence' of the defendant's conduct."

Id.

(quoting Prudential Securities, Inc. v. Haugland, 973 S.W.2d 394,
396-97 (Tex.App.-El Paso 1998, pet. denied)).
6.

Hess, as the party seeking recovery, bears the burden of

proof to show that Schlumberger breached the parties' contract.
Matador Drilling Co., Inc. v. Post Petroleum Co., 662 F.2d 1190,
1195 (5th Cir. 1981). See also Chalker Energy Partners III, LLC v.
Le Norman Operating LLC, 595 S.W.3d 668, 673 (Tex. 2020) ("A party
seeking to recover under a contract bears the burden of proving
that all conditions precedent have been satisfied.").
-123-

7.

Based on§ II of the Findings of Fact the court concludes

that the Commercial Agreement,

which incorporates the Master

Service Agreement, constitutes a valid contract between Hess and
Schlumberger governed by Texas law. 408
8.

The parties agree that their contract is not ambiguous. 409

"When a contract's language is unambiguous, courts must 'construe
the contract as a matter of law."

First Bank v. Brummitt, 519

S.W.3d 95, 105 (Tex. 2017) (quoting Coker v. Coker, 650 S.W.2d 391,
393 (Tex. 1983)).
i.
9.

Contracts for the Sale of Goods

Contracts relating the sale of goods are governed by

Article Two of the Uniform Commercial Code, which has been adopted
in Texas as Chapter Two of the Texas Business and Commerce Code.
Tex. Bus. & Com. Code Ann. § 2.102;
American Permanent Ware Co.,

Emerson Electric Co. v.

201 S.W.3d 301,

310

(Tex. App.

Dallas 2006, no pet.); Minsa Corporation v. SFTC, LLC, 540 S.W.3d
155, 159-60 (Tex.App.-Amarillo 2017, pet. denied).
10.

The Texas Business and Commerce Code displaces common law

rules regarding breach of contracts within its scope.

Trident

Both parties refer to a Bridging Agreement that amended the
Master Service Agreement, but neither party offered the Bridging
Agreement at trial, and the Bridging Agreement was not admitted as
an exhibit at trial.
408

409

Agreed Finding of Fact 63.
-124-

Steele

Corp.

v.

Wiser

Oil

Co.,

223

S.W.3d

520,

524

(Tex.App.-Amarillo 2006, pet denied) (citing Glenn Thurman, Inc. v.
Moore Construction, Inc., 942 S.W.2d 768, 771 (Tex.App.-Tyler 1997,
no writ)).
11.

"Goods" is broadly defined to encompass "all things

(including specially manufactured goods) which are movable at the
time of identification to the contract of sale.

fl

Propulsion

Technologies, Inc. v. Attwood Coro., 369 F.3d 896, 900 (5th Cir.
2004) (quoting Tex. Bus. & Com. Code Ann. § 2.105(a)).
12.

Because the parties' Commercial Agreement provides for

the sale of goods (the SCSSVs) Hess's breach of contract claims are
governed by Chapter Two of the Texas Business and Commerce Code.
A seller breaches a contract for the sale of goods if its

13.

delivery fails

in any respect to

Tex.Bus.& Com. Code Ann. § 2.601.

conform

to the contract.

See also Minsa, 540 S.W.3d at

160 ("Goods are 'conforming' or conform to the contract when they
are in accordance with the obligations under the contract.").
14.

Non-conformity includes any failure of the seller to

perform according to his obligations under the contract, including
breaches of warranties. Texas Bus. & Com. Code Ann. § 2-714,
Comment 2.
15.

When goods fail to conform to the contract, the buyer may

reject or accept the goods.

Tex. Bus. & Com. Code Ann. § 2.601.

-125-

16.

A buyer accepts goods if he agrees to accept them despite

their non-conformity, fails to make an effective rejection, or does
any act inconsistent with the seller's ownership. Tex. Bus. & Com.
Code Ann. § 2.606.
17.

A buyer effectively rejects non-conforming goods when the

buyer timely notifies the seller that it will not accept the goods.
HCI Chemicals (USA) Inc. v. Henkel KGaA, S.A., 966 F.2d 1018, 1023
(5th Cir. 1992)
18.

The buyer's notice of rejection must be clear and

unambiguous.
19.

(citing Texas Bus. & Com. Code Ann. § 2.602).

Id.

Whether the buyer has a breach of contract or breach of

warranty claim is determined by whether the buyer has finally
accepted the goods.

Tex. Bus. & Com. Code Ann. §§ 2.711, 2.714;

Minsa, 540 S.W.3d at 160; Emerson Electric, 201 S.W.3d at 310.
20.

"Acceptance of goods by the buyer precludes rejection of

the goods accepted."
21.

Minsa, 540 S.W.3d at 160.

A buyer who rightfully rejects goods or justifiably

revokes his acceptance may recover breach of contract remedies for
delivery of non-conforming goods under § 2.711.

Tex. Bus. & Com.

Code Ann. §§ 2.711, 2.713; Emerson Electric, 201 S.W.3d at 310.
22.

The remedies for breach of warranty are set forth in

section 2.714,

and are available to a buyer who has finally

accepted goods, but discovers that the goods are defective in some

-126-

manner.

Southwestern Bell Telephone Co. v. DFP Corp., 811 S.W.2d

572, 576 (Tex. 1991).
23.

To recover on its breach of contract claim, Hess had to

prove that it justifiably revoked its acceptance of the four SCSSVs
at issue.

Emerson Electric, 201 S.W.3d at 310.

ii.
24.

Justifiable Revocation of Acceptance

Section 2.608 of the Texas Business and Commerce Code

describes the conditions necessary for revocation:
(a) The buyer may revoke his acceptance of a lot or
commercial unit whose non-conformity substantially
impairs its value to him if he has accepted it . .
(2) without discovery of such non-conformity if his
acceptance was reasonably induced either by the
difficulty of discovery before acceptance or by the
seller's assurances.
(b) Revocation of acceptance must occur within a
reasonable time after the buyer discovers or should have
discovered the ground for it and before any substantial
change in condition of the goods which is not caused by
their own defects. It is not effective until the buyer
notifies the seller of it.
(c) A buyer who so revokes has the same rights and
duties with regard to the goods involved as if he had
rejected them.
Tex. Bus. & Com. Code § 2.608.
25.

If

a

buyer

accepts

goods

without

knowledge

of

nonconformity, the buyer may revoke its acceptance if acceptance
was reasonably induced either by the difficulty of discovery before
-127-

acceptance or by the seller's assurances.

Tex. Bus. & Com. Code

Ann. § 2.608(a)(2).
26.

Non-conformities that require disassembly or destructive

testing to determine conformity are necessarily
discover.
27.

difficult to

Trident Steele, 223 S.W.3d at 527.
Revocation of acceptance must occur a reasonable time

after the buyer discovers the grounds for revocation.

Tex. Bus. &

Com. Code Ann. § 2.608(b).
28.

"Revocation

of

acceptance

must

occur

"before

any

substantial change in condition of the goods which is not caused by
their own defects."

Tex. Bus. & Com. Code Ann. § 2.608 Comment 6.

See also Minsa, 540 S.W.3d at 160; Village Mobile Homes, Inc. v.
Porter, 716 S.W.2d 543, 552 (Tex.App.-Austin 1986, writ refused
n.r.e.) (quoting Tex. Bus. & Com. Code Ann. § 2.608 Comment 6).
29.

The elements of revocation of acceptance under Texas

Business and Commerce Code § 2.608 are:
(1) initial acceptance (with reasonable assumption that
the non-conforming item would be cured and it is not
cured, or without discovery of the non-conforming itern if
acceptance was induced by difficulty of discovery or by
seller's assurance); (2) of [a] non-conforming item;
(3) such non-conformity substantially impairs the value
to the buyer; (4) and revocation occurs within a
reasonable time; (5) in any event, the revocation must
occur before a substantial change in the condition of the
goods occurs (which change is not caused by defect of
goods).
Neily v. Arron, 724 S.W.2d 908, 913-14 (Tex. App. - Fort Worth
1987, no writ)).
-128-

30.

"The

determination

question of fact."

of

Id. at 914.

each

of

See also

these

elements

is

a

Vemex Trading Corp. v.

Technology Ventures, Inc., 563 F. App'x 318, 325 (5th Cir. 2014)
(per curiam) (whether a buyer justifiably revoked acceptance is a
fact issue) (citing Neily, 724 S.W.2d at 913-14).

C.

Application of Texas Law to the Facts of this Case

31.

Based on § III.A of the Findings of Fact the court

concludes that Hess's acceptance of each of the four SCSSVs at
issue was induced by Schlumberger's assurances that each SCSSV
conformed to the requirements of API 14A, Eleventh Edition, and by
the difficulty of discovering the alleged non-conformities.
32.

Based on § III.B of the Findings of Fact the court

concludes that Hess revoked its acceptance of each of the SCSSVs
within a

reasonable

conformities.

time

after

discovering

the

alleged

non­

See A.O. Smith Corp. v. Elbi S.p.A., 123 F. App'x

617, 621-22 (5th Cir.2005) (per curiam) ("because prior testing did
not reveal the defect,

[buyer] timely revoked when it notified

[seller] of the defect within a reasonable time after

[buyer]

discovered [the latent defect]").
33.

Based on § III.C of the Findings of Fact the court

concludes that Hess failed to carry its burden of proving that any
of the SCSSVs did not conform to API 14A, Eleventh Edition, or that
any alleged non-conformity caused any of the four SCSSVs to fail.
-129-

The credible evidence showed that the SCSSVs failed due to the way
Hess operated the wells in which the SCSSVs were installed, and not
due to failure of the valves to conform to API 14A §§ 6.3.2.2,
7.6.2, or 7.6.3(c).
34.

Based on § III. D of the Findings of Fact the court

concludes that the alleged violations of API 14A, Eleventh Edition,
did not substantially impair the value of any of the four SCSSVs at
issue to Hess.
35.

Based on § III.E of the Findings of Fact the court

concludes that Hess failed to revoke its acceptance of any of the
four SCSSVs at issue before a substantial change to the condition
of the SCSSVs occurred that was not caused by the alleged non­
conformities.
36.

Based on § III of the

Findings of

Fact the court

concludes that Hess did not justifiably revoke its acceptance of
the SCSSVs.
37.

Because Hess failed to prove that it justifiably revoked

its acceptance of the four SCSSVs at issue, the proper remedy for
Hess to pursue was a breach of warranty claim under Texas Business
and Commerce Code § 2.714.
38.

Minsa, 540 S.W.3d at 161.

For reasons stated in its June 29,

Opinion and Order,

2017,

Memorandum

Docket Entry No. 40, the court has already

dismissed Hess's claims for breach of warranty, holding that "Hess
may proceed with its claims based on the alleged non-conformity of
-130-

the [SC]SSVs at the time of delivery.

Hess may not proceed with

its claims based on the failure of the [SC]SSVs to function after
the warranty period had expired."410

D.

Damages

39.

"[B]reach of contract damages are not available when a

buyer accepts non-conforming goods.
warranty is the remedy.

In that instance, breach of

Breach of contract remedies are

available, however, to a buyer who, inter alia, properly revokes
acceptance."

A.O. Smith, 123 F. App'x at 619 (citing Selectouch

Corp. v. Perfect Starch, Inc., 111 S.W.3d 830, 834 (Tex. App. Dallas 2003, no pet.) ("A buyer who .

justifiably revokes his

acceptance may recover breach of contract remedies for delivery of
non-conforming goods under section 2.711.")).
40.

The remedies for breach of contract for a sale of goods

are set forth in Texas Business and Commerce Code§§
41.

2.711-2.715.

In pertinent part§ 2.711 governing "Buyer's Remedies in

General" provides:
(a) Where the seller fails to make delivery or
repudiates or the buyer rightfully or justifiably revokes
acceptance then with respect to any goods involved, and
with respect to the whole if the breach goes to the whole
contract (Section 2.612), the buyer may cancel and
whether or not he has done so may in addition to
recovering so much of the price as has been paid
Memorandum Opinion and Order, Docket Entry No. 40, p. 17.
See also Memorandum Opinion and Order, Docket Entry No. 158, pp.1314 (same).
410

-131-

(1) "cover" and have damages under the next
section as to all the goods affected whether or not
they have been identified to the contract; or
(2) recover damages for non-delivery as provided
in this chapter (Section 2.713).
Tex. Bus. & Comm. Code § 2.711.
42.

Section 2.712 governing "Cover" provides:

(a) After a breach within the preceding section the
buyer may "cover" by making in good faith and without
unreasonable delay any reasonable purchase of or contract
to purchase goods in substitution for those due from the
seller.
(b) The buyer may recover from the seller as damages the
difference between the cost of cover and the contract
price together with any incidental or consequential
damages as hereinafter defined (Section 2.715), but less
expenses saved in consequence of the sellers' breach.
Tex. Bus. & Comm. Code § 2.712.
43.

Section 2.713 governing "Buyer's Damages for Non-Delivery

or Repudiation" provides:
(a) Subject to the provisions of this chapter with
respect to proof of market price (Section 2.723), the
measure of damages for non-delivery or repudiation by the
seller is the difference between the market price at the
time when the buyer learned of the breach and the
contract price together with any incidental and
consequential damages provided in this chapter (Section
2.715), but less expenses saved in consequence of the
seller's breach.
(b) Market price is to be determined as of the place for
tender or, in cases of rejection after arrival or
revocation of acceptance, as of the place of arrival.
Tex. Bus. & Comm. Code § 2.713.
44.

A claim for "revocation seeks to put the buyer in the

same position as if he had rejected the goods at the time of
-132-

delivery."

Neal v. SMC Corp., 99 S.W.3d 813,

816 (Tex. App. -

Dallas 2003, no pet.).
45.

A buyer that has justifiably revoked acceptance of goods

may recover damages for as much of the price as has been paid by
the buyer for the goods.
46.

Tex. Bus. & Comm. Code Ann. § 2.711(a).

A buyer that has justifiably revoked acceptance of goods

may recover damages for the difference between the market price at
the time when they buyer learned of the breach and the contract
price together with any incidental and consequential damages, but
less expenses saved in consequence of the breach.

Tex. Bus. &

Comm. Code Ann. §§ 2.711(a), 2.713.
47.

Section

2.715

governing

"Buyer's

Incidental

Consequential Damages" provides:
(a) Incidental damages resulting from the seller's
breach
include
expenses
reasonably
incurred
in
inspection, receipt, transportation and care and custody
of goods rightfully rejected, any commercially reasonable
charges, expenses or commissions, in connection with
effecting cover and any other reasonable expense incident
to the delay or other breach.
(b) Consequential damages resulting from the seller's
breach include
(1) any loss resulting from general or particular
requirements and needs of which the seller at the
time of contracting had reason to know and which
could not reasonably be prevented by cover or
otherwise; and
(2) injury to person or property proximately
resulting from any breach of warranty.
Tex. Bus. & Comm. Code § 2.715.
-133-

and

48.
replacing

Incidental
the

damages

defective

include

[goods]

"the

with

reasonable

equal

quality

cost
as

of

that

represented by [the seller], less the salvage value, if any, of the
defective [goods]."

General Supply &

Equipment Co.,

Inc. v.

Phillips, 490 S.W.2d 913, 920 (Tex. App. - Tyler 1972, writ refused
n.r.e.).
49.

Consequential

necessarily,

from

the

damages

"result

defendant's

but

naturally,

wrongful

acts,"

Stuart

not
v.

Bayless, 964 S.W.2d 920, 921 (Tex. 1998) (per curiam), and "are not
recoverable unless the parties contemplated at the time they made
the contract that such damages would be a probable result of the
breach."
50.

Id.
"Lost profits may be either direct or consequential

damages, depending on their nature."

Cherokee County Cogeneration

Partners, L.P. v. Dynegy Marketing and Trade, 305 S.W.3d 309, 314
(Tex.App.-Houston [14th Dist.] 2009, no pet.).
51.

Reasonably foreseeable profits indirectly lost on another

contract due to the breach are consequential damages.
52.

Id.

When a buyer justifiably revokes acceptance of goods and

is entitled to incidental damages, "[a]n offset for the value of
the buyer's use is appropriate."

Delhomme Industries,

Inc. v.

Houston Beechcraft, Inc., 735 F.2d 177, 185 n. 12 (5th Cir. 1984).
53.

If a higher court determines that Hess has proved that it

justifiably revoked its acceptance of the SCSSVs, based on § D of
-134-

the Findings of Fact, § II.D, above, the court concludes that Hess
has proved that would be entitled to recover damages totaling
$217,900,796.00, which consist of the following:
(1)

$2,685,792.00 in damages for the cost of the failed
SCSSVs, and the difference between the contract price and
the market price at the time Hess learned of the breach;

( 2)

$209,955.437.00

in

incidental

damages

for

costs

reasonably incurred to retrieve and replace the failed
SCSSVs; and
(3)

$5,259,567.00

in

consequential

damages

for

loss

of

deferred compensation for the mandatory shut-down of Well
B during the period that the Gunflint field was tied-in
to the Gulfstar One production facility.
54.

Hess also sought damages for $6.06 million in methanol­

contamination damages, but for the reasons stated in its November
7, 2019, Memorandum Opinion and Order, Docket Entry No. 158, the
court has held that Hess released and waived the right to recover
for damages to or loss of Hess's property, and that Hess's claim
for methanol-related damages is a claim for damage to or loss of
Hess's property that Hess has released. 411

4

11 Memorandum Opinion and Order, Docket Entry No. 158, pp. 4446, and 77.

-135-

E.

Sclumberger's Affirmative Defense of Release and Waiver
and Counterclaim for Indemnity

55.

The provisions of the Texas Business and Commerce Code

governing contracts for sale of goods may be altered by agreement
of the contracting parties.

Tex. Bus. & Com. Code Ann. § 1.302(a)

("Except as otherwise provided . . . elsewhere in this title, the
effect of provisions of this title may be varied by agreement.").
See Gasmark, Ltd. v. Kimball Energy Corp., 868 S.W.2d 925, 928
(Tex.App.-Fort Worth 1994, no writ) (citing earlier codification of
Tex. Bus. & Com. Code § 1.302).
56.

Section 2.719 of the Texas Business and Commerce Code

allows parties to limit remedies and provides in part:
(a) Subject to the provisions of (b) and (c) of this
section and of the preceding section on liquidation and
limitation of damages,
(1) the agreement may provide for remedies in addition
to or in substitution for those provided in this chapter
and may limit or alter the measure of damages recoverable
under this chapter, as by limiting the buyer's remedies
to return of the goods and repayment of the price or to
repair and replacement of non-conforming goods or parts;
and
(2) resort to a remedy as provided is optional unless
the remedy is expressly agreed to be exclusive, in which
case it is the sole remedy.
Tex. Bus. & Com. Code Ann § 2.719.
57.
release,"

Schlumberger asserts that "Hess's claims are barred by
because

"[t]he

Master

-136-

Service

Contract

released

[Schlumberger] from all claims brought by any party for any and all
'damage to or loss of property.' 11412
58.
has

Schlumberger asserts that "[b]y filing a lawsuit, Hess

breached

its

obligation

to

[Schlumberger] against these claims,

defend
11413

and

hold

harmless

and that "Hess's indemnity

obligations require Hess to indemnify [Schlumberger] for attorney's
fees already incurred in defending against the claims asserted by
Hess. 11414
59.

Schlumberger asserts that it "is entitled to indemnity

from Hess for the Claims in this lawsuit, including recovery in the
amount of Schlumberger's costs, attorneys' fees, and other expenses
incurred in defending this litigation. 11415
60.

Section 13 (c) of the Master Service Contract requires

Hess to "fully release, defend, indemnify, and hold [Schlumberger]
harmless from and against all claims . . . for any and all damage
to or loss of property of [Hess],

11

including "production and

drilling equipment . . . subsurface reservoirs and any oil and gas
or other hydrocarbon substances located therein.

11416

Defendant's
Answer
and
Affirmative
Defenses
and
Counterclaims to Hess's Third Amended Complaint, Docket Entry
No. 72, p. 19 (citing MSC at § 13 (c) (1)).
412

413

Id. at 21 <JI 11.

414

Id. at 21 <JI 12.

Schlumberger's Proposed Conclusions of Law, Exhibit L to
Amended Joint Pretrial Order, Docket Entry No. 163-12, p. 15 # 86.
415

416

Master Service Contract,

§ 13 (c)1,

-137-

PTX 68,

Docket Entry
(continued... )

61.

Section 13(a)3 of the Master Service Contract defines

"claims" as including "all claims,
losses,

action,

limitation,

liabilities,

compensatory,

and

demands,

suits,

causes of
without

(including,

damages
exemplary),

judgments,

awards,

obligations to defend or indemnify others, and other costs of every
kind and character (including, without limitation, court costs,
attorneys' fees, debts and interest), known or unknown, whether the
underlying

claim,

demand,

or

suit

is

groundless,

false

or

fraudulent. " 417
62.

Section 13(i) of the Master Service Contract states that

" [ i] n the event that either party hereto is required to seek
judicial enforcement of the contractual indemnities and other
obligations and liabilities of the other party, the party entitled
to

such

protection

hereunder

shall

recover

all

reasonable

attorneys'

fees,

court costs and other expenses incurred

in

connection

with

pursuing

or

that

claim

through

litigation

otherwise. " 418
63.

The Master Service Contract is a binding and enforceable

contractual release and indemnity agreement between the parties.

continued)
No. 223-72, p. 7 (Section 13(c) is quoted in substantial part in
Findings of Fact 62-63, supra).
416 ( ••
•

4

Id. § 13(a)3, Docket Entry No. 223-72, p. 7.

418

Id. at § 13(i), PTX 68, Docket Entry No. 223-72, p. 13.

17

-138-

64.

Section 13(c) of the Master Service Contract obligates

Hess to indemnify Schlumberger for "damage to or loss of property
of [Hess]."
65.

A release is an agreement or contract in which one party

agrees that a legal right or obligation owed by the other party is
surrendered. Dresser Industries, Inc. v. Page Petroleum, Inc., 853
S.W.2d 505, 508 (Tex. 1993).
66.

A release is subject to the normal rules of contract

construction, including the rules of ambiguity.

National Union

Fire Insurance Company of Pittsburgh v. Insurance Company of North
America, 955 S.W.2d 120, 127 (Tex.App.-Houston [14th Dist.] 1997),
aff'd, 20 S.W.3d 692 (Tex. 2000).
67.

A release extinguishes a claim or cause of action and is

an absolute bar to any right of action on the released matter.
Dresser Industries, 853 S.W.2d at 508.
68.

To release a claim the releasing instrument must mention

the claim to be released, but it is not necessary for the parties
to anticipate and explicitly identify every potential cause of
action relating to the subject matter of the release.

Victoria

Bank & Trust Co. v. Brady, 811 S.W.2d 931, 938 (Tex. 1991).
69.

[I] n order to establish the affirmative

defense of

release, the party asserting the defense of release is required to
prove the elements of a contract."

-139-

Vanderbilt Mortgage & Finance,

Inc. v. Flores, 692 F.3d 358, 364 (5th Cir. 2012) (quoting In re
J.P, 96 S.W.3d 830, 835 (Tex.App.-Fort Worth 2009, no pet.)).
70.

"In construing a release, as with other contracts, the

primary effort is to ascertain and give effect to the intention of
the parties to the release, considering the instrument as a whole."
D.R. Horton-Texas, Ltd. v. Savannah Properties Associates, L.P.,
416 S.W.3d 217, 226 (Tex.App.-Fort Worth 2013, no pet.).
71.

"Waiver is the intentional relinquishment of a right

actually known, or intentional conduct inconsistent with claims of
that right."

Ulico Casualty Co. v. Allied Pilots Association, 262

S.W.3d 773, 778 (Tex. 2008).
72.

The elements of waiver under Texas law are " (1) an

existing right, benefit, or advantage held by a party;
party's actual knowledge of its existence;
actual intent to relinquish the right,
inconsistent with the right."
73.

and

(2) the

(3) the party's

or intentional conduct

Id.

An indemnity agreement is a promise to safeguard or hold

the indemnitee harmless against either existing and/or future loss
liability,

and

creates

a

potential

indemnitee against the indemnitor.

cause

of

action

in

the

Dresser Industries, 853 S.W.2d

at 508.
74.

When parties include an indemnity agreement in a contract

the duty to indemnify generally includes a duty to pay for all
costs and expenses associated with defending suits against the
-140-

indemnitee.

Keystone Equity Management v. Thoen, 730 S.W.2d 339,

340 (Tex.App.-Dallas 1987, no writ) ("The ordinary and commonly
accepted meaning
harmless'

of

the phrase

'indemnify,

. encompasses attorneys' fees

defend,

and

hold

. We hold that the

[contractual] promise to defend . . . suits in connection with the
promises' includes the obligation to pay for the defense of such
suits.").
75.

Under Texas law, a contractual indemnity claim has five

elements:
(1) a contractual indemnity agreement exists; (2) the
indemnity agreement obligates one party to indemnify the
other for particular claims; (3) those claims were made;
(4) all conditions precedent for recovery have occurred
or been waived or excused; and (5) the party seeking
relief has been damaged.
AXA Corporate Solutions v. Lectrus Corp., Action No. 4:15cv3606,
2016 WL 6601049,

at

*3 (S.D. Tex. November 8,

2016) (citing

Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 719 (5th Cir. 1995)
(per curiam)).
76.

Indemnity and release provisions are "strictly construed

in favor of the indemnitor."
77.

Keystone Equity, 730 S.W.2d at 340.

Schlumberger argues that§ 13(c) of the MSC applies to

each of the four categories of damages that Hess seeks: replacement
safety valves,

workovers,

deferred compensation,

and methanol

Schlumberger' s Proposed Conclusions of Law,

Exhibit L to
(continued ...)

contamination costs.418
418

-141-

78.

For

the

reasons

stated

in

its

November

7,

2019,

Memorandum Opinion and Order, Docket Entry No. 158, the court held
that Hess did not expressly release or waive the right to challenge
the non-conformities alleged in this action, and only agreed to
release and indemnify Schlumberger for damage to or loss of Hess's
property. 419
79. For the reasons stated in its November 7, 2019, Memorandum
Opinion and Order,

Docket Entry No.

158,

the court held that

"Hess's claims for costs to purchase replacements for the failed
valves, costs to retrieve and replace the failed valves, and lost
profits from the Gulfstar One facility are not claims for damage to
or loss of Hess's property, but that Hess's claims for methanol
contamination

are

claims

the

reasons

for

damage

to

or

loss

of

Hess's

property. " 420
80.

For

stated

in

its

November

7,

2019,

Memorandum Opinion and Order, Docket Entry No. 158, the court also
held that Hess's claim for methanol-related damages is a claim for
damage to or loss of Hess's property that Hess has released, and

continued)
Amended Joint Pretrial Order,
pp. 4-8.
418 ( •••

Docket Entry No.

163-12,

<J[<J[ 6-28

419

Memorandum Opinion and Order, Docket Entry No. 158, pp. 22-

420

Id. at 77.

44

-142-

the court has granted Schlumberger summary

judgment on that

claim.421
81.

Because the court has held that Hess's claim for methanol

damages is a claim for damage to or loss of Hess's property, which
the court has resolved in Schlumberger's favor, 422 Schlumberger is
entitled to recover from Hess all reasonable attorneys' fees, court
costs and other expenses incurred in connection with defending
Hess's claim for methanol-related damages pursuant to §§

13 (c)

and 13(i) of the Master Service Contract.
82.

Because the court has held that Hess's damages for costs

to purchase replacements for the failed valves, costs to retrieve
and replace the failed valves, and lost profits from the Gulfstar
One facility, are not damages for damage to or loss of Hess's
property, Schlumberger would not be entitled either to indemnity or
to attorneys fees, court costs, or other expenses for defending
itself against Hess's breach of contract claims for those damages
pursuant to§§

13(c) and 13(i) of the Master Service Contract. See

Building Specialties, Inc. v. Liberty Mutual Fire Insurance Co.,
712 F.Supp.2d 628, 645-46 (S.D. Tex. 2010) (holding that a claim
seeking damages "for the cost of repairing
work" did not involve "property damage").

421

Id. at 44-46, and 77.

422Id.

-143-

.defective duct

F.

Attorneys' Fees

83.

"State

reasonableness

of

law

controls

both

[attorneys']

fees

supplies the rule of decision."

the

award

awarded

of

the

state

where

and

law

Mathis v. Exxon Corp., 302 F.3d

448, 461 (5th Cir. 2002).
84.

Under Texas law attorneys' fees are recoverable in a suit
Tucker v.

only if they are authorized by contract or statute.
Thomas, 419 S.W.3d 292, 295 (Tex. 2013).
85.

The

determination of

reasonable

usually a question for the trier of fact.

attorneys'

fees

is

Emerson Electric, 201

S.W.3d at 317 (citing Stewart Title Guaranty Co. v. Sterling, 822
S.W.2d 1, 12 (Tex. 1991)).
86.

Both parties seek attorneys'

fees pursuant to both

§ 13(i) of the Master Service Contract and the Texas Civil
Practices and Remedies Code § 38.001.
87.

Under Texas law, the party seeking attorneys' fees bears

the burden of proof to show the reasonable fees they are owed.

El

Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 760 (Tex. 2012).
88.

The party seeking attorneys' fees may calculate their

reasonable and necessary attorneys' fees using either the lodestar
method or the market value method.

Id. (citing

Hensley v.

Eckerhart, 103 S. Ct. 1933 (1983) (applying substantive federal law
because it was a federal cause of action but also discussing
Texas's adoption of the lodestar method in other cases).
-144-

89.

Schlumberger is entitled to attorneys' fees, court costs,

and expenses incurred defending Hess's claim for methanol damages
pursuant to § 13(i) of the Master Service Contract because that
claim is for damage to or loss of Hess's property which has been
resolved in Schlurnberger's favor.
90.

Section 38.001 of the Texas Civil Practices and Remedies

Code states that
A person may recover reasonable attorney's fees from an
individual or corporation, in addition to the amount of
a valid claim and costs, if the claim is for:
(8)

an oral or written contract.

Tex. Civ. Prac. & Rem. Code Ann. § 38.001.
91.

To recover attorneys's fees in a breach of contract suit,

a party must (1) prevail on the underlying claim and (2) recover
damages.

In re Nalle Plastics Family Ltd. Partnership, 406 S.W.3d

168, 172-73 (Tex. 2013).
92.

If any attorneys' fees relate to a claim for which such

fees are not recoverable, a claimant must segregate recoverable
from unrecoverable attorneys' fees.

Tony Gullo Motors I, LP v.

Chapa, 212 S.W.3d 299, 313 (Tex. 2006).
93.

The party seeking attorneys' fees bears the burden to

show that the opposing party is only being charged with fees on a
claim that allows for recovery of such fees. Id. at 311.

-145-

94.

"Sufficient evidence includes, at a minimum, evidence 'of

the services performed, who performed them and at what hourly rate,
when they were performed and how much time the work required.'"
Long v. Griffin, 442 S.W.3d 253,

255

(Tex. 2014)

(per curiam)

(quoting El Apple, 370 S.W.3d at 763).
95.

Because Hess has neither prevailed on any of its breach

of contract claims, nor recovered damages, Hess is not entitled to
recover attorneys' fees.
96.
attorneys'

, I'

The court has concluded that Schlumberger is entitled to
fees pursuant to §§ 13 (c)

Service Contract,

and 13 (i) of the Master

but because Schlumberger has not yet had an

opportunity to submit an application for attorneys' fees, the court
will accord Schlumberger that opportunity.
97.

A conclusion of law that should be treated as a finding

of fact is hereby adopted as that, and a finding of fact that
should be treated as a conclusion of law is hereby adopted as that.
IV. Conclusions and Orders

Pursuant to the Findings of Fact and Conclusions of Law
entered herewith, Schlumberger Technology Corporation's Renewed
Rule 52(c) Motion for Judgment on Partial Findings as to the Well
B(2) Valve, Docket Entry No. 212, is DENIED as MOOT.

-146-

Pursuant to the Findings of Fact and Conclusions of Law
entered herewith, Hess Corporation's Motion for Entry of Judgment,
Docket Entry No. 222, is DENIED.
In accordance with the Findings of Fact and Conclusions of Law
entered herewith,

Schlumberger shall submit within 14 days,

a

motion for attorneys' fees, costs424 and other expenses to which it
is entitled under§

13(i) of the Master Service Contract for having

to defend against Hess's claim for methanol-related damages.

Hess

may submit a response within 14 days after Schlumberger files its
motion, and Schlumberger may submit a reply within 7 days after
Hess files its response.
SIGNED at Houston, Texas,

ovember, 2020.

SIM LAKE
SENIOR UNITED STATES DISTRICT JUDGE

The parties have not addressed whether "court costs" as used
in §§ 13(a}3 and 13(i} of the MSC is limited to the costs
identified in 28 U.S.C. § 1920. If Schlumberger contends that
"court costs" as used in the MSC includes additional costs, it may
seek such costs, and brief its entitlement to them in its motion.
If Schlumberger agrees that it is only entitled to the costs
identified in 28 U.S.C. § 1920 it need not request them now, but
may include those in its Bill of Costs pursuant to Local Rule 54.2.
4 24

-147-

1.