The enforceability of indemnity clauses for oil pollution liability in offshore petroleum contracts

Abstract

One of the main functions of a commercial contract has always been to allocate risk. This is true of contracts used in almost any industry or commercial enterprise. The oil and gas industry however, presents a unique set of potential liabilities, which makes the allocation of risk of even greater im- portance. This is especially the case in complex deepwater drilling projects.

Arguably the most serious risk that companies in the oil industry expose themselves to is responsi-bility for a major oil spill. The problem though, is that the companies do not only expose them-selves to the consequences of an oil spill. The blowout from a subsea oil well can have devastating consequences for the environment, the livelihoods of people in coastal areas and countless other third parties. This has never been more evident than it was in the aftermath of the 2010 Deepwater Horizon disaster in the Gulf of Mexico.

The Deepwater Horizon disaster resulted in the largest accidental oil spill by volume in history and the second largest oil spill overall. This one incident, not only devastated marine environments and the livelihoods of thousands, it also threatened the very existence of BP, one of the richest cor- porations in the world. The extent of the financial consequences for BP is still far from nown. Courts in the United States are currently establishing who will be held to account for the disaster and who will be made to pay compensation and civil fines. Will it be BP or one of its many contractors? This thesis will outline how the American courts will reach this conclusion and also how courts in the United Kingdom and Norway would reach a conclusion if presented with the same scenario.