29 Mar 2016 Cases

Judge Dismisses Claims Against Compass Lexecon Client Statoil in Crude Oil Futures Manipulation Case

2 minute read


Court Relies on Analysis by Compass Lexecon Senior Affiliate Professor Christopher L. Culp

In Re: North Sea Brent Crude Oil Futures Litigation

On March 29, 2016, Judge Andrew L. Carter, Jr. in the Southern District of New York issued an opinion granting Statoil ASA’s motion to dismiss under the Foreign Sovereign Immunities Act (“FSIA”), in which he relied on the opinions (set forth in a declaration and deposition testimony) of Compass Lexecon Senior Affiliate Professor Christopher L. Culp.

The Plaintiffs in this matter are a putative class of futures and derivatives traders, who contend that Statoil and other major oil producers and traders conspired to manipulate prices of physical Brent crude oil cargos in the North Sea and prices of related crude oil futures contracts in violation of the Commodity Exchange Act, Sherman Act, and various state laws. Plaintiffs claim that they sustained damages through reduced crude oil futures trading income and/or reduced revenues from their U.S. mineral interests.

Under the FSIA, a sovereign entity like Statoil (which is two-thirds owned by the Government of Norway) is immune from the jurisdiction of U.S. courts under a “commercial activity exception” if the alleged misconduct does not cause a direct effect in the United States. Counsel for Statoil, Wilmer Cutler Pickering Hale and Dorr LLP engaged Professor Culp to analyze whether the alleged misconduct would have had a direct impact on U.S. and other crude oil futures markets, U.S. physical crude markets, and/or values of U.S. land-related oil interests.

Professor Culp – supported by Compass Lexecon professionals Neal Lenhoff, Hans-Jürgen Petersen, Laura Yergesheva, Christopher Fiore, and others – analyzed the cause-and-effect chain alleged by Plaintiffs. Specifically, Plaintiffs contend that allegedly manipulated prices of physical North Sea Brent crude oil cargos were reflected in Platts’ (an oil price reporting agency) price assessments of physical Brent crude cargos, which in turn translated into distorted prices for Brent futures contracts traded on the Intercontinental Exchange. According to Plaintiffs, those Brent futures price distortions translated into comparable price distortions in physical and futures transactions for West Texas intermediate and Louisiana light, sweet crude oil, which then impacted the values of related U.S. mineral interests. But Professor Culp concluded from his analyses that the Plaintiffs’ alleged cause-and-effect chain was complex and indirect, and that there was no demonstrable direct impact of the alleged misconduct on U.S. crude oil futures markets, U.S. physical crude markets, or related U.S. mineral interests.

Plaintiffs filed a Daubert motion to exclude Professor Culp’s opinion, which Judge Carter rejected. He concluded that Professor Culp’s “testimony is reliable and relevant to the issue at hand….” and noted that Plaintiffs’ “argument is puzzling…[because] Culp replicated the economic analyses put forth by the Plaintiff…and examined the resulting data at different intervals than Plaintiffs had…and concluded that Plaintiffs’ assertions were not substantiated by their own method of analysis.”

Statoil was successfully represented by Robert Trenchard and Perry Lange of Wilmer Hale. (Mr. Trenchard is now at Gibson, Dunn & Crutcher LLP.)

A new version of Compass Lexecon is available.