A refiner's contractual relationship with its supplier soured when quality issues were observed in two monthly crude oil shipments, resulting in the cancellation of future deliveries. Baker & O'Brien was retained to evaluate future lost profits, which was performed through a review of the pricing formula for previous contracts of the same crude oil grade, in comparison with alternative customers who had also purchased the same crude oil grade, along with their respective pricing formulas. We produced expert opinions of the contract value differences that were used in settlement negotiations.

With the rapid growth of U.S. domestic crude oil production in recent years, more and more U.S. refineries began maximizing the volume of domestic low sulfur crude oil being processed. One such U.S. Gulf Coast (USGC) refiner entered into a series of crude oil supply contracts with a USGC terminal operator to provide monthly shipments of domestic crude oil to their refinery.

Each of these agreements included a formula price based on a discount to Louisiana Light Sweet (LLS) crude oil, a common pricing benchmark for crude oil transactions on the USGC. When quality issues were identified in two of the crude oil shipments, the refiner cancelled all future crude oil deliveries and terminated their relationship with the crude oil supplier.

Baker & O'Brien was retained to evaluate the future lost profits associated with the termination of the crude oil supply agreement between the supplier and the refiner. In order to calculate a lost value for future crude oil sales to this refiner, we reviewed the pricing formula for each of the previous contracts associated with the refiner compared to alternative customers and their respective pricing formulas. We then evaluated the contract value differences between the original refiner purchaser and other alternative customers who ultimately purchased the crude oil.

Following the development of an expert report, the matter was settled.