By: Wentworth S.C.R. No. 72
(In the Senate - Filed May 13, 2009; May 13, 2009, read
first time and referred to Committee on Jurisprudence;
May 14, 2009, reported favorably by the following vote: Yeas 5,
Nays 0; May 14, 2009, sent to printer.)
SENATE CONCURRENT RESOLUTION
WHEREAS, Gulf Energy Exploration Corp. alleges that:
(1) Gulf Energy Exploration Corp. acquired four
inactive "orphaned" wellbores in Sherman Field, Offshore Calhoun
County, Texas, that are strategically located to enhance the
capture of reserves that would otherwise be uneconomical to
recover;
(2) One of these orphaned wellbores is designated
"State Tract 708-S No. 5";
(3) Gulf Energy Exploration Corp. intends to rework
the orphaned wellbores it owns in Sherman Field and tie them back in
to the Sherman pipeline system;
(4) In a conference on May 19, 2008, representatives
from Gulf Energy Exploration Corp., the Railroad Commission of
Texas, the Office of the Attorney General of the State of Texas,
American Coastal Energy, Inc., and bankruptcy counsel for American
Coastal Energy, Inc., reached a tentative settlement and
forbearance agreement, pending approval of the commission,
attorney general, and bankruptcy court;
(5) On or about May 25, 2008, the Railroad Commission
of Texas wrongfully plugged and abandoned State Tract 708-S No. 5,
using Superior Energy Services, Inc., as the plugging contractor;
(6) By June 9, 2008, all parties to the agreement of
May 19, 2008, had signed the settlement and forbearance agreement;
(7) On June 27, 2008, Gulf Energy Exploration Corp.
paid a deposit of $400,000 and filed Certificates of Compliance and
Transportation Authority with the Railroad Commission of Texas;
(8) On June 30, 2008, the Railroad Commission of Texas
held a hearing and legal examination, and J. W. "Bill" Rhea IV, who
was at the time the president and chief executive officer of Gulf
Energy Exploration Corp., testified on the merit and benefit of
Gulf Energy Exploration Corp.'s Certificates of Compliance and
Transportation Authority;
(9) In a memorandum dated August 11, 2008, requested
by the Railroad Commission of Texas following the hearing on June
30, 2009, Gulf Energy Exploration Corp. submitted a brief
discussion and proposed operation of each of its orphaned wells in
Sherman Field, including State Tract 708-S No. 5, and its reserve
potential;
(10) On September 9, 2008, the Railroad Commission of
Texas approved Gulf Energy Exploration Corp.'s Certificates of
Compliance and Transportation Authority and rescinded its previous
plugging orders;
(11) On November 10, 2008, Superior Energy Service,
Inc., provided a wellbore diagram in support of the workover or
recompletion procedure to be performed by Gulf Energy Exploration
Corp. on State Tract 708-S No. 5;
(12) Under the State of Texas Oil and Gas Lease
#M-107592, the amount of royalties Gulf Energy Exploration Corp.
would have to pay to the State of Texas would increase if production
in paying quantities was not established by February 6, 2009;
(13) On December 30, 2008, Gulf Energy Exploration
Corp. commenced operations on State Tract 708-S No. 5 in
anticipation of completing workover operations and placing the well
in production ahead of the February 6, 2009, deadline only to
discover that State Tract 708-S No. 5 had been wrongfully plugged;
(14) One week later, on January 9, 2009,
representatives of Gulf Energy Exploration Corp. and the Railroad
Commission of Texas met to discuss the wrongful plugging of State
Tract 708-S No. 5;
(15) On January 14, 2009, representatives of Gulf
Energy Exploration Corp. and the Railroad Commission of Texas met
again, and the commission admitted to wrongfully plugging State
Tract 708-S No. 5;
(16) To date, Gulf Energy Exploration Corp. has
invested, spent, or committed to spend $2,810,000, in addition to
the $400,000 deposit paid to the Railroad Commission of Texas, in
support of workover, recompletion, pipeline, and facilities
repairs to the Sherman Field area gathering system and two of its
other orphaned wells;
(17) Gulf Energy Exploration Corp. has calculated the
known cost to unplug and drill out State Tract 708-S No. 5 to 2,000
feet to be at least $1,596,650;
(18) Due to the manner in which State Tract 708-S No. 5
was plugged, a very real risk exists that substantial, unforeseen
problems may emerge in unplugging and drilling out the well and the
amount of contingency to use in calculating total costs cannot be
estimated with any degree of certainty;
(19) Given the degree of uncertainty in calculating
the contingency, Gulf Energy Exploration Corp. has used a range of
15 to 50 percent of the known costs, estimating the total cost to
unplug and drill out State Tract 708-S No. 5 to 2,000 feet to be
anywhere from $1,836,200 to $2,395,000; however, Gulf Energy
Exploration Corp. also recognizes, based on experience, that any
cost overrun could exceed the amount of known costs by 100 percent
or more and could result in the abandonment of the well;
(20) Alternatively, Gulf Energy Exploration Corp. has
received from Applied Drilling Technology, Inc., a viable, turnkey
proposal to redrill the well to 3,250 feet for known costs amounting
to $2,075,000 plus nominally estimated additional costs for setting
and cementing production casing, mobilization and demobilization,
a structural link to the existing caisson and structure, the
expected use of the wellhead, tubing, packer, and supplies, and a
prefabricated flowline bridge connection, which brings the
estimated total cost to redrill State Tract 708-S No. 5 to 3,250
feet to $2,426,000;
(21) Taking advantage of a third-party, turnkey
operation like Applied Drilling Technology, Inc.'s proposal
transfers the risk and responsibility of unforeseen problems and
expenses to the third party, making it a risk-free alternative;
(22) A risk-free option does not exist for the
Railroad Commission of Texas to reenter the abandoned well and
return the wellbore to useable condition for Gulf Energy
Exploration Corp., and a very real risk exists that the time and
money spent attempting a reentry would very likely exceed the cost
of a turnkey operation;
(23) Gulf Energy Exploration Corp. respectfully
requests that the Railroad Commission of Texas provide the funds
necessary to proceed with a risk-free alternative like the proposal
submitted by Applied Drilling Technology, Inc.;
(24) Gulf Energy Exploration Corp. also requests a
timely response from the Railroad Commission of Texas in providing
these funds considering the corporation's lost opportunity in the
well due to the wrongful plugging of State Tract 708-S No. 5; now,
therefore, be it
RESOLVED by the Legislature of the State of Texas, That Gulf
Energy Exploration Corp. is granted permission to sue the State of
Texas and the Railroad Commission of Texas subject to Chapter 107,
Civil Practice and Remedies Code; and, be it further
RESOLVED, That the total of all damages awarded in the suit
authorized by this resolution, including any court costs,
attorney's fees, and prejudgment interest awarded under the law,
may not exceed $2,500,000, and that Gulf Energy Exploration Corp.
may not plead an amount in excess of that amount in any suit
authorized by this resolution; and, be it further
RESOLVED, That the chairman of the Railroad Commission of
Texas and the attorney general be served process as provided by
Subdivision (3), subsection (a), Section 107.002, Civil Practice
and Remedies Code.
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