Transocean files for Summary Judgment against BP
On 1st November, Transocean Offshore Deepwater Drilling Inc. (TODDI), a subsidiary of Transocean Ltd., filed a motion for summary judgment in the United States District Court for the Eastern District of Louisiana, requesting the court to compel BP to honour its contractual obligation to defend, indemnify and hold harmless Transocean for damages associated with the flow from BP’s Macondo well in the Gulf of Mexico in 2010.
Transocean said that the contract between BP and Transocean for the Deepwater Horizon drilling rig contains industry-standard reciprocal indemnity provisions that apportion risk and quantify liabilities between the two companies. In the contract, which was signed in 1998 and extended several times, including in 2009, BP agreed to, "defend, release, protect, indemnify and hold harmless" Transocean for any and all fines, penalties and damages associated with environmental pollution originating from the well, "without limit and without regard to the cause or causes" including negligence, "whether such negligence be sole, joint, active passive or gross.”
Transocean said that, “Despite these clear and unambiguous terms, BP has refused to honor its contractual obligations to Transocean stemming from the Macondo well incident in April of 2010. In fact, contrary to its promise to "defend" and "indemnify" Transocean, BP instead filed suit against Transocean on the one-year anniversary of the incident, alleging that Transocean personnel - including those who lost their lives in the incident - had willful and callous disregard for the welfare of their colleagues and the environment. Transocean has honored its contractual indemnity obligations to BP nonetheless.”
Nick Deeming, Senior V.P. and General Counsel of Transocean said, "BP's posture in this matter is not only offensive to the thousands of men and women who work together at Transocean, but it constitutes a direct threat to the sanctity of contracts and to the economic underpinnings of an industry that employs hundreds of thousands of people in the United States alone. This motion is about more than just two companies. It is about the future of the contract drilling industry at large. If BP truly intends to make things right, it must either voluntarily or by the order of the court honor all of its contracts - not just the ones that serve its convenience or financial purposes."
According to the filed motion, BP has cited "ongoing investigations" and BP's own "allegations" of gross negligence on the part of Transocean as justification for BP's refusal to honor its contractual promises. The motion also asserts that, after months of discovery and more than 200 witness depositions, it is clear that no evidence of gross negligence by Transocean exists. The drilling contractor goes on to say that, “In fact, as outlined in the motion, BP oversaw, audited and commended the Deepwater Horizon rig and her crew before the incident, and every BP witness deposed as part of the litigation in New Orleans has stated under oath that the rig was fit for purpose and was operated by a safety-conscious crew.”
Transocean said that key excerpts from the brief - which is available online at http://www.deepwater.com/ - are as follows:
Transocean respectfully requests that the Court requires BP to honour its contractual promises. Transocean requests that its motion for partial summary judgment be granted, specifically that:
- The express indemnity promises made by BP in the Drilling Contract override any alleged rights of BP to contribution;
- The indemnity provisions agreed to by BP in the Drilling Contract are valid and enforceable against the OPA statutory backdrop, including indemnity for the uncapped liability that arises upon a finding that an incident resulted from gross negligence;
- BP's contribution claims are barred by BP's contractual promise to defend Transocean, and BP must defend Transocean against environmental wellhead pollution claims pending against it that arise from the Macondo blowout;
- BP cannot avoid its contractual promise by alleging that Transocean breached the Drilling Contract or that the Deepwater Horizon was unseaworthy;
- BP cannot avoid its contractual promise by alleging that Transocean or its employees were grossly negligent;
- BP is required to honour its promise to indemnify Transocean for Clean Water Act (CWA) and any other civil penalties;
- BP is required to honour its promise to pay the unpaid charter hire for the Deepwater Horizon;
- As a result of BP's failure to honour its promises in each of the above areas, BP is required to reimburse Transocean its attorneys' fees, costs, and expenses incurred in defending environmental claims for which BP is contractually obligated and those incurred in forcing BP to honour its contractual promises.
While apparently not disputing the terms of the drilling contract as set out by Transocean, BP is reported to have subsequently maintained that, inter alia, Transocean's conduct voided the indemnity clause.
Subsequently, on 15th November, in regard to the Macondo well/Deepwater Horizon loss, the US District Court, Eastern District of Louisiana, ruled that BP could not access the insurance coverages of Transocean Ltd in the manner sought by BP. US District Judge Carl Barbier noted that the Court found that BP, under the drilling contract, assumed responsibility for the Macondo well oil release pollution liabilities, and because Transocean did not assume these liabilities, there is no additional insurance obligation in favour of BP for these liabilities.
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Gasco pipeline in Northern Sinai attacked again
On 10th November, the Gasco pipeline in Northern Sinai was attacked for the seventh time in 2011 and again put out of action. Pumping of gas had been resumed on 24th October following the last incident. The latest attack occurred some 30km west of the town of Al-Arish.
A report said that the attack on the gas pipeline between Egypt, Israel and Jordan involved two trucks, and was conducted by means of Improvised Explosive Devices (IED) placed under the pipeline and remotely detonated by wires.
The pipeline is operated by Egyptian Natural Gas Co’s subsidiary Gasco.
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BP to pay USD50m for refinery cat emissions
On 3rd November, Texas Attorney General Greg Abbott resolved the State’s enforcement actions against BP Products North America Inc. In June 2009, the Attorney General’s Office (AGO) charged BP with violating State environmental protection laws when a deadly explosion erupted at BP’s Texas City refinery. Under a proposed agreement, BP must pay the State of Texas USD50m for unlawfully emitting pollutants during and after the March 2005 explosion.
The Texas Attorney General said, “The proposed agreement resolves the State’s enforcement actions against BP Products for unlawful pollutant emissions at its Texas City refinery. The Texas Attorney General’s Office is committed to protecting our State’s precious natural resources by enforcing environmental pollution laws. The proposed agreement reflects the State’s commitment to protecting air quality and holding polluters accountable for illegal emissions.”
According to the Attorney General’s 2009 enforcement action, BP was responsible for 72 separate unlawful pollutant emissions that have been occurring every few months since March 2005. An explosion and related fires at BP’s Texas City refinery in March 2005 claimed 15 lives, and injured more than 170 workers.
The State’s 2009 legal action against BP stemmed from a referral from the Texas Commission on Environmental Quality (TCEQ), which regulates and permits emissions at Texas refineries. After the AGO filed its original legal action against BP, the TCEQ submitted a second, related referral against BP Products. According to TCEQ investigators, multiple Texas Clean Air Act violations occurred at the Texas City refinery between 6th April and 16th May 2010. As a result, the Attorney General’s Office filed a second enforcement action and charged BP with illegally emitting approximately 500,000 pounds of harmful air pollutants in Texas City.
Under the proposed agreement, BP Products is required to pay USD50m to the State of Texas. That amount includes USD500,000 in costs that the AGO incurred while pursuing the State’s enforcement actions. The remainder of the USD50m reflects civil penalties that will be deposited in the State treasury.
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Oil well blowout and fire in Milam County, Texas
A blowout and fire occurred at around 0200hrs on 6th November, at an oil well drilling location near Milano in Milam County, Texas, USA. The drilling unit had been set up in mid October by Slawson Exploration Inc. of Oklahoma City. At the time of the incident Slawson had 11 employees on location. No injuries have been reported.
Well control specialists Boots and Coots of Houston were called in and were on site on 6th November. On 12th November, Boots and Coots extinguished the oil well fire that had been burning for six days, and capped Polzer Well No. 1. A fire suppression crew used high pressure water to control the fire and then install a new wellhead.
The regulator Texas Railroad Commission is to issue a final report on the incident and the cause of the fire is under investigation. At the time of the outbreak the well had been drilled to a depth of some 6,000 feet.
Slawson Exploration Company, Inc. is a privately held oil and gas exploration company, founded by Donald C. Slawson in 1957. Since its inception, SECI has drilled over 3,500 wells in 10 US states and the Milam County incident was the first serious rig fire it had experienced in its history.
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Refinery incidents
A small explosion and fire occurred at around 1230hrs on 8th November at the refinery site of the Necessary Oil Co. in Bristol, Tennessee, USA. No injuries occurred and the fire was controlled within one hour. Some 26 firefighters attended the blaze. An investigation into the cause was in progress. The plant refines used motor and hydraulic oil for use as recycled oil.
As a result of a leakage of hot oil from a faulty valve, a small fire occurred on 31st October at the refinery of Petrochem Carless Limited in Parkeston, Harwich, UK. No injuries were reported.
The INA-owned 60,000 bpd capacity oil refinery in Sisak, Croatia is expected to resume normal production during November following repairs necessitated by the 20th June 2011 fire.
On 8th November, Pasadena Refining Systems Inc. said that all units at its oil refinery were back at normal operating rates following the 30th September fire.
On 9th November, the Ecopetrol refineries at Barrancabermeja and Cartagena, Colombia, were reported to be operating normally despite massive protests by workers who have clashed with riot police over unionisation demands. Reportedly, injuries have occurred. The protests were expected to end on 10th November.
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Fire on Shell Nigeria pipeline
On 9th November, a fire broke out on Shell’s Okordia/Rumuekpe oil pipeline in Ikarama, Bayelsa State, Nigeria, causing some production to be shut down.
Reportedly, the fire broke out a day after Shell Petroleum Development Corporate received reports of an oil spill in the area. A firefighting team was mobilised to the site after the outbreak, which was subsequently controlled. Some production has been shut down.
The impact and cause of the fire is under investigation. However, a report has indicated that the fire was deliberately started by local youths.
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CNR Horizon Oil Sands fire update
We have previously reported on the 6th January 2011 fire in the coker unit of Canadian Natural Resources Limited’s Horizon Oil Sands operation in Northern Alberta, which will result in a major claim on insurance markets as a result of the damage and eight months outage.
CNR previously said that on 16th August, the company successfully and safely resumed production at Horizon. On 3rd November, when announcing 3Q2011 earnings, CNR said that the current capacity was 110,000bpd and it was well underway in the staged expansion to 250,000 bpd and then ultimately to 500,000bpd.
In 3Q CNR said it completed the rebuild, on cost, of $390m to $400m, except for time taken out because of the forest fires in the area, on schedule. CNR said that insurance will cover the cost of the rebuild, and business interruption insurance covers operating cost up to $30 a barrel.
During the rebuild, CNR completed significant opportune maintenance. As a result, the previously planned turnaround for 2012 has been rescheduled to 2013.
In August, there was a 44,600bpd average, or a stream day rate of 86,400bpd. September was steady at 108,200 barrels a day, and October is coming in at 105,650 barrels a day, even though rates were reduced to complete coker furnace digging.
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BP reports on Macondo well shore clean-up
On 9th November, BP said that after 18 months of sustained effort to clean the shoreline of the Gulf of Mexico following the April 2010 Deepwater Horizon accident, the US Coast Guard’s federal on-scene coordinator (FOSC) has approved the shoreline clean-up completion plan, paving the way for restoration work.
Under the plan, the FOSC will determine which shoreline segments have completed the active clean-up measures and can transition out of the response phase. That will allow the Federal and State Trustees to move forward with BP-funded restoration activities.
“This is an important milestone in the recovery process for the Gulf Coast,” said Mike Utsler, Head of BP’s Gulf Coast Restoration Organisation. “As final shoreline clean-up operations are completed, restoration activities can begin that will enhance the Gulf Coast ecosystem and its communities. BP has already pledged up to $1 billion to fund early restoration projects as part of the Natural Resources Damage Assessment and we are working with federal and state trustees to determine where to begin those efforts.”
The FOSC, in consultation with relevant State and Federal Trustees, established the clean-up standards for each impacted segment of the shoreline. Those standards form the basis for this new plan, which the FOSC developed with representatives of Alabama, Florida, Louisiana and Mississippi, as well as NOAA and the Department of the Interior.
Of the more than 4,300 miles of Gulf Coast shoreline surveyed, 635 were impacted and required some level of active cleaning. Today, over 90% of shoreline in the impacted area has met the agreed-upon standards to transition out of the response phase, owing largely to a clean-up that has been unprecedented in scope.
At the height of the response, more than 48,000 responders were involved in capping the well, removing oil from the water and shoreline, protecting the coast, and rescuing and rehabilitating wildlife. Since then, with the help of committed Federal, State and local officials, as well as thousands of Gulf Coast residents, BP said it has made “extraordinary strides”, to date:
- There have been an estimated 66.5 million hours devoted to the response;
- 95,000 tons of oiled debris has been collected from the shoreline;
- USD13.6bn has been spent on the clean-up, and USD7.3bn paid in claims and other support payments.
Utsler said, “After the spill, BP promised to clean up the oil and pay all legitimate claims. We are making good on that commitment, but our work is not done. With the shoreline clean-up completion plan in place, restoration work for the long-term benefit of the region can now begin.”
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Gannet Alpha flow line oil leak - Update: Successful removal of gas
We have previously reported on developments concerning the August leakage of oil from the Gannet field in the UKCS, and, following the 30th September update from the Department of Energy and Climate Change (DECC), on 4th November the DECC issued the following statement by Mr Hugh Shaw, the Secretary of State’s Representative (SOSREP) for Maritime Salvage and Intervention, who was appointed by the UK Government to oversee the operation:
"I am pleased to announce that the latest phase to remove gas trapped in the Gannet pipeline has been successful. Shell’s surveys show that almost all the gas has been removed, significantly increasing the stability of the 4km pipeline.
The final stage of this operation is now to remove the trapped oil and over the next few months Shell will submit their proposed plans to me for approval.
There will be full dialogue with the Department of Energy and Climate Change, the Scottish Operational Environment Group, the Scottish Government, the Marine and Coastguard Agency and the Health and Safety Executive before any plans are agreed.
Given the technical nature of this operation, we do not expect the final phase to begin before next spring.
Shell has advised they plan to restart operations at the Gannet A platform soon, following its planned shutdown in August for maintenance. The start-up will have no impact on the Gannet F pipeline, which has been physically isolated.
No pollution was sighted during the gas venting operation and the joint DECC and HSE investigation into the cause of the incident continues."
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Oil and Gas industry incidents in Iran
According to a report from the Mehr News Agency, on 28th October, an explosion occurred at the Bibi Hakimeh oil field in the south-western province of Khuzestan, some 500 miles south of the capital Tehran, killing one person - an employee of the National Iranian Drilling Company - and injuring three others. It is believed that the explosion occurred when drilling rig No. 54 hit a high-pressure gas pocket at a depth of 1,810 metres, according to an official of the National Iranian Drilling Company.
It was also reported that on 28th October, a fire and explosion occurred on a gas pipeline (said to be involved in the injection of gas into an oil field) in the Khuzestan province, apparently as a result of a rupture due to wall corrosion. No injuries were said to have occurred.
Another report stated that a fire and explosion had occurred at the Shazand oil refinery in the city of Arak, Iran, on or around the 28th October. No injuries were reported, and details of damage were not revealed.
Reports of such incidents in Iran can be imprecise and should be treated with caution, unless independent confirmation is available.
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Oil in area of Chevron well off Brazil causes concern
An appraisal well at the Chevron-operated deepwater Frade field in the Campos Basin, offshore Brazil, was apparently the source of an oil spill - described by Chevron Brazil as oil seeps and a subsequent sheen - which caused concern, and on 11th November, the Brazilian President Dilma Rousseff urged a rigorous investigation into the causes of the accident.
The head of ANP, Brazil’s hydrocarbon regulatory authority, has been quoted as saying that it was likely that drilling increased the pressure in the strata where the well is located, leading to a leak to the surface. On 14th November, Chevron acknowledged that the appraisal well at the Frade field might be ‘contributing’ to the oil spill, and on 15th November Chevron said it was monitoring a significant decrease in the amount of oil observed leaking from a line of seeps on the ocean floor.
Chevron said that since receiving approval from the Brazilian National Agency of Petroleum (ANP) late on 13th November, Chevron Brazil immediately commenced plugging and abandonment activities on an appraisal well within the Frade field which was suspected to be contributing to “oil being expressed through seep lines located on the ocean floor”.
On 17th November, Chevron Corporation confirmed that cementing operations were taking place as part of its well plugging activities on the appraisal well.
Chevron also confirmed that there has never been any oil flow from the wellhead, and current monitoring indicated oil from nearby seep lines on the ocean floor had reduced to infrequent droplets. Chevron has continued to work in close partnership with its drilling contractor, Transocean, on well plugging operations. All development well drilling in the field continued to be suspended.
Chevron has continued to monitor the oil sheen, which has substantially dissipated. Current estimates place the volume of the oil sheen on the ocean surface to be less than 65 barrels. The sheen is located about 120km offshore and continues to move in a south-easterly direction, away from the Brazilian coast.
Chevron continues to coordinate and deploy resources to monitor and manage the remaining sheen. The company has been scheduling a fleet of up to 18 vessels on a rotational basis, weather permitting, to control and monitor the sheen.
Full production activities have been maintained at Frade throughout the seep incident. Production operations have been monitored continuously to ensure those facilities are not contributing to the oil sheen. Daily production volumes are approximately 79,000boe.
Chevron said it continues to fully inform and work with Brazilian government agencies and industry partners on all aspects of this matter.
The appraisal well was drilled in the vicinity of the Chevron operated Frade project, located 370km (230 miles) offshore north-east of Rio de Janeiro, Brazil, in water depths of approximately 1,200 metres (3,800 feet).
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