The plunge in oil prices has triggered a series of lawsuits over who will take the hit for millions of dollars lost on soured deals to bring light sweet crude to a Delaware County refinery.
BP Products North America Inc. last week sued Monroe Energy LLC, the Delta Air Lines subsidiary that operates the refinery in Trainer. The suit, filed in U.S. District Court in New York City, claims that Monroe owes BP $59 million for abandoning a three-year contract last year to take delivery of domestic crude that BP would ship to the refinery on the Delaware River.
In a separate dispute also related to the Monroe refinery, Eddystone Rail Co. won a $139 million arbitration award earlier this year against a shipper that it says walked away from obligations to transfer crude oil to Monroe through Eddystone’s rail terminal.
That $170 million terminal, which last received an oil train in January 2016, is now idled.
The ongoing legal actions underscore the dramatic change of fortunes associated with a commodity such as crude oil, whose price plunged from more than $107 a barrel in 2014 to below $30 a barrel in early 2016. Benchmark West Texas Intermediate now trades at about $53 a barrel.
The lawsuits trace their roots to a time when oil prices were sky-high and embattled East Coast refiners found salvation in new supplies of crude produced from the Bakken shale formation in North Dakota and the Eagle Ford formation in Texas, which sold at dramatic discounts to imported oil.
Those domestic shale-oil fields produced the type of light sweet crude needed by refineries such as Monroe Energy and Philadelphia Energy Solutions. Much of the oil moved to the East Coast by rail, a more expensive way to transport oil than pipeline or ships.
But the fall in world oil prices squeezed the attractive discount for domestic shale-oil producers, and most East Coast refiners returned to buying their raw material from overseas, mostly West Africa. The supply arrangements the refiners struck when oil prices were high were now burdens.
BP, in its lawsuit filed April 13 against Monroe, says the refiner last year breached a three-year contract it had signed to buy 10,000 to 20,000 barrels a day from Texas or North Dakota. Monroe alleged that BP failed to ship oil that met the specifications of the contract, according to the lawsuit, but BP called that an “unfounded pretext” to terminate the agreement.
BP said that it needed to find an alternative buyer for a vessel of its crude oil that was en route to Trainer in July when it received Monroe’s letter terminating the contract, and that it suffered a loss on that shipment of $368,000. It claimed a loss of $59 million over the remaining 15 months of the contract, which was scheduled to expire in October of this year.
A spokesman for Monroe Energy did not respond Monday to a request for comment.
The Eddystone Rail Co. dispute, in which Monroe Energy is not named as a party, also involves a contract signed when oil prices were advantageous.
Eddystone Rail signed a deal with Bridger Logistics LLC in early 2013 to build a rail terminal adjacent to an Exelon Generation Co. power plant in Delaware County, where Bridger would pay to unload a minimum of 64,750 barrels of crude a day from trains and transfer the crude oil to the Monroe refinery by barge.
The contract, which expires in 2019, required Bridger to pay Eddystone if it failed to deliver the minimum. Eddystone said the contract enabled it to obtain financing to build the $170 million rail terminal.
Bridger was acquired in 2015 by Ferrellgas Partners LP. In early 2016, the Bridger subsidiary with the Eddystone contract was spun off into an entity called Jamex Transfer Services LLC, and that entity terminated the transfer agreement. Eddystone said that Monroe also terminated its supply arrangement with Jamex, because it was no longer advantageous.
Eddystone Rail won the $139 million arbitration award in January against Jamex, and in February it filed suit in U.S. District Court in Philadelphia seeking to recover the amount from Bridger and Ferrellgas as “alter-egos.”
In March, Bridger and Ferrellgas, along with two Bridger executives named in the action, filed motions to dismiss the suit. Bridger says that Eddystone Rail failed to protect itself by signing a contract that did not preclude Bridger's selling its supply contract and that Eddystone Rail “accepted the risk" that commodity market conditions might change.