Macondo One Year On - Rules, Indemnities And Insurance

Reactions to last year's Gulf of Mexico oil disaster continue to redefine regulatory, commercial, insurance and other arrangements in the shallow and deep water oil and gas industry, internationally.

Renewed attention was placed on the perceived inadequacy of international legislation in preventing or dealing with the effects of large-scale hydrocarbon disasters, with national regulators seeking to find local solutions and federal regulators seeking to impose in some instances, even extra territorial regulation of operations. In turn, operators, partners and the supply chain of contractors continue to better understand and negotiate the scope and scale of risks they are exposed to, with tertiary industries (including the insurance industry) reacting to regulatory and commercial attempts to reallocate risk.

Internationalisation of debate

Whilst the relevant arbitration provision in the Macondo joint operating agreement (JoA) may mean that certain disputes amongst joint venturers are held in private, the fact that the US Department of Justice is pursuing relevant parties in public (commencing February 2012), combined with the threat of visceral reputational damage, means that the world's regulators are perhaps more compelled to publicise their views and implement change promptly. The relative speed at which international regulators have moved, BP's recent published settlement with Mitsui and earlier fund contributions, are perhaps symptomatic and acknowledge negative perceptions of delayed settlements, given, for example, the 20 years or so over which the Exxon Valdez litigation took place.

Precedent for creeping US legislation

The fact that seemingly inadequate international legislation focused on oil spill, health and safety and environmental pollution from oil tankers (crossing national boundaries), rather than on static rigs, is something the US recognised following the Exxon Valdez sinking in 1989. The subsequent Oil Pollution Act 1990 (OPA) outlawed single-hulled tankers in the US and caused European regulators (concerned that outlawed single hulls would migrate from US to EU routes) to accelerate their planned phasing out of single-hulled tankers in European waters. Whilst rigs (even floating ones) are perhaps unlikely to migrate around the world in response to changing standards, there is clearly a precedent for greater US regulation to migrate abroad, and indeed maintaining, and being seen to maintain, best practice, remains in...