Earlier this year, the United States Court of Appeals for the Fifth Circuit addressed the issue of what constitutes a maritime contract in its en banc ruling in In re Larry Doiron, Inc.1 The ruling simplified the test for whether a contract is a maritime contract.
Now, the court has issued its first opinion since that case, and again, the court examined the issue of whether a contract is a maritime contract.
In In re Crescent Energy Services, L.L.C.2, the question before the Fifth Circuit was whether a contract to plug and abandon three offshore wells was a maritime contract. The issue was important because if the contract was not a maritime one, Louisiana law would have governed, and the Louisiana Oilfield Anti Indemnity Act would have voided the indemnity agreement.
With the simpler test from Doiron now being applied, it seems more likely that decommissioning contracts that involve use of vessels will be held to be maritime contracts, so long as those vessels serve more than a transportation function.
If some work is being performed from a vessel, and if a vessel is being used to store equipment and house workers, that could make the contract maritime, even though the main work is being performed on a fixed platform and even if that work is traditionally non-maritime in nature.
Offshore interests should check to ensure they have the appropriate indemnity and insurance provisions in place so that they know — before an incident — when they might be obligated to indemnify other parties to that contract.
Background on the Relevant Contract
Carrizo Oil & Gas contracted with Crescent Energy to plug and abandon three wells located on fixed platforms in the coastal waters of Lafourche Parish, Louisiana. That contract included the use of three vessels. The contract included terms under which Crescent was obligated to indemnify Carrizo for claims for bodily injury or death.
During the work, an employee of Crescent was seriously injured while working on one of the platforms. Crescent filed a limitation of liability action in which Carrizo and the injured worker filed claims and Carrizo joined Crescent’s insurers. Carrizo argued that the contract with Crescent was a maritime contract and, therefore, the Louisiana Oilfield Anti-Indemnity Act3 did not apply such that it could enforce Crescent’s indemnity obligations to indemnify it for the claim of the injured Crescent employee.
Maritime or Not?
In Crescent, the Fifth Circuit noted that the new test from Doiron focused on two separate questions:
- Does the contract concern the “drilling and production of oil and gas on navigable waters”?
- Will the work be performed “from a vessel”?
On the first question, Crescent argued that the contract did not facilitate the production of oil and gas because it was engaged in decommissioning oil wells, which was more analogous to offshore construction, alleged not to be a maritime activity. On the second question, Crescent argued that the services were not on navigable waters because the decommissioning work occurred on the fixed platform.
Rejecting the first of these arguments, the Fifth Circuit agreed with Carrizo that decommissioning was part of the “life cycle” of the well and, therefore that plugging and abandoning wells involved drilling and production of oil and gas.
With regard to the second question, the Fifth Circuit held that it was no longer concerned as to whether the injured worker was on a platform or vessel at the time of injury. Rather, the Fifth Circuit framed the question as “whether this contract concerned the drilling and production of oil and gas on navigable waters from a vessel.” The Fifth Circuit concluded that it did.
The next issue for the court was whether the parties contemplated that a vessel would play a substantial role in the performance of the contract. The Fifth Circuit considered the time and rates for the use of the three vessels in the plug and abandoning operation and the precise services being performed. It was noted that the injured employee had testified that 50 percent of the plug and abandon work was wireline work, which has been held to be not maritime work.
However, the Fifth Circuit held that this did not prevent the contract between Carrizo and Crescent from being a maritime one given that “this contract anticipated the constant and substantial use of multiple vessels.” One vessel was being used as a work platform; essential equipment would need to remain on that vessel; the wireline operation would be substantially controlled from a barge, and other incidental uses of the vessels such as for crew quarters. As such it was a maritime contract, the Louisiana Oilfield Anti-Indemnity Act did not apply, and Crescent would be obligated to indemnify Carrizo for the injured worker’s claims.
1 In re Larry Doiron, Inc. 879 F.3d 568 (5th Cir. 2018)
2 2018 U.S. App. LEXIS 19284
3 La. Stat. Ann. §9:2780