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Page added on September 6, 2014
BP, found grossly negligent, may face $18 billion in gulf spill fines
Energy giant BP’s willful misconduct and gross negligence led to the worst offshore oil spill in U.S. history, a federal judge said in a ruling Thursday that exposes the company to billions of dollars in civil penalties.
The Deepwater Horizon drilling rig, which BP leased and operated, exploded and sank in the Gulf of Mexico in April 2010, killing 11 men and spewing millions of barrels of oil into the ocean until the well was capped in July and finally sealed in September.
The ruling from U.S. District Judge Carl Barbier could lead to nearly $18 billion in civil penalties for polluting the gulf. BP had already agreed to pay $4 billion in criminal fines.
BP, which also owned the oil well, bears two-thirds of the blame for the spill, Barbier said, apportioning most of the rest to the rig owner, Transocean Ltd., and a small portion to the cement contractor, Halliburton.
Echoing several independent inquiries into the disaster, the ruling details a string of fateful decisions by BP that it concludes put money over safety.
“BP’s decision was primarily driven by a desire to save time and money, rather than ensuring that the well was secure,” Barbier wrote of a decision BP made to forgo a crucial test as the company rushed to complete its drilling and move the rig to another site.
In particular, Barbier said, the company’s decision to drill the last 100 feet of the well left it in “extremely fragile condition” and vulnerable to blowout.
“The court agrees that the decision was dangerous and further finds that it was motivated by profit,” he wrote.
The Justice Department called the ruling “a significant step.”
BP said the accusation of willful misconduct was “not supported by the evidence at trial. The law is clear that proving gross negligence is a very high bar that was not met in this case.” The company said it planned to appeal the ruling.
Culpability is crucial in determining how much BP will eventually have to pay for violating the Clean Water Act. If a company is found simply negligent in causing a spill, it could pay a maximum of $1,100 a barrel. “Gross negligence,” as Barbier found, could raise the penalty to $4,300 a barrel. Under federal law, 80% of the eventual penalty would go to restoration of the gulf. Barbier has yet to rule on exactly how much was spilled, a point of contention.
“The significance of today’s ruling is when you put it together with how much was spilled, it considerably increases the size of a possible fine,” said Martin Davies, director of Tulane University’s Maritime Law Center. “Gross negligence is an extreme departure from the care required to perform this type of work.”
The company has paid $28 billion in claims from those financially injured by the spill. It has set aside $3.5 billion to cover civil penalties related to the Clean Water Act, according to a July earnings report. In total, BP has taken a $43-billion charge to cover costs from the spill.
The company has been shaving assets for years, in large part to help pay for the spill. In October, BP announced it would sell $10 billion in assets by the end of 2015. That’s on top of $38 billion it had already shed after the spill.
Last year, BP sold its Carson refinery, the Arco brand and other assets for $2.5 billion.
The Deepwater Horizon disaster has weighed on BP’s financial results in recent years, but there are signs of a turnaround. In the second quarter, BP said its profit soared 65% from a year earlier to $3.37 billion.
Thursday’s ruling came as a surprise to the market, analysts said. BP shares plunged $2.82, or nearly 6%, to $44.89 a share.
“The gross-negligence ruling is about as negative as it could have been,” said Pavel Molchanov, an analyst with Raymond James.
He said that although he foresaw a “legal overhang” in the stock going forward, he didn’t anticipate more large hits.
The ruling sends a sharp signal to the oil industry, which has insisted that BP is an outlier, about the possible consequences from an offshore spill.
Said Carl Tobias, a law professor at the University of Richmond: “What the federal government is trying to do is to deter and punish anything this environmentally disastrous from happening again, so that companies will think twice, thrice, about what they do.”
Barbier must next rule on how much oil was actually spilled. The federal government says that BP’s Macondo well spilled nearly 5 million barrels of oil over 87 days until it was capped. BP contends that the amount was about 2.45 million barrels. Once the amount is established, Barbier would have to determine the penalties BP would pay, a process that will probably take years.
“The United States remains committed to ensuring that BP will be held fully accountable for its actions and that the maximum amount of money will be distributed to the states and communities hurt most by this tragedy,” said Associate U.S. Atty. Gen. Tony West.
14 Comments on "BP, found grossly negligent, may face $18 billion in gulf spill fines"
Welch on Sat, 6th Sep 2014 9:37 am
…and how many will go to jail?
peakyeast on Sat, 6th Sep 2014 10:13 am
Yeah – its sad. There is a large likelihood that the responsible people will never get penalized in a way that actually will send a signal to others of the same ilk to avoid doing the same.
These people are not punished sufficiently by the company paying any amount. – Only long Jail-time to the decision makers does a difference.
rockman on Sat, 6th Sep 2014 11:15 am
I’ve gone into the details of the specific risky procedure BP chose to go with several times so I’ll pass. But I’ve never done that procedure nor seen any other company do it in my 40 years. Everyone in the oil patch understands the serious risk of BP’s actions…and knew it long before the Macondo blowout. If any company were tempted to do the same procedure those thoughts are long gone now.
Which isn’t to say another major offshore oil spill won’t happen again. Under the safest procedures it’s still risky…mostly from human error. But the gov’t, companies and the majority of the public still want those resources developed. The best we can hope for is a strong sense of self-preservation by the companies and appropriate and ENFORCED regulations from the US gov’t.
Kenz300 on Sat, 6th Sep 2014 11:29 am
There are safer, cleaner and cheaper ways to produce energy…………….
As the cost of fossil fuel extraction continues to rise alternatives continue to look better.
Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste are better options.
At some point OIL COMPANIES will begin to realize that they must become “ENERGY” companies and change their business models away from fossil fuels.
peakyeast on Sat, 6th Sep 2014 7:04 pm
You are probably right, rockman – but it doesnt change that the people behind the decisions has not been deprived of anything. If you have a 100mio$ and you must pay a fine of say 20mio$ – all that happened is that you got a little behind in the greed game – or like reassigning Tony Hayward to a new job position(not sacked) – which amounts to trying get him out of the stage light.
These people NEED jail-time in order to be punished – besides the obvious need for the public to see real justice for the great destruction that has been caused.
Makati1 on Sat, 6th Sep 2014 9:18 pm
Fines mean nothing. They will never be paid. The Exxon Valdez fines have not been paid after 20 years. It’s cheaper to have a flock of lawyers delay it then to pay it.
10 lawyers at $500,000 each per year X 20 years = $100,000,000. or 00.56% of the $18B fine. and the lawyers fees are a tax deduction on BP’s profits.
Norm on Sun, 7th Sep 2014 12:59 am
Yeah. Headline sounds like ‘justice’ for fisherman with no more fish, etc etc. LOL. What will happen is, the government will pay to BP the $18 Billion, as an apology for annoying a busy corporation, with impractical regulations.
Norm on Sun, 7th Sep 2014 1:03 am
If you studied the disaster, and I wont provide you the names, a couple of creepy greedy grubby grabby ‘football jocks’ the fraternity-boy-Bush-Jr type of guys, came out from headquarters in a helicopter. They demanded that they would skip numerous steps in the grouting and the people on the rig (the ones who actually wear hard hats and know something about how to work, instead of how to swindle and lie) anyway the people on the rig specifically said skipping the steps was unacceptable but the two CEO fraternity punks demanded it would be skipped. The reason is they figured they could use the rig someplace else and they liked the scheduling effects.
You can be assured those two fraternity-boy executive boardroom swindlers each received an extra $250 Million in stock options, each, because the murderers and swindlers at the very top of the corporation look out for each other.
Those 2 football-jock fraternity-boys in the helicopter, you can be damn sure, they received substantial promotion. Cause that is how it works. Period.
rockman on Sun, 7th Sep 2014 12:18 pm
Preaky – “…that the people behind the decisions has not been deprived of anything. Sadly it’s the shareholders who are taking the hit. And despite what anyone says the managers on the rig were primarily responsible. They might have been guided by a desire to keep the suits in Houston happy. But just like the captain of a ship they have absolute authority on that rig. Anger the suites and they might get replaced. But that’s their choice. I’ve been run off from consultant gigs more than once for not towing the company line.
But here’s the tricky part: they made the decision to follow a risky procedure. But they didn’t cause the well to blowout on purpose. People take risky steps all the time. How many folks chose to drive in the rain which ultimately leads to the deaths of others? Not talking about drunk or reckless driving: just accidents that happen because the roads are slick. How severely should they be punished: they had the same choice to not drive as the manager on the rig had to displace the drill mud with sea water: neither knew their decisions would lead to deaths. So do you levy a penalty based upon the level of damage? You could. But if the next GOM blowout from human error causes 1/100th of the Macondo damage do you levy 1/100th of the penalty?
Obviously it’s not an easy call anyway you set it up. The captain of the USS Vincennes that fired the missile that took out an Iranian civilian commercial flight that killed hundreds including dozens of children: should he have been executed? Given life in prison? Just like with the Macondo opinions vary greatly.
Norm on Sun, 7th Sep 2014 1:43 pm
Totally disagree. They knew what would happen. They knew that they would destroy thousands of people’s livelihoods, and be promoted to the executive boardroom and get to snort cocaine off the curves of pricey hookers, on their big private yacht just like wolf of wall street. thats why they did it, and thats what they are doing this very minute, while all the ex-fishermen commit suicide.
Makati1 on Sun, 7th Sep 2014 8:44 pm
So right, Norm.
GregT on Sun, 7th Sep 2014 11:20 pm
Where is little Tony these days?
“Tony Hayward came to Kurdistan after the 2010 Deepwater Horizon oil rig explosion in the Gulf of Mexico cost him his job as BP’s chief executive — in part because of a string of public relations fiascoes that included his saying “I would like my life back” to a group of reporters while touring an oil-slicked beach in Louisiana.
In 2011, Hayward joined forces with British financier Nathaniel Rothschild to acquire a Turkish firm already operating in Kurdistan. The firm, renamed Genel Energy Plc (GENL), says it’s poised to raise production at Taq Taq and other fields to 70,000 barrels a day this year from 44,000 in 2013. On May 8, Hayward was named chairman of Glencore Xstrata Plc (GLEN), the mining company that is also one of the world’s biggest crude traders.”
http://www.bloomberg.com/news/2014-05-21/ex-bp-ceo-gets-his-life-back-as-kurdish-pipeline-opens.html
Strange that, how the Rothschild name keeps popping up over and over again……
rockman on Mon, 8th Sep 2014 12:39 pm
Norm – So “they” knew their plan would cost the company $billions. So they hatched the plan to severely damage the corporation. So they must have been some folks who greatly hated BB to inflict so much intentional damage on the company.
Makes perfect sense to me. LOL
Nony on Mon, 8th Sep 2014 12:55 pm
I wonder to what extent the corporate culture had a role. I get the impression Exxon is a little more traditional and engineering focused. BP seemed like they were into all this Beyond Petroleum Mckinsey-sponsored New Economy stuff. Could that have made them take their eye off the ball or just have less of a culture of safety? For example a manager was in there “punching his ticket”.
I can’t prove it. And Exxon has had their mistakes too. But then, there really are organizations that have better/worse safety cultures.
I just wonder.