Deepwater Horizon Oil Spill: Is Indemnification Clause in Service Contracts Contrary to Public Policy?

Felix Ayanruoh, Center for Energy, petroleum, and Mineral law and Policy, University of Dundee Scotland

Abstract

The recent Deepwater Horizon Oil Spill in the Gulf of Mexico is the most dominant hydrocarbon development disaster in recent history that will be remembered for a long time to come. Events in the past indicated that investigations and legal actions will go on for a long time. This case will be a seminal focus for government, academics, economics, and energy attorneys regarding liabilities and indemnification issues among others, just as some of the most important cases of the past years continue to be analyzed to this day. One of the most interesting and challenging aspects negotiating and drafting international petroleum service contracts revolves around the relationship between Operating Oil Company {OOC} and Service Contractors {SC} and liability/Indemnification issues in legal actions. Whilst these two, often conflicting, principles are generally understood within the international petroleum industry, the question arises as to whether indemnification clause in service contract in favor of OOC for tortious acts committed by SC is against public policy. The purpose of this paper is to answer the following question: What is the contractual relationship between OOC and SCs and whether OOC can be indemnified by SCs for their tortious acts? In attempting to answer the question, the paper begins with the historic analysis of the deep water horizon spill and the provision of the Oil Pollution Act of 1999 (OPA) and a legal analysis of service contracts and the principle of vicarious liabilities. What follow is a critical analysis of liability issues in service contracts and the implication of indemnity clauses in contractual negotiations.

The paper will find that indemnification provisions in service contracts will contribute more toward achieving a contractual balance and also is in line with public policy.