Fifth Circuit Affirms New Test for Offshore Oil and Gas Contracts

In Re Larry Doiron, Inc. (U.S. 5th Circuit, January 8, 2018)

Mark Clark and Jeff Bridger, Partners in Thompson Coe’s Marine and Energy Practice Group, have successfully argued a new rule of law to determine whether offshore oil and gas contracts are maritime in nature.  In In Re Larry Doiron, Inc.,the U.S. Fifth Circuit Court of Appeal issued a new test to be used, replacing the long-held Davisfactors. The Davis factors, which persisted for 27 years and required the courts to weigh six highly detailed conditions, had been criticized due in large part to unpredictable outcomes, leaving parties with no reasonable certainty as to whether maritime law controls offshore contracts.

Under the new In Re Doirontest,the court first must ask, “is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?” If the answer is “yes” the court must then ask, “does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?” If the answer to the second question is “yes” then the contract is a maritime contract. At footnote 47 the court states, “[W]when work is performed in part on a vessel and in part on a platform or on land, we should consider not only time spent on the vessel but also the relative importance and value of the vessel-based work to completing the contract.” The court suggests the possibility of fashioning a rule that would be similar to the 30% rule for determining whether a worker has spent enough time on a vessel to be a seaman. However, the court advised that it leaves such efforts to the District Courts for further development.

This opinion will likely have significant impacts on offshore oil and gas indemnity agreements. Of great importance, if a contract is maritime in nature then it is not subject to a particular state’s anti-indemnity statutes. Maritime law will typically enforce such indemnity agreements in offshore contracts so long as the contracts are drafted in a clear and in an unequivocal manner to allow the parties to fully understand the extent of the indemnity agreement. This new test should afford parties significantly greater clarity concerning their indemnity obligations in offshore oil and gas contracts.

Access the opinion here: In Re Larry Doiron, Inc.,___ F.3rd ___ (5th Cir. January 8, 2018 No. 16-30217 slip opinion)