Marathon Petroleum hits BP with breach of contract suit, says oil giant on the hook for refinery fixes

By David Yates | Oct 12, 2016

HOUSTON - Marathon Petroleum has filed suit against BP Products North America, alleging the oil giant breached its contract by failing to continue maintenance at the Texas City refinery until Marathon took possession.

HOUSTON - Marathon Petroleum has filed suit against BP Products North America, alleging the oil giant breached its contract by failing to continue maintenance at the Texas City refinery until Marathon took possession.

The suit was filed Oct. 10 in the U.S. District Court for Southern Texas, Galveston Division.

According to the petition, on Oct. 7, 2012, BP agreed to sell Marathon the refinery, along with three petroleum product terminals in three other states. The sale closed on Feb. 1, 2013.

The Texas City refinery processes both sweet and sour crude oils and is one for the largest in the nation.

“In order to effectuate the sale of the Refinery and the Terminals, Defendants made various representations and warranties to Marathon Petroleum in the (purchase and sales agreement), concerning the condition of the Refinery and the Terminals, and their compliance with certain regulations and operating standards,” the suit states.

“Defendants covenanted that from the date of the PSA until the closing date, Defendants would operate the Assets and the Business in the Ordinary Course of


After assuming operation of the refinery, Marathon discovered that the refinery and the terminals were not in compliance with environmental laws.

“In multiple instances, Marathon Petroleum learned that Defendants had commenced programs to correct the non-compliant items but chose not to complete the work prior to selling the Refinery to Marathon Petroleum,” the suit states.

“After the closing, Marathon Petroleum discovered that Defendants had failed to maintain and provide a substantial portion of the necessary PSI documentation for more than 3,000 pressure vessels at the Refinery.”

The suit further accuses BP of disregarding industry safety standards by deferring necessary maintenance and repair work.

Additionally, BP and Marathon Petroleum are parties to a fuel station services agreement, also dated Feb. 1, 2013, which was negotiated and agreed between the parties in connection with the PSA. The FSSA obligates BP to provide certain services and marketing for retail locations purchased by Marathon Petroleum in the PSA.

Services include credit card processing, access to the BP web portal, and certain cooperative marketing and image funds.

In consideration, Marathon Petroleum agreed to pay BP a service fee in the amount of $6 million per contract year for the first three years and then $1.5 million for each contract quarter of the fourth year.

“By letter dated June 20, 2016, Marathon Petroleum provided formal written notice to BP terminating the FSSA effective July 31, 2016 at 11:59 PM. Marathon

Petroleum’s notice was made pursuant to Section 6.3 of the FSSA, which provides, in relevant part: “‘This Agreement may be terminated (as to all Retail Locations) prior to the end of the Term as follows: (a) if the number of Retail Locations falls to zero, then either Party may terminate this Agreement by giving twenty-one (21) days written notice to the other Party; . . .’” the suit states

By letters of June 21 and June 24, 2016, BP notified Marathon Petroleum that it regarded Marathon Petroleum’s FSSA termination as premature. Specifically, BP maintained that the number of Retail Locations must fall to zero before Marathon Petroleum may provide notice terminating the FSSA. In its June 21, 2016 letter, in fact, BP stated that it was willing to discontinue Services to the remaining Retail Locations “but such an action will not impact the quarterly Service Fees due under the FSSA.”

On Aug. 2 BP submitted an invoice to Marathon for $1.5 million in third quarter services fee, despite the fact that as of the end of the second quarter 2016.

BP has ceased providing services to any retail locations.

“The payment of any further Service Fees under the FSSA is inconsistent with both the FSSA and the parties’ course of dealing thereunder,” the suit states.

“As such, no further Services Fees are owed by Marathon Petroleum to BP under the FSSA, and BP’s August 2, 2016 invoice for Services Fees for the third quarter of 2016 is improper and unsupportable under the FSSA.”

Marathon is seeking declaratory judgment on the FSSA and actual damages for the alleged breach of contract, plus interest and attorney’s fees.

The company is represented by George Shipley, attorney for the Houston law firm Shipley Snell Montgomery.

Case No. 3:16-cv-00284

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