Texas oil and gas company claims it lost hundreds of thousands in failed drilling agreement

Kelly Holleran Apr. 12, 2013, 11:25am

A Texas oil and gas corporation claims a drilling company owes it hundreds of thousands of dollars after failing to uphold its promise to drill three wells on a 22-acre parcel of land. 

Conquistador Petroleum filed a lawsuit April 5 in Jefferson County District Court against E&B Natural Resources Management Corp. and Francesco Galesi.

In its complaint, Conquistador alleges it spent about $4 million after acquiring seismic data for approximately 22 square miles in the North Port Acres Prospect in 2006 and 2007. Afterwards, on May 1, 2008, Conquistador and E&B entered into an exploration agreement in which E&B agreed to drill three wells at about 10,500 feet on the property, according to the complaint. Galesi guaranteed E&B’s performance under the agreement, the suit states.

“Conquistador was paid $700,000 against sunk cost to be carried for 15 percent on said three wells to recoup the remaining portion of the sunk cost,” the complaint says. “Unpaid or unrecovered sunk cost would bear interest at 5 percent per annum.”

Conquistador claims it then acquired a license that allowed E&B to use the seismic data to drill the three wells.

However, E&B failed to drill its first well by the Sept. 1, 2008, deadline contained within the exploration agreement, according to the complaint. Still, Conquistador allowed E&B a second shot and agreed to extend the company’s deadline.

After poring over the seismic data, E&B decided that it could attempt to drill a deeper well at 16,500 feet, the suit states. Following the discovery, on May 1, 2010, Conquistador and E&B amended their exploration agreement.

Instead of drilling three wells at 10,500 feet, E&B agreed to drill two more expensive and deeper wells, the complaint says.

In the fall of 2010, E&B drilled its first well, but the hole was dry and the well was plugged in November 2010. Following its initial drilling, E&B has failed to drill a second well, Conquistador claims. In 2012, all of Conquistador’s leases expired, according to the complaint. Since then, E&B has requested termination of its exploration agreement, the suit states.

As part of the agreement, E&B promised to pay Conquistador’s sunk costs, which total $2,309,361.59, the complaint says. However, Conquistador claims it has not received the money.

In the amended agreement, both E&B and Conquistador agreed that Conquistador would not be responsible for lease maintenance costs until after E&B had drilled two wells, according to the complaint. However, E&B has failed to pay for the lease maintenance costs even though it did not drill the two promised wells, the suit states.

Conquistador is also seeking a reimbursement for the $600,000 in costs it incurred when it obtained the seismic data for E&B.

In its complaint, Conquistador alleges breach of contract against the defendants.

It is seeking actual damages, attorney’s fees, costs, pre- and post-judgment interest and other relief the court deems just.

Bruce M. Partain of Wells, Peyton, Greenberg and Hunt in Beaumont and Stephen S. Autry of Coleman will be representing it.

Judge Donald Floyd, 172nd District Court, has been assigned to the case.

Case No. E194-223

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