In early April 2025, the Amarillo Court of Appeals reversed in part and affirmed in part a trial court's summary judgment regarding the agreed-upon compensation for a geophysicist in a "Letter of Agreement," highlighting how courts weigh both literal terms and what the courts believe "makes sense" in reading contract language. This opinion cautions that seemingly ordinary phrases can carry unexpected consequences when read together with other contract provisions.
In this case, geophysicist Thomas Sewak was hired by Sutherland Energy Co., LLC ("SEC") to perform geophysical and prospecting services. The "Agreement" entitled Sewak to a day rate of $600.00 per day on work performed "concerning the subject seismic survey." The agreement also gave Sewak an opportunity to invest "on a ground floor basis," in "drilling opportunities within the subject survey" – capped at 20% of SEC's working interest.
Under the Agreement, Sewak was paid his day rate for work done in 2013 to 2015. In late-2014 to early-2015, the survey was completed enough to begin identifying drilling prospects. Sewak continued providing services through early 2017 and was offered the opportunity to participate in four wells drilled by SEC from 2015 to 2017; Sewak elected to participate in two.
Between September 2017 and February 2018, Sewak submitted three unpaid invoices. Additionally, in 2017 and 2018, SEC did not give Sewak an opportunity to participate in two units/wells: (1) the Hamrick #3 Unit, which had already been designated; and (2) the Hamrick #5, drilled as an offset well on the Hamrick #3 Unit.
In June 2020, Sewak sued SEC, claiming breach of the Agreement by (1) failing to pay the three final invoices; and (2) failing to provide Sewak the option to invest in SEC's drilling opportunities. The trial court granted SEC's motion on summary judgment.
The Battle Over Competing Contract Interpretations
On appeal, Sewak argued the Agreement required SEC to pay the final three day-rate invoices, regardless of when the work was performed. SEC argued that under the Agreement, the day rate was only payable for work on the "subject seismic survey" and that Sewak's compensation for work performed after the survey was completed was limited to the investment opportunity. The investment opportunity was denoted as payable: "[i]n addition to the [day rate] fees above and after fulfillment of those duties…" SEC argued that the phrase "after fulfillment of those duties" created two compensation "schemes" based on when the work was performed.
The Court of Appeals rejected SEC's argument and determined that Sewak's final three invoices should have been paid. The Court construed the plain language of the Agreement, ruling that the phrase "in addition to" did not limit Sewak's compensation as that phrase commonly means "combined or associated with," and not "instead of."
Looking Beyond the Four Corners of the Agreement
But the Court ruled that SEC was not required to give Sewak an opportunity to invest in the Hamrick #3 and Hamrick #5. The Court determined that the language providing Sewak an investment option in "drilling opportunities" did not extend to the Hamrick #3 as that unit had already been designated.
With respect to the Hamrick #5, the Court similarly determined that SEC did not breach the Agreement, even though the Hamrick #5 was a new well drilled by SEC. The Court's holding was based on the fact that the investment provision was limited to opportunities on "a ground floor basis," and because the Hamrick #5 had been drilled on the already-designated Hamrick #3 Unit, it would make no sense to permit Sewak to invest in an existing production unit.
The "Ground Floor" Dilemma: When Defined Terms Don't Define Outcomes
This case is notable because while the Court's holding regarding the invoices was based strictly on a plain reading of the contract, the Court expanded this reading to consider what "makes sense" when determining the investment dispute. Under Texas law, Courts must construe contracts to give effect to all contract language. But what makes sense to one party may not make sense to another. For example, the Agreement defined "ground floor basis" as: "you will not be charged a prospect fee or incur any land or seismic expenses that SEC can apply to payout of the Hamrick #3 well." Despite this "definition," the Court determined that the phrase "ground floor basis…[does] not make sense when applied to existing unit operations."
Whether in the oil patch or elsewhere, careful attention should be given to contract language. A party should always err on the side of over-inclusivity, especially when including abnormal or uncommon phrases in a contract. In that context, more can sometimes be better.
