A Drilling Contractor who owns and operates inland drill barges asserted a lien on a leasehold interest to secure his contractual right to a $17.7 million early termination fee if the Drilling Contract entered into with the Leasehold Operator was terminated early. The term of the Drilling Contract was for the completion of two wells. Workover operations on the first well were completed and the Operator ordered the drill barge to go to a stand by location off the well site (which saved the Operator a substantial amount of money) until preparations for the second well could be completed. The drill barge had been at the stand by location for two years awaiting orders when the Operator quit paying the stand by rate and then unilaterally terminated the Drilling Contract. The Operator filed a mandamus action to have the lien removed arguing that the early termination fee did not constitute services rendered at a well site and that the Drilling Contractor’s drill barge was not present on the well site at the time the contract was terminated. The 16^th Judicial District Court for the State of Louisiana found that the Operator’s order to move the drilling rig to the stand by location was at the Operator’s preference and the Drilling Contractor’s deference and constituted operations contemplated under the Drilling Contract. Evidence was presented that further established it would cost approximately $7 million to demobilize/remobilize the drill barge below the bridges at Morgan City and that while the drill barge was above the bridges awaiting orders, the Drilling Contractor was unable to market the drill barge to any other customers. Thus, maintaining the drill barge at the stand location was to the Operator’s further advantage. The District Court also found that the early termination fee was properly related to operations as required by LOWLA. The District Court’s Order stated that it would not issue an order to the Clerk of Court to remove the lien.

Frederick T. Haas, III