Deconstructing Deepwater Horizon

Renowned oil and gas law expert Professor Owen Anderson to discuss risk exposure and oil spill litigation at noon lecture at UAlberta Law

Ben Freeland - 08 November 2017

On Thursday, November 16, Professor Owen Anderson of the University of Texas School of Law will deliver a lecture on the complexities of risk allocation in oil drilling and service contracts, using the 2010 Deepwater Horizon disaster as a backdrop for his discussion.

A world-leading scholar of oil and gas law who has lectured on six continents (including a brief stint as Visiting Professor & Chair of Resources Law at the University of Calgary), Prof. Anderson is among those best equipped to unravel the Gordian knot of contractual risk allocation variations that ordinarily govern disasters like the Deepwater Horizon and other less well-publicized losses.

"When you study a disaster like Deepwater Horizon in light of surrounding contractual relationships, you quickly appreciate the complexity of contractual risk allocation in the oil and gas industry," said Anderson.

"At first glance you might scratch your head and wonder how to sort it out. My goal is to bring some clarity to this important but challenging aspect of oil and gas contracting."

On April 20, 2010, a wellhead exploded on the Deepwater Horizon drilling platform in the Gulf of Mexico (roughly 66 km from the southeast coast of Louisiana), killing 11 workers, injuring a further 17 and discharging an estimated 4.9 million barrels worth of crude oil into the Gulf of Mexico before the well was finally sealed on September 19 of that year.

The spill contaminated a vast stretch of coastline from Louisiana to the Florida Panhandle, resulting in extensive damage to marine wildlife habitats and to regional fishing and tourism industries.

After a US government investigation concluded in September 2011 the explosion had been the result of defective cement on the well, it placed blame primarily at the feet of BP while also faulting rig operator Transocean and contractor Halliburton, who had built the faulty concrete reinforcement.

But litigations were piling up well before the official report had made any conclusions. By August 2010, 77 suits had been brought by state governments, individuals and companies, and in December 2010 the US Department of Justice filed suit against BP and other defendants. In April 2011, BP further added to this jungle of litigation by filing $40 billion in damages against Transocean, Halliburton and other stakeholders.

More than four years after the disaster, the US District Court Judge on the case found that BP had committed gross negligence and willful misconduct, determining the company to be 67 per cent at fault for the spill, while apportioning 30 per cent to the blame to Transocean and three per cent to Halliburton. In the end BP agreed to pay $4.5 billion in penalties-the largest criminal fine in history-while Transocean and Halliburton paid smaller penalties. The disaster has since cost BP considerably more, over $63 billion as of October 2017.

Prof. Anderson asserts that this real-life worst-case scenario offers a unique window into how companies apportion legal accountability in drawing up oil and gas contracts.

"In oil and gas operations, the margin for error is extremely thin and the consequences of accidents are potentially catastrophic. Thus, negotiating risk-allocation provisions is usually challenging and fierce, but it is an essential task of lawyers and risk managers. My remarks will use the Deepwater Horizon disaster as a backdrop to explain the strategies and pitfalls of contractual risk allocation in the oil and gas industry."

Prof. Anderson's lecture will take place at the Law Centre (Room 207) on November 16 from 12 to 1 pm. This event is open to the entire UAlberta Law community.