## Facts

- Lease-interest owners (plaintiffs) and an oil company (defendant) made an oral agreement for defendant to drill an oil and gas well to the Wilcox sand on the SW¼ of Section 15, Township 23, Range 5, Oklahoma.
- Drilling was to begin within 15 days after completion of defendant’s other well (the “Redd well”), which was completed March 20, 1927.
- Plaintiffs agreed to assign specified oil and gas leases to defendant and to deliver “dry hole contribution” agreements totaling $6,000 from identified third parties.
- Defendant’s president sent a letter substantially reflecting the oral terms; plaintiffs signed acceptance. The letter did not include the drilling depth term stated in the oral agreement.
- Two key leases were held in bank escrow and could not be delivered until commencement of drilling; plaintiffs disclosed this restriction when contracting. Defendant examined and copied the escrowed leases.
- Plaintiffs sought extensions and took steps to satisfy escrow conditions and to obtain the promised dry-hole contributions.
- Before the drilling start deadline, defendant stated it would not drill, citing business and market considerations.
- Plaintiffs treated the refusal as a repudiation, sued for breach, and obtained a jury verdict and judgment for damages in federal district court.

## Issues

1. Whether defendant’s unequivocal refusal to drill before the performance date constituted anticipatory repudiation permitting plaintiffs to sue immediately for breach.
2. Whether plaintiffs sufficiently performed, or were excused from further performance, regarding delivery of leases and dry-hole contributions given escrow limits and defendant’s repudiation.
3. Whether the jury was properly instructed on the measure of damages for breach of a contract to drill an oil and gas well.

## Decision

- The appellate court held defendant’s refusal to drill was an anticipatory repudiation and breach, allowing plaintiffs to treat the contract as terminated and sue without awaiting the performance date.
- The court held plaintiffs’ disclosed escrow situation and efforts toward compliance supported that they were not barred for nonperformance, and defendant’s repudiation excused further performance not yet due.
- The court reversed the judgment because the damages instructions did not apply the controlling measure of damages for a breached drilling contract.
- The case was remanded for a new trial with correct damage instructions.

## Legal Principles

- A clear, positive refusal to perform a future contractual duty constitutes anticipatory repudiation, allowing the nonbreaching party to sue for damages without further tender once repudiation is not withdrawn.
- Business reasons and unfavorable market conditions do not excuse performance of a drilling obligation undertaken by contract.
- In a contract to drill a well in exchange for leases or related interests, damages are not based on speculative production or profits; they are measured primarily by the cost of drilling the promised well, reduced by amounts the plaintiff would have had to provide or expend under the bargain (including appropriate offsets), and jury instructions must conform to this rule.

## Conclusion

The court recognized an actionable anticipatory breach of a drilling contract and excused further tender by the lessor-side parties after repudiation, but reversed and remanded because the jury was not instructed under the correct, cost-based measure of damages applicable to failure to drill an agreed well.


Bu-Vi-Bar Petroleum Corp. v. Krow, 40 F.2d 488 (10th Cir. 1930)