Marine & Energy Alert: Fifth Circuit Establishes New Test to Determine When an Oilfield Services Contract is Maritime

January 10, 2018

Previously, on February 27, 2017, the United States Court of Appeals for the Fifth Circuit issued an opinion that affirmed the district court’s decision that a master services contract and an oral work order to provide flow-back services was a maritime contract. In applying maritime law as opposed to Louisiana state law that would have invalidated the contract’s indemnity provision by virtue of the Louisiana Oilfield Indemnity Act, LA.REV.STAT. ANN. § 9:2780(A)(the “LOIA”), the Fifth Circuit examined the contract using the multi-factor tort-based test articulated in Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313 (5th Cir. 1990).

In a concurring opinion, Circuit Judge W. Eugene Davis, joined by Circuit Judge Leslie H. Southwick, urged the Fifth Circuit to hear the case en banc to abandon the Davis test and to simplify the test for determining whether a contract is maritime. The en banc Fifth Circuit agreed and ordered that the case be heard by all members of the court.

On January 8, 2018, the Fifth Circuit issued its en banc unanimous opinion authored by Judge Davis that abandoned the Davis factors in a favor of a “simpler, more straightforward” two-pronged contract-based test following the principles set forth in the United States Supreme Court’s decision in Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14, 14, 125 S. Ct. 385, 387, 160 L. Ed. 2d 283 (2004):

  1. Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters?
  2. If the answer to the first inquiry is “yes,” does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? If so, then the contract is maritime in nature.

In applying this new test, the Fifth Circuit noted that the oral work order required the contractor to perform downhole work on a gas well that could only be accessed by a platform. During the work, the crew encountered an unexpected problem requiring the use of a vessel and crane to resolve the problem. The Fifth Circuit reasoned that use of the vessel to lift the equipment was an insubstantial part of the job and not work that the parties expected to be performed. So, the Fifth Circuit held that the master services contract was non-maritime. As a result, Louisiana law per the LOIA barred the crane barge owner’s indemnity claim against the contractor.

Whether the Fifth Circuit’s new maritime contract test provides the desired clarity remains to be seen. Yes, the test is streamlined and focuses appropriately on the nature of the contract as opposed to the underlying tort. But because the new test requires an analysis of whether the parties expected a vessel to play substantial role in the completion of the project, each oil and gas contract that requires even some vessel use must be determined on its own merits.

The case is In re Larry Doiron, Inc., No. 16-30217, 2018 WL 316862 (5th Cir. Jan. 8, 2018). Click here to read the entire decision.