NEW MEXICO – A legal battle between an oil company and a servicer of the industry recently took a turn when the defendant filed a counterclaim alleging the plaintiff failed to pay millions in unpaid invoices and routinely misused equipment, which created dangerous working conditions.
The plaintiff, Tap Rock Operating, is a large oil and gas company that has performed exploration and production activities in New Mexico, including the Delaware Basin. The defendant, Texas Fabco Solutions, is a Texas company that fabricates oil and gas production equipment, and provides other services to oil and gas companies.
Tap Rock filed a breach of contract lawsuit against Texas Fabco on Sept. 2. Texas Fabco responded with a counterclaim on Sept. 22.
Court records show Tap Rock and Texas Fabco entered into a Master Services Agreement in August 2018, under which Texas Fabco performed work related to Tap Rock’s exploration and production activities in New Mexico. Texas Fabco was hired to build equipment, complete construction, and supervise contractors.
In its counterclaim, Texas Fabco asserts it fully performed its obligations under work orders Tap Rock issued under the MSA, and that Tap Rock owes Texas Fabco approximately $32.4 million, $21 million of which is past-due invoices, in breach of the MSA.
The counterclaim also raises questions about health, safety and pollution issues allegedly caused by Tap Rock's misuse of equipment.
In late 2020, Texas Fabco proposed a design that included new upstream oil production stabilizers developed by MAZE Environmental, an affiliate of Texas Fabco, that are designed to reduce flaring, reduce emissions, and maximize production by capturing hydrocarbons that would otherwise be flared.
Tap Rock agreed to incorporate the MAZE Stabilizers into its facility design on a trial basis. The stabilizers used for Tap Rock’s Mulva projects are designed to achieve partial fractionation or distillation of oil, to render it suitable for storage in atmospheric tanks.
“Tap Rock, however, insisted on misusing the equipment by using the Stabilizer, essentially using them as an oil filtration system and chemical injection point for treatment of H2S,” the counterclaim states. “This resulted in equipment throughout the facilities, including the Stabilizers, compressors, and other parts of the facility to frequently load up with high concentrations of H2S and clog up with sulfur solids.
“Tap Rock’s misuse even caused a flame arrestor on a flare to malfunction, causing a serious safety issue.”
Texas Fabco maintains the way Tap Rock operated the facilities also caused serious health and safety hazards at their facility related to H2S. Due to equipment, including flares, being constantly clogged, tanks had to be vented from relief hatches, which triggered H2S sensors.
“A leak of thousands of barrels of oil into an open-top temporary water tank also triggered H2S sensors,” the counterclaim states. “When H2S sensors tripped, the wells would automatically shut in, which Tap Rock obviously did not want to happen.
“Tap Rock installed fans to push fresh air across H2S sensors, to prevent them from alarming, blatantly violating its air emissions permits and health and safety protocols.”
The problems continued until Tap Rock was finally forced to shut down its Mulva facilities for cleaning.
Texas Fabco asserts similar problems occurred at the Mandelbaum, Hyperion, Moneygram, and Yada facilities, due to Tap Rock’s mismanagement and misuse of equipment.
“Tap Rock’s unsafe practices also caused a flare stack, which Fabco built for Tap Rock, and Tap Rock has yet to pay for, to burn to the ground,” the counterclaim states. “Through it all, Tap Rock ignored Texas Fabco’s advice on how to solve the problems, and ignored pleas from Texas Fabco and others about the numerous safety violations and concerns throughout its facilities.”
In addition to breach of contract, Texas Fabco is asserting a claim for tortious interference with a contract – arguing that Tap Rock improperly interfered with contractual relations between Texas Fabco and its subcontractors.
Texas Fabco is also asserting claims of fraud and negligent misrepresentation.
Tap Rock Operating is financially backed by NGP Energy Capital, a Dallas-based private equity firm, led by managing partner Chris G. Carter.
The company raised $500 million after the issuance of corporate bonds held by financial giants including JP Morgan, Bank of America and Citigroup.
Baker Hostetler attorney Mark Barron represents Texas Fabco.
Filed in the Fifth Judicial County District Court, County of Lea, New Mexico. Case No. D-506-CV-2021-00804