Mayhall Fondren Blaize

Crude oil supply contracts may get mired in business litigation

Disputes over crude supply contracts are a mainstay of the oil and gas industry in Louisiana and other states. It is not that every contract goes bad, but the literal volatility of the industry often creates situations that may not have been fully considered prior to the fact. In business litigation over such contracts, misinterpretation of the provisions may often occur based on the natural attempt of the parties to mold the meaning to their desired outcome.

One recent dispute is indicative of the kinds of issues that arise. In this rather large dispute, BP Plc has filed a lawsuit against Monroe Energy for allegedly wrongfully terminating a crude supply contract in 2016. In the federal district court filing, the giant oil company is claiming $59 million in damages.

According to the defendant company, BP supplied a lesser-grade crude for the price agreed upon. This is at least the second lawsuit in recent months which accused BP of providing inferior crude quality over what was promised. BP has not responded publicly to that accusation.

The lawsuit arises out of a three-year contract signed by the parties in 2014. BP promised to supply Monroe with its 185,000 barrel-per-day needs for one of its refineries. The oil was to be supplied from the Eagle Ford or Bakken shale fields, according to the complaint.

In the business litigation  lawsuit, Monroe accuses BP of not providing at least the API gravity grade of crude called for in the contract. BP has responded that it used a common industry practice of blending different batches of crude from different wells. It also claims that Monroe never advised it that the crude was not in compliance, and that Monroe made up the claims as pretextual ruses to break the contract. This type of bantering between parties to a large oil transaction is not all that rare and may occur more often than a layperson would expect, including among such companies operating in Louisiana.

Source: businessinsider.com, "UPDATE 2-BP accuses Monroe Energy of wrongfully terminating contract: filing", Jarrett Renshaw, April 17, 2017

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