An Alberta court recently awarded an oil and gas exploration and production company over $24 million in damages, finding that the operator hired to maintain their pipeline was responsible for several leaks.
What Happened?
The case arose between ISH Energy Ltd. (“ISH”) and Weber Contract Services Inc. (“Weber”).
The plaintiff, ISH, is an Alberta corporation with its head office located in Calgary, Alberta. ISH carries on business as an oil and gas exploration and production company, with operations in Saskatchewan, Alberta and British Columbia. ISH owns and operates the Desan Field, which is located in northeastern British Columbia and was the subject matter of the proceedings.
The defendant, Weber, is a Saskatchewan corporation with its head office located in Kerrobert, Saskatchewan. It is run by Thomas Weber and his wife, Leslie. Weber was at all material times the operator of the Desan Field, pursuant to a series of agreements with ISH commencing in July 2000.
On July 17, 2007, a pipeline leak was discovered in northern British Columbia. Ultimately, five leaks were discovered that caused environmental damage requiring clean-up. The pipeline also required extensive repair. The owner of the pipeline, ISH, had contracted with Weberfor maintenance of the pipeline.
ISH alleged that Weber has breached its contract and been negligent in its maintenance of the pipeline, resulting in the leaks. As a result, ISH sought payment of over $24 million for damages incurred to clean-up and remediate the areas affected by the leaks, and to repair the pipeline and to place the pipeline field in a state where it could re-commence production. This amount included over $10 million for clean-up and remediation and over $13 million for repairs.
Parties’ Positions
ISH alleged that the leaks were caused by a combination of internal pipeline corrosion and a buildup of high pressure within the pipeline system. These contributing causes occurred because of Weber’s negligence in failing to perform contractually-mandated maintenance of the Desan Field. ISH said Weber breached its standard of care and contractual obligations.
Weber disputed that it was negligent or breached its contractual obligations. It argued ISH was responsible for directing the maintenance, and Weber performed what was requested by ISH. Weber argued that the Desan Field had corrosion even when it became the operator in July 2000. Weber also disputed that ISH was entitled to all the damages claimed, as many improvements were done to the Desan Field following the discovery of the leaks. Weber stated that the leaks were not as a result of its conduct and that some of the damages sought did not relate to the leaks, but rather were improvements to the pipeline.
Issues
The issues were:
- Whether Weber breached its contractual obligations or was negligent in the performance of its operator duties at the Desan Field in carrying out proper maintenance of the pipelines or in closing a valve that caused a high pressure event; and
- If so, whether Weber’s conduct failed to meet the applicable standard of care and caused the leaks; and
- If so, the appropriate damages in this case.
Decision
After reviewing the facts and the evidence presented, the court first concluded on a balance of probabilities that the leaks were caused in part as a result of a high pressure event and occurred simultaneously.
The court then turned to ISH’s argument that the high pressure event was caused when Weber operators pinched or closed an inlet valve, which allowed excessive pressure to build up in the pipelines and resulted in the leaks. The court found the evidence showed that this was indeed the case, resulting in a high pressure event that caused the leaks.
After reviewing the contract between the parties, the court found Weber to be in breach of contract based on the evidence. The court found that Weber had failed to adhere to a schedule for the application of chemicals as required by the contract.
In addition, the court found that Weber was also in breach of its duty of care by failing to adhere to that schedule. The court then considered whether Weber breached the applicable standard of care by failing to comply with the schedule and whether that failure was a cause of the leaks. The court also had to consider whether Weber breached the applicable standard of care in pinching or closing the inlet valve and whether that was a cause of the leaks.
In the end, the court found that Weber was in breach of contract and negligent in its implementation of ISH’s maintenance plan which resulted in significant corrosion of the pipeline, which was a cause of the leaks.
It also found that Weber was negligent in pinching or closing the inlet valve, which contributed to the high pressure incident and was another cause of the leaks.
As a result, the court concluded that ISH was entitled to judgment against Weber for breach of contract and negligence for $24,372,897, comprised of $10,712,197 for clean-up and remediation of the environmental impact in the leak areas, and $13,660,700 for repairs to the Desan Field in order for it to become operational again.
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When disputes arise in the oil and gas industry they can be complex, involving international parties and various pieces of specialized legislation. If you are involved in such a dispute, it’s important for you to have a legal team in place that knows how these interests and laws work together and can help you navigate this intricate terrain.
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