In a recent lawsuit, an oil producer claims significant monthly losses due to a forced pipeline shutdown, alleging the pipeline company violated their contract by failing to adhere to U.S. laws and ensure operational continuity. With losses totaling $3 million monthly, the dispute highlights the impact of force majeure in oil contracts.
In January 2024, W&T Offshore Inc. and Crescent Midstream LLC entered into a contract for the transport of crude oil from new assets W&T purchased in bankruptcy of another Gulf of Mexico operator. According to W&T, Crescent was obligated to deliver oil and production water from drilling sites to a Louisiana facility. Because W&T’s product is commingled with other producers’ oil and water during transportation, Crescent allocates each entity’s flow to charge the correct fees and ensure the correct amount of crude oil reaches the market from each entity.
W&T claims that the testing and allocation methodology in place before W&T purchased the assets consistently under allocated produced crude oil. To address this issue, Crescent ensured the oil and water calculations would be determined by equipment at the sites and would not be reduced by a terminal production factor. In its suit, however, W&T alleges Crescent indeed applied the terminal production factor, which resulted in an over allocation of water and under allocation of oil. Thus, according to W&T, Crescent breached its contractual obligations.
Further, in the contract, Crescent agreed to operate its pipeline system in accordance with applicable laws, including the Outer Continental Shelf Lands Act. W&T alleges that while providing services, the Bureau of Safety and Environmental Enforcement (BSEE) forced Crescent to shut down its pipeline system; thus, Crescent violated this section of the contract. In response, Crescent seemingly claimed this forced shut-in triggered the force majeure clause of the contract. To which W&T countered: “Crescent’s failure to provide continued operation of its pipeline systems is not a ‘force majeure,’ but rather a failure to properly maintain the readiness of its pipeline system.”
According to the lawsuit, W&T is losing $3 million per month due to the interruption and estimates it will incur substantial fees in attempting to mitigate its losses due to Crescent’s failure to ensure continued operations. W&T filed suit seeking a declaratory judgment from the Court that Crescent breached the contract and exemplary and punitive damages.
The case is W&T Offshore, Inc. v. Crescent Midstream, LLC, case number 4:24-cv-01352, in the U.S. District Court for the Southern District of Texas – Houston Division.
