Look before you leap: are your oil patch liability clauses enforceable?: (An analysis under civil law jurisdictions with emphasis on Brazil)

The oil and gas industry requires huge investments involving extraordinary financial, environmental and safety risks. Dramatic images of the Deepwater Horizon (Gulf of Mexico, 2010), Alpha Piper (Scotland, 1988), P-51 (Brazil, 2001) and Campeche (Mexico, 1979) disasters offer chilling reminders of the monumental loss of life, property and environmental integrity that can quickly result from human error. With this backdrop, industry participants and their insurers learned early on that the normal fault-based approach to wellsite liability did not fit the nature and needs of the petroleum business. This article analyzes the risks inherent in applying the laws of a civil law jurisdiction to an oil and gas wellsite contract based on common law principles, with special emphasis on Brazil. It first briefly describes the traditional common law approach to liability allocation in wellsite contracts, including “knock-for-knock” principles (“K4K”). Next, it outlines the traditional civil law approach to liability (responsbilité) through French and Brazilian prisms. The authors do not deeply discuss the pros and cons of K4K clauses nor the policy implications of anti-indemnity statutes. Rather, they assume the reader is contemplating the negotiation of a wellsite services contract subject to the laws of a civil law jurisdiction, and describe the relevant risks and possible mitigation strategies.