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Live From SMM 2014
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BP Macondo ruling a 'grenade' into offshore sector legal environment

A recent court ruling against BP for its part in the Macondo incident is bound to hold great significance for offshore contractors, delegates at SMM's Offshore Dialogue heard this afternoon.

The ruling last week of US district judge, Carl Barbier in New Orleans found BP to be grossly negligent in the incident, a judgement that could cost the oil company $18bn on top of the $40bn - $50bn it has already set aside for damages relating to the incident that killed 11 workers and is the worst offshore accident in US history.

"It was a grenade that was thrown into the legal environment," said Reed Smith partner Mark O'Neil. "That's a tsunami across the offshore sector, because whether we like it or not, whatever happens in the Gulf of Mexico will affect what happens in legal sectors across the globe.

"Why is this going to change the environment we work in? The oil majors are not going to shoulder this risk anymore. BP is massively stuck. Forget Exxon, this is Exxon times 50 on liability," he stated, referring to the 1989 grounding of the Exxon Valdez that caused a spillage of up to 250,000-750,000 barrels of crude oil and cost Exxon hundreds of millions in compensation and punitive damages.

"BP and all of the oil majors will be seeking to offload some of that risk down to the smaller contractors, right down the contractual food chain to suppliers that perform small repair work on a rig leg for a few thousand bucks."

"It's going to be every more important, I think, to get comprehensive and detailed advice from the outset before going into any single project."

O'Neil offered examples of his recent work where poorly prepared contracts introduced businesses to massive risk, and one case where a contractor was put out of business after being found liable when a rig was put out of action for two months due to a cable being severed during maintenance work.

"Remember, most of the risk here in the offshore arena is uninsurable. You cannot buy insurance for most of the commercial risks you'll experience," he added, a situation which means that if the worst was to happen, most small to medium businesses could not shoulder the financial burden.

The lawyer also offered an example from an OSV company, where an error in a vessel's specification led to a two month delay in the project and a claim against the company for $36m. "The settlement was for a very, very substantial sum that would put most companies out of business, and it's a commercial risk that is completely uninsurable."

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