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BP And Monroe Energy Lock Horns Over Oil Supply Contract

BP Tanker

BP has filed a lawsuit against Monroe Energy in a federal court, claiming the refiner wrongfully terminated a contract last year. This has become the latest in a string of lawsuits involving the Pennsylvania refinery that Monroe Energy operates, brought about, according to some authors, by the fall in oil prices since 2014.

In the BP case, the UK-based major accused the refiner of using an “unfounded pretext” to cancel the three-year contract that has caused BP damages worth $59 million, its own estimates showed.

From Monroe’s perspective, things look differently. The refiner agreed back in 2014 to buy 185,000 bpd of crude produced by BP in the Bakken and Eagle Ford shale plays, both at a premium to the Brent benchmark: $8.35 for Eagle Ford crude and $7.35 for Bakken crude.

That was in 2014, before prices started sliding. After that, the spread between Brent and WTI narrowed and the premium stopped looking so good for Monroe and its sector players. Imported crude, however, from West Africa mostly, started looking increasingly like a good bargain, especially as the cost of domestic supplies was also pumped up by the fact that the crude was transported by rail – a more expensive channel than pipelines and tankers.

Last June, Monroe cancelled its contract with BP, stating that the crude that the company supplied failed to meet the API gravity grade requirements that were stipulated in the document. BP, for its part, countered that there was no requirement to keep crude from different fields separate, and that mixing grades from different wells was standard practice.

The oil giant also said that Monroe was using gravity figures measured in Texas rather than at the point of delivery, which was another stipulation in the contract. Also, BP said, Monroe had not complained before about the blend of crude oil grades that BP supplied to its Pennsylvania refinery.

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However, Reuters recalls that another refiner, NARL Refining, also complained that BP’s crude failed to meet gravity grade requirements and damaged the equipment in its refinery. The two are currently involved in an arbitration dispute.

By Irina Slav for Oilprice.com

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