Preserving the Past-Pay Now or Pay Later

Arbitration, North America

Several years after a portion of a large midstream facility had been shut down, the non-operating partner learned from the operating partner the desired reactivation would take more than a year and incur significant costs. The partners filed for arbitration. Baker & O'Brien investigated whether standard industry practices had been followed for preservation and maintenance, including review of plans, surveys, design, and associated costs. Our conclusions were summarized in a formal report and defended in arbitration.

A large mid-stream facility was owned by two partners. The Operating Partner was responsible for care, custody, and control of the plant, including all operations and maintenance activities. The Non-operating Partner was responsible for funding their portion of the approved budgets for operations, maintenance, and capital expenditures. The agreement of both partners was necessary for large capital expenditures, as well as determining plant operating rates from time to time.

For economic reasons, the partners agreed to suspend operations in a portion of the plant. The agreement included a condition that the idled portion of the plant would be available to resume operations with one month's notice by either partner.

After considerable time had elapsed since the plant was idled and mothballed, the Non-operating Partner gave notice to restart the facility in accordance with the original agreement. The Operating Partner responded that it was not possible to restart the facility within a one-month time frame due to the conditionof the equipment that had not operated in a long time. The Operating Partner estimated that reactivation efforts would incur significant costs and require more than a year to complete. The partners filed for arbitration to resolve this dispute.

Baker & O'Brien investigated whether standard industry practices were followed in the long-term preservation and maintenance of the idled equipment. In addition, we reviewed contract terms, preservation plans, equipment surveys, design reports, and costs associated with preservation and reactivation of the idled equipment. Our conclusions from this investigation were summarized in an expert report, which was defended in the arbitration hearing.

Kevin P. Milburn

Senior Consultant, PRISM Services Manager

Industry
Natural Gas and NGLs
Service
Standard of Care / Commercial Contracts / Litigation / Arbitration / Expert Witness Testimony / Operations and Maintenance
Region
North America