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Drillers Fail in Deepwater Horizon Claims

Deepwater Horizon

By MarEx 2016-03-13 18:30:38

A court ruling last week means that BP won’t have to face lawsuits by energy and oil field service companies over losses they blamed on the U.S. offshore drilling ban imposed after the 2010 Gulf of Mexico oil spill.

The claimants argued that BP was liable for billions of dollars. One, Seahawk Drilling alleged that its business was essentially destroyed, resulting in losses of $174.8 million, as a result of the drilling ban. 

However, BP argued federal law required such claims to be limited to economic losses that “resulted from” the spill itself, not from the action of a third party such as the federal government. 

U.S. District Judge Carl Barbier in New Orleans ruled in favor of BP, citing the Oil Pollution Act (OPA) passed in the wake of the 1989 Exxon Valdez spill.

Other claimants included Marathon Oil, Vantage Drilling and ATP Oil & Gas.

On the evening of April 20, 2010, a blowout, explosions, and fire occurred on board the Deepwater Horizon as it was in the process of temporarily abandoning the exploratory well Macondo that it had drilled in the Gulf of Mexico, some 50 miles from the Louisiana coast and in 5,000 feet of water. 

Eleven men died in the incident and at least seventeen others were seriously injured. At the time of the blowout, a 5,000 foot-long riser connected the Deepwater Horizon to the well. Hydrocarbons from the well travelled up the riser to the rig, fueling the fire. Deepwater Horizon capsized and sank on April 22. 

As it descended, the marine riser collapsed and fractured. Oil and gas then poured into the Gulf via breaks in the riser near the seafloor. These events triggered a massive response—unprecedented in size and complexity—to combat the oil spill. On April 29, 2010, the incident was declared a “Spill of National Significance” under the National Contingency Plan. This was the first oil spill to receive such a designation. 

Efforts to regain control of the well and stop the source of the discharge finally succeeded on July 15, 2010, nearly three months after initial blowout. By that time, approximately 3.19 million barrels of oil had entered the Gulf.

“There can be no doubt that the Government would not have imposed the Moratorium had the Horizon / Macondo blowout and oil spill not occurred,” stated Barbier in his ruling. “However, the Moratorium addressed the risk of possible future blowouts and oil spills from wells other than Macondo and was motivated by perceived weaknesses of industry-wide safety measures. 

“But the perceived threats of discharge from other wells are different OPA incidents (if these are OPA incidents at all) than the Horizon/Macondo incident for which BP is a responsible party. In OPA terms, then - and putting aside the question of whether Plaintiffs’ claims are due to the injury, destruction, or loss of property or natural resources - the OPA Test Case Plaintiffs’ losses did not result from the discharge or substantial threat of discharge of oil from the Macondo Well; they resulted from the perceived threat (whether substantial or not) of discharge from other wells. Thus, this matter is distinguishable from the “shutdown” cases cited by Plaintiffs. 

These examples include business interruption claims allegedly caused by the U.S. Coast Guard’s decision to close a portion of a river following an oil spill

BP has already paid over $55.5 billion in relation to the Deepwater Horizon disaster. Bloomberg reports that a lawsuit in which U.S. investors are seeking $2.5 billion in damages remains BP’s last significant legal risk. That case is set for trial in July.

The document is available here.