US Marathon, BP set to battle over Texas refinery

A federal lawsuit alleges breach of contract in the 2012 deal, claiming that BP failed to correct multiple issues at the troubled site in Texas City, Texas. The US Chemical Safety Board investigated a 2005 blast there. (Image source: CSB)

(Updates with BP’s response)

HOUSTON (ICIS)–US-based Marathon Petroleum filed a summons Tuesday in US District Court for BP to appear regarding an alleged breach of contract in the 2012 sale of a Texas City, Texas, refinery.

According to court documents which Marathon filed on Monday, BP allegedly delivered the refinery and three products terminals located in Tennessee, North Carolina and Florida in conditions that did not comply with federal regulations and standards.

BP spokesman Geoff Morrell said in a statement that the lawsuit “is nothing more than an attempt by Marathon to renegotiate the terms of the Texas City refinery purchase of almost four years ago”.

The refinery, which experienced an explosion in 2005, a 2010 benzene leak and incidents in 2016, was sold to Marathon for $2.5bn. Documents allege the costs of correcting the non-compliant problems is in excess of $75,000.

Morrell said that before the sale, “BP spent billions of dollars on substantial upgrades to the refinery and Marathon insisted on and received a discounted sales price so it could make some additional capital investments”.

Marathon also said that after assuming control of the refinery, it discovered BP had commenced but not finished projects to correct the non-compliant issues.

According to records, federal regulations require that process safety information (PSI) documents are to be maintained for equipment throughout US refineries. Marathon alleges that BP failed to maintain a substantial number of PSI documents for the 3,000 pressure vessels at the Texas City refinery.

The court documents refer to a BP Products record showing that BP commenced a 2010 project to update PSI documents for 3,756 pressure vessels in the refinery, but halted in 2012 after completing 555 of them.

Marathon said in the document it spent an excess amount of time and money identifying and replacing the remaining 3,021 PSI documents.

Morrell alleged that Marathon was given “virtually unrestricted access” to documents and equipment at the refinery.

“When BP transferred ownership of the refinery to Marathon, it had satisfied all commitments made to federal regulators and was in full compliance with the terms of the purchase agreement,” Morrell said. “Now, nearly 4 years later, it appears Marathon doesn’t like the deal it signed; however, BP was still prepared to try to address these new concerns through mediation.”

Marathon’s complaint added several other grievances, including electrical components needing upgrades, insufficient bulk storage container systems, inadequate continuous emission monitoring systems (CEMS), unfinished inspections on corrosion protection for circuits, non-compliant startup vents on the refinery’s sulfur recovery unit, improperly designed sample stations, nonconforming fire detection equipment at the terminals, malfunctioning septic systems at the terminals and failure to perform maintenance and repair work on the refinery’s Aromatics Recovery Unit.

The court documents note that Marathon has begun correcting and is still correcting the bulk of these issues on its own after demanding compensation. BP allegedly refused to indemnify Marathon.

“It is disappointing that immediately following the first mediation session, Marathon chose to go to court,” Morrell said. “We will defend ourselves vigorously against this attempt by Marathon to re-write the economic terms of the sale and avoid their remaining payments under the agreement.” 

Marathon is looking to collect damages for breach of contract, as well as cover legal expenses and “all further relief” to which the company feels it may be justified.

INSET IMAGE: View of the ultracracker unit, location of a 14 January 2008 accident. (Image source: US Chemical Safety Board)