All’s a Well That Ends a Well – The Developing District Split Regarding Whether Decommissioning Work “Pertains to a Well” for Purposes of the Louisiana and Texas Oilfield Anti-Indemnity Acts

With the recent uptick in well decommissioning work in the Gulf of Mexico fueled by the so-called “Idle Iron Initiative” undertaken post-Macondo by the Bureau of Safety and Environmental Enforcement (BSEE, see Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) NTL 2010-G-05), decommissioning contractors and operators should be aware of the recent developing district court split within the Federal District Court for the Eastern District of Louisiana (EDLA) regarding whether plugged-and-abandoned (P&A’d) wells remain “wells” for purposes of the Texas and Louisiana Oilfield Anti-Indemnity Acts (TOAIA, Tex. Civ. Prac. & Rem. Code §127.001 et seq., and LOAIA, La. Rev. Stat. §9:2780).

Both statutes (which are applicable to contracts involving certain work on fixed OCS platforms under the Outer Continental Shelf Lands Act and the Fifth Circuit’s focus-of-the-contract test for OCSLA contracts under the Grand Isle decision) invalidate any indemnity agreement in a contract “pertaining to a well.” This “pertaining to a well” provision of the TOAIA and LOAIA has given rise to a line of jurisprudence that considers whether contracts related to work certain non-production OCS structures (such as pipelines, gathering/compressor platforms) and/or structures remote from (but ultimately destined for) the OCS meet the “pertaining to a well” requirement of the statutes. See, e.g., Transcontinental Gas & Pipe Line Corp. v. Transp. Ins. Co., 953 F.2d 985, 991 (5th Cir. 1992); Roberts v. Energy Dev. Corp., 104 F.3d 782 (5th Cir. 1997). Recently, however, district courts have begun to consider whether contracts for decommissioning work on P&A’d wells – which, by definition, are no longer actually producing wells – “pertain to a well” for purposes of the TOAIA/LOAIA. This inquiry is critical because if the TOAIA or LOAIA applies to a contract, any indemnity between the contractor and principal for personal injury (under the LOAIA) and/or personal injury and property damage (under the TOAIA) arising from the indemnified party’s own negligence will be invalid, unless proper steps are taken to bring the contract within the indemnity-preserving safe harbor provisions of the statutes.

At this point, two sections of the EDLA have found that the LOAIA applies to decommissioning work on P&A’d wells (Howell v. Avante Servs., LLC, 2013 WL 1681436 (E.D. La. Apr. 17, 2013) (Vance, J.) and Wilcox v. Max Welders, LLC, 2013 WL 4591162 (E.D. La. Aug. 28, 2013) (Africk, J.)) and one has held that the TOAIA applies to such work (Dennis v. Fluid Crane Constr., Inc., 823 F. Supp. 2d 415 (E.D. La. 2011) (Lemelle, J.). To the contrary, however, one other section of the EDLA has held that the LOAIA does not apply to decommissioning work on the basis that removal of the structures from a P&A’d well does not “pertain to a well” under the statute (Armijo v. Tetra Technologies, Inc., 2013 WL 1288210 (E.D. La. Mar. 27, 2013) (Engelhardt, J.).

The Howell decision (followed by Wilcox) provides the most comprehensive analysis of the issue, and appears to be the most faithful to the actual language of the statute, and also held that the Fifth Circuit’s prior decision in Verdine v. Ensco Offshore Co., 255 F.3d 246, 252 (5th Cir. 2001) (which expressly held that LOAIA applies to “an agreement for work on a dismantled drilling platform pertains to a well” – even when the work is performed on a shore-side work site for the purpose of refurbishing previously removed rig parts for use on a future well) governed the question of whether the LOAIA applies to decommissioning work. Similarly, the court in Dennis held under the plain language of the TOAIA that the “pertaining to a well” provision of the statute “must reasonably be read to include all activities pertaining to covered structures, including activities related to removal of the structures after the completion of exploration and/or production.” Dennis, 823 F. Supp. 2d at 419.

The Armijo decision (which specifically declined to follow Dennis based on a perceived difference in the required interpretation of the TOAIA versus the LOAIA) is the sole case that has suggested that the LOAIA does not apply to decommissioning work; however, the court did not engage in any detailed jurisprudential or statutory analysis similar to that in Howell or Dennis and moreover, the portion of the decision regarding the non-applicability of the LOAIA is arguably pure, non-binding or precedential dicta.

While the better reasoned decisions uphold the applicability of LOAIA/TOAIA to decommissioning work, the issue will remain uncertain unless and until there is a more definitive resolution by the Fifth Circuit. And as decommissioning work in the Gulf continues in earnest, incidents that may potentially implicate the “pertaining to a well” language will undoubtedly continue to face courts. Indeed, BSEE is investigating a recent Halloween incident in which a worker on a derrick barge dismantling a platform 55 miles off Louisiana perished when he fell off the barge.

In the meantime, to avoid uncertainty in offshore agreements, decommissioning contractors (including any contractors who provide welding, rigging, abrasive cutting, explosive cutting, related safety support, or any other similar services) as well as vessel operators (i.e. heavy-lift or other crane vessels, material barges, or other decommissioning support vessels) need to ensure that their MSAs and/or call-out agreements meet the necessary requirements to preserve any indemnity obligations under the TOAIA and/or LOAIA. Where the TOAIA is applicable, this requires inclusion of a provision that any “indemnity obligation will be supported by liability insurance coverage to be furnished by the indemnitor” in favor of the indemnitee as an additional assured. Tex. Civ. Prac. & Rem. Code §127.005. Where the LOAIA is applicable, this requires inclusion of provisions to meet the elements of the jurisprudential Marcel exception (which requires that the indemnitor name the indemnitee as an additional assured on its liability insurance policies, and that the indemnitee pay the additional premium for that additional assured coverage). Likewise, all parties involved in decommissioning operations on the OCS need to ensure that the indemnity and additional assured provisions in their MSAs and related insurance programs properly address the issues raised in the Fifth Circuit’s recent decisions in Ranger Insurance, Ltd. v. BP P.L.C., 710 F.3d 388 (5th Cir. Mar. 1, 2013) withdrawn and questions certified by 728 F.3d 491. The potential pitfalls of the Ranger decisions are outlined here.