Baker & O'Brien, Inc.

Case Studies

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A Refinery Changes Hands - Was the Facility Fit-for-Service or Out-of-Compliance?

Litigation, North America

August 1, 2018

Before a refinery is   sold, potential   buyers undertake a detailed due diligence process to evaluate the technical and economic capabilities of the asset under consideration.  This includes assessing the physical condition to determine if the assets are fit-for-service and in compliance with relative government regulations to meet the terms and conditions of the sales agreement.

One particular refinery had a long operating history under at least two previous owners when it was sold to another refining company.  Due diligence was performed and terms and conditions were agreed and documented in the purchase and sale agreement.  The standard section for Representations and Warranties contained the typical clause for compliance with laws, including environmental and safety.

Following the sale, the purchaser claimed that, in retrospect, the seller had not been in compliance with certain environmental laws and safety regulations at the time of sale.  Non-compliance was claimed for Environmental Protection Agency (EPA) laws such as the Risk Management Plan (RMP) and the Clean Water Act Spill Prevention Control and Countermeasure Plan.  Other non-compliance issues pertained to Occupational Safety and Health Administration (OSHA) Process Safety Management (PSM) regulations.  These claims related to design, maintenance, inspection, testing and safe operations of pressure vessels, hazardous area classification, tank farm overspill containment, and inspection of underground buried pipe.

Baker & O’Brien assessed the validity of alleged non-compliance issues based on equipment status at the time of the sale, as well as the reasonableness of compliance-driven repairs.  Our consultants reviewed equipment files, repair records, and audit reports.  We used our expertise with:  (1) environmental law and safety regulations; (2) mechanical integrity and asset care practices; and (3) RAGAGEP.

Through this analysis Baker & O’Brien consultants developed an understanding of those claims that were reasonable, and of those, which were appropriately and proportionately corrected to compliant status.

An important aspect of the professional opinion is the interpretation of minimum legal requirements and just what is considered routine ongoing maintenance and compliance efforts.  Our preliminary expert report brought authoritative and insightful clarity to the claim that enabled parties to achieve a settlement.