BP has accused Monroe Energy of wrongfully terminating a crude supply contract in 2016

Spectators are seen reflected in a British Petroleum sponsors building in Olympic Park at the London 2012 Paralympic Games

BP has accused Monroe Energy of wrongfully terminating a crude supply contract in 2016, costing the oil major at least $59 million in damages, according to a federal court filing.

BP said in the filing that Monroe Energy, a subsidiary of Delta Air Lines Inc <DAL.N>, terminated the contract after misinterpreting a provision regarding the blending of crude oils.

BP declined to comment further on the case and Monroe could not be immediately reached. Monroe has yet to respond to the allegations in court.

The dispute with Monroe marks at least the second time in the past two years that BP has been accused by a refiner of supplying lesser-grade crudes. NARL Refining is embroiled in an arbitration dispute with BP that involves allegations that the oil major was providing crude oil at the company’s Come-By-Chance refinery in Newfoundland, Canada, that helped BP’s profits but hurt the refinery’s equipment.

Monroe Energy inked a three-year contract with BP in August 2014 to supply the company’s 185,000 barrel-per-day refinery outside Philadelphia with crude oil from the Eagle Ford or Bakken shale fields, according to the lawsuit filed on Thursday in U.S. District Court in Southern New York.

Monroe agreed to pay $8.35 above the U.S. benchmark price for Eagle Ford and $7.35 above the U.S. benchmark for Bakken deliveries, according to the lawsuit.

The supply contract was favourable for Monroe when U.S. crude sold at a wide discount against the global benchmark during the early months of the deal, but the spread narrowed significantly in late 2015, making global crude more attractive to East Coast refiners.

Monroe notified BP last June that it was severing the contract, alleging the oil major was intentionally blending batches of Eagle Ford crude that did not meet the API gravity grade called for in the contract, according to the lawsuit.

BP said the agreement had no language that barred it from commingling grades of crude oil from the same fields, court papers showed. BP says it blended batches of Eagle Ford crude from different wells, calling it a routine industry practice.

BP also said Monroe used gravity figures measured at the docks in Texas, not at the point of delivery as required by contract, according to the lawsuit.

Monroe never complained the delivered crude was not in compliance, BP said.

“Monroe’s allegations were nothing more than an unfounded pretext to terminate the (contract),” BP said in the filing.

(Reporting by Jarrett Renshaw; Editing by Bill Trott and Lisa Shumaker)

source: Reurters