1. The document discusses contractual risk in the oil and gas industry, specifically examining the Deepwater Horizon incident where issues of liability and indemnity led to disputes between the operator, BP, and contractor, Transocean. 2. It provides background on the oil and gas industry and common contract types. Dayrate contracts are most common, such as the one between BP and Transocean for the Deepwater Horizon rig. 3. Contracts address technical specifications, payments, warranties, remedies for breach, and risk allocation. However, warranties often do not cover fitness for purpose or third party damages. The Macondo incident involved failures of well integrity, pressure control, and the blowout preventer. BP

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A B E R D E E N B U S I N E S S S C H O O L
Master of Business Administration
INDIVIDUAL ASSIGNEMENT
Module 2014 / 2015: BSM578 - Oil and Gas Contract Law
Contractual risk in upstream oil and gas projects is of great importance to both
operators and contractors.
Critically evaluate this statement by examining an industry incident (such as the Deep Water
Horizon, Piper Alpha, etc.) where the issues of liabilities and indemnities gave rise to a
dispute between the operator and contractor.
Analyse the above, discuss and illustrate your answer with concrete examples and relevant
cases and sources.
Pedro Nóbrega – student number 1315223
21/12/2014
(3287 words, 27 pages)

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01. Introduction
This research paper aims to give a global view of the relationship between
operators and contractors in the Oil and Gas industry, more specifically on the
topic of contractual risk.
According to Johnston (1994, pp. 297), “Operator is defined by an Oil
company operating in a country under a production sharing contract, a service
contract or other type of contract on behalf of the host government for which it
receives either a share of production or a fee”.
Normally Oil and Gas companies turn to service companies to make most of
the work, including building and operating drilling facilities, providing not only
material and equipment, but also expertise and human resources. Also,
service companies have been fundamental in the evolution of the techniques,
by promoting horizontal drilling technical breakthroughs in oil and gas shale
extraction, for example.
Nevertheless the relationship between operator and services companies is full
of challenges, including some drawbacks, and through the times they have
engaged with one another towards common objectives, trying do achieve
deeper and more challenging explorations while charring risks and gains.
This paper will firstly give an insight into the industry, it will then analyze some
general contract issues, thirdly it will consider the Macondo accident and
finally it will include some considerations about risk management between
operators and contractors.

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02. Industry
In the Oil and Gas industry there are several drilling and service companies,
and some of them quite impressive ones. For instance, Halliburton is
specialized in pipelines and project management, boasting an income of
nearly US$15 billion and 50,000 employees; Schlumberger specializes in
drilling and cementing, has an income of US$23 billion, 105,000 employees;
Transocean specializes in rig construction and services, has an annual
income of US$12 billion, 21,000 employees.
Mainly, these service companies can be separated in logging (borehole
evaluation, cement and casing evaluation, fluid sampling, production logging,
etc), drilling related (directional drilling, measurements, etc.), pumping
services (cementing, reservoir stimulation, fracturing and acidizing, etc.) and
well completions and productivity (production testing, reservoir monitoring and
control, etc.).
The contractual relationship between operators, contractors and sub-
contractors can be based in company forms (contractor and operator drafted)
or trade group forms (IADC, AIPN Model International Forms, LOGIC, etc.).
Nevertheless, company forms are one-sided, often resulting in contentious
negotiations, in a battle of forms where each part seeks to take advantage of
the situation by trying to impose its model. To solve this and to avoid long and
costly negotiations AIPN agreements and CRINE / LOGIC forms, having been
designed by specialized committees, try to consider the needs of both parties.
The objective is to have available a well-balanced form of a contract, and this
can be found in the models.
Nevertheless, lawyers tend to transform legal risk in business risk and for that
reason they must ponder the “what if” and “what can go wrong” issues.

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The service contracts are often classified according to the manner of
payment: daywork (contractor pay by day, generally without regard to
progress), footage (contract is paid by foot of hole drilled), turnkey/lump sum
(contractor paid for completed service or project), cost plus (contractor paid
for cost of service plus a profit) or risk service (contract paid by results). The
norm is the daywork contract, and even in the other models, daywork
provisions are commonly included to address special circumstances.
For instance, in the Deep Water Horizon exploration, BP rented the rig with
their specifications for 5 years and paid to Transocean nearly US$ 0.5 million
of a day-rate. Before the accident, BP had agreed in a renovation made by
Transocean that was going to cost US$ 1 billion, corresponding in an increase
in the day-rent of US$ 1 million.
In addition, well service pricing tends to outpace changes in oil prices (in both
directions). In other words, as the price of oil goes up (as it did in 2010-2011),
demand for oil field services rises as well. The service companies earn money
by a high percentage use of their equipment and where its commonly said
that drilling companies need to be drilling all the time. Most importantly, this
characteristic adds a considerable challenge for IOC, since they have agreed
on work commitment to HG, based on estimates and not on real prices
(appendix 1).

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03. Contract Aspects
When facing a contract between operators and contractors several answers
need to be clarified, primarily based on work/well site concerns: how many
people will be involved (normally the operator will have one person, since the
work is done by the contractors), duration (hours, day, weeks to perform), how
many subcontractors are involved, how long they will stay on site, will the
activity be continuous and sequential, what tools/equipment/products will be
needed and become worn (more often than not the tools are more expensive
than the work), are they pollutant/radioactive/explosive, will the installations
be leased or sold to operator (the matters of ownership and responsibility).
Yet, the responsibility of transportation of men and equipment to and from the
worksite is an important detail when addressing costs and risks. The majority
of accidents happening or equipment being lost takes place during the
transportation and loading/unloading processes.
In sum, time is money, and a very well defined plan is crucial to the success
of the operation, and this must be specified in the contract.
According to Smith, (2010, pp. 653) “despite the variety of service contracts
available, any type of service contain provisions addressing the following
matters”:
- Technical specifications
- Provisions specifying which party is to furnish particular labour,
equipment, supplies, transportation, and room and board
- Payment and security of payment provisions
- Limited representations and warranties
- Suitability, quality of the tools
- Contractor´s status as “independent”
- Timely and untimely performance
- Remedies and breach
- Risk allocation, including a force majeure provision

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- Compliance provisions
- Dispute-resolution and choice of law provisions”.
However hardly ever will contractors give a fitness for purpose, so the
specifications are the operator’s responsibility (e.g. some equipment that is
suitable for only one kind of environmental context).
Normally lawyers allocate risk in the contracts with the help of risk
management departments, providing remedies in a case of a breach (despite
their difficulty) and putting in place a dispute resolution instrument (by court,
arbitration, etc.).
Yet, concerning well services warranties and remedies, usually operators and
contractors have different approaches and intentions. While contractors
generally may warrant specifications, good and workmanlike manner, accord
with industry custom and practice, absence of defects, they generally won´t
warrant fitness for purpose, correctness and accuracy of data (e.g. seismic or
log data), results and interpretations.
In this regard, potential contract remedies for breach are put in place: repair
(typical one), replace or re-perform, nonpayment for services and standard
parties’ provisions generally waive consequential and punitive damages.
But these remedies are logical only when considered between the two parties,
and not extendable to a third one.
Nevertheless, it is important to bear in mind that subcontractors and supplier
warranties should be transferable to the operator and the relationship of
warranties to overall liability caps.
(Appendix 2 and 3 – Insurances and Oil Spill)

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04. Macondo Oil Spill
BP Deepwater Horizon occurred on March 2010, and from BP point of view
(BP Report, p. 181), in this accident several things went wrong, including well
integrity being compromised (due to cement failure and mechanical barriers
failure), hydrocarbons entering the well bore undetected / well control lost
(due to pressure testing problems and response problems), hydrocarbons
ignited on platform (surface containment problems and fire and gas systems
problems), and complete failure in the emergency operations (Blowout
Prevent (BOP) failure).
BOP is the equipment of last resource - when you press it the equipment
below will be lost, and in the Macondo case it didn´t work the way it was
supposed to have worked.
The commission responsible for analyzing this accident reached the following
conclusions:
Source: BP Deepwater Horizon Accident Investigation Report

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BP was found guilty of gross negligence.
Several experts were surprised at this decision since in USA law it is typically
difficult to prove gross negligence (it takes a lot to find an entity accountable
for gross negligence). On top of that, in the Oil and Gas history only a few
companies were ever considered accountable for gross negligence.
There is an argument over the fact that each of these failures, when taken in
isolation, is never enough motive for gross negligence, but the combinations
have put BP in a fragile situation since sequential simple acts of simple
negligence can lead to gross negligence. Yet, there are experts that defend
that these combinations of breaches must be judged in isolation and not in
combination, and this has resulted in a recent attempt by BP to get a different
court resolution. In addition BP appeal to conscious disregard of the facts,
since the company didn´t know about well integrity.
In sum, BP didn´t know but they didn´t test or follow Halliburton / Transocean
recommendations on cement requirements and spacers.
Recently it was found that BOP was repaired not by original equipment and
not by the original company, which implied losing the warranties of the job.
Human error was also present due to the misreading of the instructions.
In these sorts of accidents some direct costs (loss of rig, containment,
cleanup, lost oil, litigation costs and investigation) and some indirect ones
(loss of life / injuries, clean up, lost royalties/incomes, public reaction and
investor reaction) must be pointed out.
In the first place the contractual relationship between entities must be closely
analyzed:

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Source: BP Report
As far as USA government is concerned, BP, Andarko and Moex are the
entities accountable if something goes wrong with this exploration. So, in
theory, Andarko and Moex are as liable as BP.
JOA (Joint Operating Agreement) was signed between operator and non-
operator and this specific element now protects operator from negligence.
BP is the operator and makes several service contracts, Transocean, Smith,
Halliburton, Cameron and Weatherford being the main ones. Each of these
contracts will have several risk allocations, liabilities and indemnities.
An analysis will be made of the BP contracts, based on the service contracts
of IADC (International Association of Drilling Contractors) daywork onshore
contract.
According to the basic rules of the Oil and Gas Lease (OGL), BP, while the
operator, is responsible for Safety and Environment (including spill) and all the

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lessees (BP, Anadarko, Moex) are jointly and severally liable to USA for
breach of lease.
According to the basic rules of the JOA,
BP, Anadarko and Moex are liable for
all well costs, including spill costs, unless BP has been involved in “gross
negligence” or “willful misconduct”.
Each service contract established is different, but they do not contain robust
performance warranties (long expire), do contain no-fault indemnities for injury
and property damages and do make BP largely responsible for blowouts
(especially blowout control).
So BP is assuming a huge contractual responsibility. It´s important to notice
that the rig belongs to Transocean, and most of the workers are not BP
employees.
Drilling contract will be the focus since it is the activity involving the higher
risks.
According to Downey (2009)
“drilling rig contracts exist as most upstream oil
explorers and producers do not own rigs, rather they lease them from
independent rig owners. Rig contractors usually provide crews to operate the
equipment. “
The IADC contract states that (appendix 4):
- Operator is generally responsible. Contractors are generally working
under Operator directions
- Contractor is responsible for its equipment and employees and those of
its subcontractors but only indemnifies Operator and not Operator’s
other contractors

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- Operator responsible for its equipment and employees and those of its
other contractors but only indemnifies contractor and not contractor’s
subcontractors
In sum, if the contract signed between parties were the IADC form without
alterations BP would have to indemnify everybody and would not be allowed
to deflect to other contractors these considerable costs.
Yet, according to IADC model:
- Contractor responsible for surface equipment, except if equipment is
damaged due to unsound location or corrosive elements in hole or
additives
- Operator Responsible for In-hole equipment
- Operator responsible for their equipment
- Operator responsible for the hole
- Operator responsible for underground damage
Still in the IADC:
- Operator is responsible Materials Furnished by Operator (article 14.7)
- Operator is responsible for Liability for Wild Well (article 14.10)
- Contractor is responsible for direct pollution from its equipment and
supplies (14.11)
- Operator responsible for all other pollution/contamination, including
third parties (14.11)

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05. Importance of Risk Management
As a rule in the Oil and Gas industry, risk assessment can be split in two
parts: control and finance, where control is made by avoiding, reducing or
eliminating problems (for instance through safety and security proceedings)
and finance is dealt with through transferring (better laws, fees), insuring or
assuming.
Nevertheless the Operator’s risk exposure is huge (gigantic investments), but
a strategy for reducing risk is allocating risk to other parties (this is more
difficult to do when oil prices are high, since service companies have more
work to do,
so having more bargaining power).
Yet, the Operator must maintain a consistent risk management strategy
throughout all related contracts (drilling contracts and other services).
It is important to notice that the drilling contract is the key driver, being an
essential contract for the Operator. Usually drilling contract provisions express
commercial terms, indemnities, risk allocation, responsibility, consequential
damages waiver and insurance provisions.
Before negotiating it is important to identify potential risks to contracting
parties and to third parties and to evaluate insurance coverage’s.
Only after these clarifications have been laid out is it efficient to negotiate an
efficient risk allocation.
During negotiations companies should avoid increasing their risk and overall
risks, avoiding intersecting responsibility for particular risks (otherwise
duplicate insurance may be needed) and should negotiate provisions that will
reduce possibility of litigation.

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In JOAs operators and non-operators need to be aligned, since you may be
the operator today, but otherwise tomorrow. In service agreement there is a
typical contract negotiation: “its just business”.
Concerning the transfer of risk, it should be borne in mind that indemnity, risk
provisions and details are critically important, and that one or two different
words in these long contracts, can make a huge difference.
It is important to be careful to avoid a battle of forms, by understanding the
company’s standard contract and counterparty’s standard or model contract.
Most prominently, an insolvent or borderline insolvent counterparty may
readily agree to unlimited legal and financial exposure.
On top of that some standard procedures (an minor possible events) need to
be negotiated up front by the operator (for instance – to negotiate a contract
to turn out a fire in a platform).

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06. Risk Management Methodology
According to indemnity terminology, the Indemnitor (assuming party,
assuming risk) defends and pays or reimburses, while the Indemnitee
(protected party) is defended and paid for or reimbursed.
Realistically speaking, one party’s protection is the other party’s burden, and
according to Smith (2010) indemnities can be drafted in various ways:
promise-based, fault-based, activity (time based) or status based.
In promise-based indemnities, the operator shall return all leased equipment
in good working order, excepting ordinary situations, and operator indemnifies
contractor for loss or damage.
In fault-based indemnities, the law is emphasized, where the assuming party
indemnifies for loss caused by its own negligence, which requires duplicate
insurance and can result in fact finding to identify who is at fault.
In activity- or time-based indemnities, a party indemnifies for loss assessed
upon activities or timing.
Most contracts are status or control based, where there is the allocating of
loss, regardless the cause, based in one real factor (each party takes
responsibility on their employees and equipment). The assuming party usually
agrees to defend and indemnify from claims arising out of work and
regardless of cause.
Status based indemnities, in theory, eliminate litigation between contracting
parties. But, in practice, litigation may result due to the magnitude of large
losses, poorly drafted risk allocation clauses or unforeseen issues.
Contracts based on status/control indemnities can be classified as simple or
mutual indemnity. Simple contracts (sometimes called craw-down or

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hardcore), imply that only one party (assuming party) indemnifies (protects)
the other party (protected party) for particular risks regarding property,
persons, or interests. Mutual Indemnity, often called “Knock for Knock”,
implies that both parties indemnify (protect) each other for similar risks (each
party is an assuming party and a protected party).
But reciprocal indemnities are often contractually unbalanced, as specific
contract language sometimes defines that one party offers more protection
than the other party offers. Reality shows us that most indemnities are
operationally unbalanced, since the operator usually has one person and
contractors have a number of them.
In the basic status-based indemnity, one party assumes the risk in property
(since it’s his own) and assumes the risk of the people under its control.
Thus the controlling part (Operator) is the assuming part, which indemnifies
the protected part regardless of cause for any harm to assuming parts
controlled people and property.
In theory the Operator is best able to manage risk of loss or damage to owned
or leased property through proper care and maintenance, property insurance
and business interruption insurance.
On the one hand, property risk is usually easier to negotiate than personnel
risk, depending on availability of affordable insurance, since property values
are readily determined.
On the other hand, personnel indemnities are more difficult to negotiate, since
it is difficult to determine the value of people. Relative risk depends on
particular probability of serious injury and the number of people each part has
at the work site at particular times and under particular circumstances.
Additionally, the employing party is best able to manage the risk of injury or
death of its own employees through limiting exposure, proper training and

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safety practices, worker's compensation insurance, employer’s liability
insurance, etc.
Third parties indemnities are even hardest to negotiate, since either party
doesn’t want to be responsible for third ones. It is important to note notice that
there are different kinds of third parties: firstly, entities that participate in the
exploration process and secondly the real external parties, like for instance
fishermen. It might be a default in the contract, but it should be referred to in
the negotiations.
It is important to notice some considerations about indemnities, negligence
and gross negligence that can establish a higher risk to each party individually
and collectively (Appendix 5).
In Deepwater Horizon Indemnity Claims Jan. 11, BP argued that it should not
be required to indemnify Halliburton from damages arising out of Halliburton’s
gross negligence. Halliburton wasn’t found to be gross negligent.

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07. Conclusion
Within the next decades, the Oil and Gas industry will face significant
opportunities and numerous challenges. IOCs will find it harder to access new
oil reserves and will need to turn to unconventional ways of exploring
resources (deepwater, artic, shale oil, shale gas, etc.), while trying to optimize
the investments already made. It is to be expected that the industry will be
pressed, in their financial an human resources capabilities, in order to meet
present and future consumers’ needs.
The business model has come under scrutiny after BP´s Macondo accident, in
the Gulf of Mexico, in 2010, and it is to be expected that as result of that
incident only large companies (operators and contractors) will be able to
handle the rising costs and risks.
Some experts have put considerable thought on the willingness of large and
small companies to work together, since the small ones may avoid projects
due to financial restrictions and potential liabilities.
Nevertheless, new practices and technologies will be put to practice in a
context where risk management will be essential to address business
opportunities, and success will naturally derive from them, through engaging
and spreading the risk of exploration in a responsible way.

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Bibliography and references
BP Deepwater Horizon Accident Investigation Report
BP Energy Outlook 2030 (version 2013)
Devereux, S. 1998. Pratical Well Planning and drilling Manual. 1st Edition.
Oklahoma. PennWell.
Downey, M. 2009. Oil 101, Woonden Table Press
Hilyard, J. 2012. The Oil and Gas Industry - A nontechnical guide. 1st Edition.
Oklahoma. PennWell.
Inkpen A.C., & Moffett M.H., 2011. The Global Oil and Gas Industry:
Management, Strategy and Finance, PennWell Books
Jacoby, D. 2012. Optimal Supply Chain Management in Oil, Gas and Power
Generation. 1st Edition. Oklahoma. PennWell
Johnston, D., 1994. International Petroleum Fiscal Systems and production
sharing contracts. PennWeel, Oklahoma
Gordon G., 2010. Oil and Gas Law: Current Practice & Emerging. Dundee
University Press
Rosenhal 2013. Integrated operations in the oil and gas industry:
sustainability and capability development
Smith E., 2010. International Petroleum Transactions, Third edition, Rocky
Mountain Mineral Law Foundation
Spring, M. 2009. Service, services and products: rethinking operations
strategy.
Yergin D., 2003. The Prize – The epic quest for oil, money and power, Free
Press, London

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Appendix 1 - Some references of industry costs
1 drilling bit - US$ 0.1 million
1 onshore well US$ 1 million
1 horizontal onshore well US$ 10 million
1 shallow water – US$ 50 million
1 deepwater – US$ 250 million).

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Appendix 2 - Insurance
2001 - the world changes in regard to risk management, due to terrorism
(World Trade Center episode) and to oil and gas industry accidents (Macondo
accident and capsized Petrobas Platform).
In 2005, in the Golf of Mexico there were severe damages for insurance
companies in the wake of the Katrina and Rita hurricanes.
2008 was another bad year in the Golf of México (Ike and Gustav).
In those years the insurance companies lost considerable money, and as a
result premiums skyrocketed: for some hurricane areas there were increases
of as much as 400% and coverage became dramatically limited.
As a global consequence the risks of the Oil and Gas industry increased due
to the fact that insurance companies are nowadays more strict and introduce
more limitations in the contract.

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Appendix 3 - Oil Spills
The following world’s largest oil spills can be pointed out:
1) Arabian Gulf Spills, Persian Gulf 1991, 520 million gallons, acts of war
2) Deepwater Horizon, GoM, USA 2010, est. 205 million gallons, well
3) Ixtoc I, GoM Mexico 1979 , 140 million gallons, well
4) Atlantic Empress, Trinidad and Tobago 1979, 90 million gallons, tanker
5) Fergana Valley/Mingbulak, Uzbekistan 1992, 88 million gallons, well
6) ABT Summer, 700 n.m. from Angola 1991, 82 million gallons, tanker
7) Nowruz Field Platform, Persian Gulf 1983, 80 million gallons, well
8) Castillo de Bellver, Saldanha Bay, South Africa 1983, 79 million gallon,
tanker
9) Amoco Cadiz, Brittany, France 1978, 69 million gallons, tanker
10) MT Haven, Mediterranean Sea near Italy, 1991, 45 million gallons, tanker
Most of these accidents have changed the industry forever.
The Santa Barbara Spill, which ocurred in 1969, is now the third largest (after
the Exxon Valdez and Deepwater Horizon) and led to a moratorium on
offshore oil drilling, which helped fuel environmental movement of 1960s and
70s.
In 1982, the Ocean Ranger accident (1982), in the Canadian Atlantic, a semi
– submersible drilling for Mobil, sank killing all 84 crewmembers. This
accident let to much tougher Canadian safety regulations.
In 1988, the Piper Alpha spill, in the North Sea (UK), where a platform

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operated by Occidental was destroyed by explosion and fire, killed 167,
leaving 59 survivors. This led to much tougher UK safety regulations and
resulted in important UK judicial decisions on indemnity law.
In 1989, there was the Exxon Valdez Oil Spill, in Alaska, where a tanker
struck Bligh Reef, spilling nearly 11 million gallons. This led to an oil pollution
act (1990).

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Appendix 4 – IADC details
- Operator is normally responsible. Contractors are generally working under
Operator directions
The Preamble states that:
“Except for such obligations and liabilities specifically assumed by
Contractor, Operator shall be solely responsible and assumes
liability for all consequences of operations by both parties while on
a Daywork Basis, including results and all other risks or liabilities
incurred in or incident to such operations.”
- Contractor is responsible for its equipment and employees and those of its
subcontractors but only indemnifies operator and not Operator’s other
contractors
14.8:
“Contractor's Indemnification of Operator: Contractor shall release
Operator of any liability for, and shall protect, defend and indemnify
Operator from and against all claims, demands, and causes of
action of every kind and character, without limit and without regard
to the cause or causes thereof or the negligence of any party or
parties, arising in connection herewith in favor of Contractor's
employees or Contractor's subcontractors of any tier - inclusive of
any agent or consultant engaged by Contractor - or their
employees, or Contractor's invitees, on account of bodily injury,
death or damage to property. ...”
- Operator responsible for its equipment and employees and those of its
other contractors but only indemnifies contractor and not contractor’s
subcontractors
14.9:
“Operator's Indemnification of Contractor: Operator shall release

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Contractor of any liability for, and shall protect, defend and
indemnify Contractor from and against all claims, demands, and
causes of action of every kind and character, without limit and
without regard to the cause or causes thereof or the negligence of
any party or parties, arising in connection herewith in favor of
Operator's employees or Operator's contractors of any tier
(inclusive of any agent, consultant or subcontractor engaged by
Operator) or their employees, or Operator's invitees, other than
those parties identified in Subparagraph 14.8 on account of bodily
injury, death or damage to property...”
- Contractor responsible for surface equipment, except if equipment is
damaged due to unsound location or corrosive elements in hole or additives
14.1:
“Contractor's Surface Equipment: Contractor shall assume liability
at all times for damage to or destruction of Contractor's surface
equipment, regardless of when or how such damage or destruction
occurs, and Contractor shall release Operator of any liability for any
such loss, except loss or damage under the provisions of
Paragraph 10 [sound location] or Subparagraph 14.3. [H2S, CO2,
or other corrosive elements that enter the drilling fluids from
subsurface formations or the use of corrosive or abrasive additives
in the drilling fluids.”
- Operator Responsible for In-hole equipment
14.2:
“Contractor's In‐Hole Equipment: Operator shall assume liability
at all times for damage to or destruction of Contractor's in‐hole
equipment, including, but not limited to, drill pipe, drill collars, and
tool joints…”

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- Operator responsible for their equipment
14.4:
“Operator's Equipment: Operator shall assume liability at all times
for damage to or destruction of Operator's or its co-ventures', co‐
lessees' or joint owners' equipment, including, but not limited to,
casing, tubing, well head equipment, and platform if applicable,
regardless of when or how such damage or destruction occurs, and
Operator shall release Contractor of any liability for any such loss
or damage.”
- Operator responsible for the hole
14.5:
“The Hole: In the event the hole should be lost or damaged,
Operator shall be solely responsible for such damage to or loss of
the hole, including the casing therein. Operator shall release
Contractor and its suppliers, contractors and subcontractors of any
tier of any liability for damage to or loss of the hole, and shall
protect, defend and indemnify Contractor and its suppliers,
contractors and subcontractors of any tier from and against any
and all claims, liability, and expense relating to such damage to or
loss of the hole.”
- Operator responsible for underground damage
14.6:
“Underground Damage: Operator shall release Contractor and its
suppliers, contractors and subcontractors of any tier of any liability
for, and shall protect, defend and indemnify Contractor and its
suppliers, contractors and subcontractors of any tier from and
against any and all claims, liability, and expense resulting from
operations under this Contract on account of injury to, destruction

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of, or loss or impairment of any property right in or to oil, gas, or
other mineral substance or water, if at the time of the act or
omission causing such injury, destruction, loss, or impairment, said
substance had not been reduced to physical possession above the
surface of the earth, and for any loss or damage to any formation,
strata, or reservoir beneath the surface of the earth.”)

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Appendix 5 - Basic indemnity drafting considerations IADC contracts
Indemnify and defend against all claims, means
“... all claims, damages (excluding punitive or exemplary damages),
liabilities, losses, demands, liens, encumbrances, causes of action
of any kind (including, without limitation, actions in rem or in
personam), obligations, costs, judgments, interest, and awards
(including, without limitation, legal counsel fees and costs of
litigation if awarded as part of a judgment in favor of the Person
asserting the Claim) whether created by law, contract, tort,
voluntary settlement, or otherwise ....”
“Negligence” means:
“...any sole or concurrent negligent act or omission, fault (including,
without limitation, pre‐existing conditions), strict liability, breach of
duty or warranty (statutory or otherwise), product liability, defect
(whether patent, latent, or pre-existing) of any property, equipment
or materials, unseaworthiness, and unairworthiness unless
specifically otherwise stated, and shall include passive as well as
active Negligence, excluding gross negligence or willful
misconduct”
Gross negligence
“Gross negligence" is usually left to fault, along with "intentional or willful
misconduct".