By Russell Gold and David George-Cosh
Oil companies have quietly agreed to pay tens of millions of
dollars into a compensation fund for deaths and damage caused by a
2013 oil-train explosion in Quebec, though the energy industry has
maintained it wasn't responsible for the disaster.
Royal Dutch Shell PLC, Marathon Oil Corp., ConocoPhillips,
Irving Oil Ltd. and others have contributed to a $345 million fund
for victims of the accident in Lac-Mégantic, according to court
filings and interviews.
If U.S. and Canadian courts approve the fund, the companies
would be shielded from several lawsuits claiming wrongful death and
negligence in connection with the tragedy.
Montreal, Maine & Atlantic Railway Ltd., the small railroad
hauling the crude oil, sought bankruptcy protection soon after the
accident, in which an unattended train carrying oil from North
Dakota's Bakken Shale derailed and erupted into flames, killing
47.
A trustee appointed by the bankruptcy court, who has approved
the compensation fund, contended in court filings that oil
producers were well aware the oil they were selling was dangerously
volatile and failed to take action to make transporting it
safer.
Oil companies, however, have said that their responsibility
ended with properly labeling the crude oil after pumping it out of
the ground, which they say they did.
Bankruptcy court has become a common arena for settling complex
litigation alleging negligence by multiple parties. Bankruptcy
trustees, by statute, can seek a centralized settlement, including
a compensation fund, to streamline the process and avoid a lengthy
legal battle.
Most companies identified in court filings as participating in
the proposed Lac-Mégantic settlement declined to comment. The size
of their payments are generally sealed by the court, including
contributions from a unit of General Electric Co. and other railcar
leasing firms.
But Marathon Oil, which produced the crude involved in the
Lac-Mégantic disaster, said its decision to pay into the fund
wasn't an acknowledgment of liability. The Houston-based company, a
big producer of oil in North Dakota, declined to disclose the sum
it paid, but contributed to avoid "the time and expense associated
with protracted litigation," a spokeswoman said.
She said Marathon doesn't believe it "mislabeled, misclassified
or otherwise misled others regarding the characteristics of the
crude oil."
In the nearly two years since the Lac-Mégantic rail disaster,
there have been nearly a dozen other fiery derailments involving
crude oil from North Dakota, though no fatalities.
Despite a recent decline in shipments caused by lower oil
prices, nearly one million barrels a day of crude is loaded on
trains every day, according to federal statistics, up from almost
none before 2009.
U.S. and Canadian rail regulators have ordered railroads
carrying crude oil from the Bakken Shale formation to take
precautions including slowing down oil trains, and are also
requiring shippers to phase in stronger tanker cars that can
withstand accidents without rupturing.
Some U.S. officials, however, have complained that oil companies
haven't agreed to make their crude oil safer to transport by
stripping out volatile gases before putting it aboard trains. North
Dakota impose some limits on such gases.
Legal experts say North Dakota oil producers should expect to
face increased scrutiny in the wake of the Lac-Mégantic settlement.
"In the past, railroads have been the only target in derailment
cases," said David Potter, a partner with Oppenheimer Wolff &
Donnelly LLP in Minneapolis. "Now you have an additional
target."
Until earlier this year, it wasn't unusual for oil producers to
provide train operators with generic--and often
outdated--information about the physical characteristics of
crude-oil cargoes, New federal rules and North Dakota law now
require additional crude testing.
Matt Gatewood, a partner at Sutherland Asbill & Brennan LP,
said companies involved in shipping crude oil need to be careful
about testing it.
"They have to be fully aware of what it is they are selling and
give an accurate representation of it to the company they are
selling it to," he said.
Earlier this week, World Fuel Services Corp. said it agreed to
pay $110 million into the Lac-Mégantic fund. The Miami-based
company bought oil in North Dakota and was shipping it, but wasn't
operating the ill-fated train. In a statement, its chief executive
said participating in the settlement was "in the best interests of
our shareholders."
In 2013, World Fuel was actively involved in the burgeoning
North Dakota crude-by-rail industry. It owned a 50% stake in a
joint venture that purchased crude oil from various producers in
North Dakota and then loaded it onto trains at a terminal it
co-owned in the Bakken Shale.
World Fuel put together the shipment that was hauled first by
Canadian Pacific Railway Ltd., and then by Montreal, Maine &
Atlantic Railway.
The crude was to be delivered to Irving Oil, a refiner in New
Brunswick that has agreed to pay $60 million into the compensation
fund.
"Everyone involved in transport of crude oil is responsible for
safety," said Robert J. Keach, the bankruptcy-court trustee.
Canadian Pacific hasn't agreed to pay into the fund. A Canadian
Pacific spokesman said compensation should be from companies
"responsible for the derailment," and not from companies that want
to be shielded from future lawsuits.
A spokeswoman for Lac-Mégantic's local government said she hoped
the settlement will let the town's 6,000 residents "turn the page"
on the accident.
Write to Russell Gold at russell.gold@wsj.com and David
George-Cosh at david.george-cosh@wsj.com
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