Deepwater Oil Spill: BP’s Gross Negligence
And Willful Misconduct, Says US Court Paper
05 September, 2012
BP had “gross negligence and willful misconduct” over the 2010 oil spill in the Gulf of Mexico, the largest in US history. The US justice department, in new court papers, gave examples of the “gross negligence and willful misconduct” over the spill. The Deepwater Horizon rig explosion killed 11 workers.
The court filing is the sharpest position yet taken by the US government as it seeks to hold the British group largely responsible. Gross negligence is a central issue to the case, set to go to trial in New Orleans in January 2013. A gross negligence finding could nearly quadruple the civil damages owed by BP under the Clean Water Act to $21bn.
The US government and BP are engaged in talks to settle civil and potential criminal liability, though neither side will comment on the status of negotiations.
“The behaviour, words, and actions of these BP executives would not be tolerated in a middling size company manufacturing dry goods for sale in a suburban mall,” government lawyers wrote in the filing on August 31 in federal court in New Orleans.
The filing comes more than two years after the disaster that struck on April 20, 2010 when a surge of methane gas known to rig hands as a “kick” sparked an explosion aboard the Deepwater Horizon rig as it was drilling the mile-deep Macondo 252 well off Louisiana’s coast.
The well spewed 4.9m barrels of oil into the Gulf of Mexico for 87 straight days, unleashing a torrent of oil that fouled the shorelines of four Gulf Coast states and eclipsed the 1989 Exxon Valdez spill in Alaska in severity.
Specifically, errors made by BP and Swiss-based Transocean, owner of the Deepwater Horizon platform, in deciphering a key pressure test of the Macondo well are a clear indication of gross negligence, the justice department said.
“That such a simple, yet fundamental and safety-critical test could have been so stunningly, blindingly botched in so many ways, by so many people, demonstrates gross negligence,” the government said in its filing.
BP rejects the charge. “BP believes it was not grossly negligent and looks forward to presenting evidence on this issue at trial in January,” the company said in a statement. A Transocean spokesman had no immediate comment.
On August 13, BP urged US district judge Carl Barbier to approve an estimated $7.8bn settlement reached with 125,000 individuals and businesses, asserting its actions “did not constitute gross negligence or willful misconduct”.
The government said Barbier should avoid making any finding about BP’s potential gross negligence when he rules on the settlement. Barbier will hold a fairness hearing on that settlement on November 8.
Barbier should also disregard claims made by BP that minimize the environmental and economic impacts of the spill, the government said, citing environmental damage like severe ill health of dolphins in Louisiana’s Barataria Bay, which saw some of the heaviest oiling from the spill.
Cost of the oil spill
On the cost of the disaster, a BBC report (2) by John Mervin, New York business editor, headlined “Counting the cost of the BP disaster one year on”, on April 20, 2011 said:
A year after the explosion […] the cost of the human and environmental disaster is still being counted.
In fact the company has become synonymous with everything that is dangerous about oil exploration.
In America, BP’s name sometimes seems to have been dragged through each one of the four to five million barrels of oil that were spilled into the ocean, live on TV.
Such was the immediate harm to its reputation that many began to question whether the company could survive in America in its existing form.
A former cabinet secretary called for BP’s US operations to be nationalized.
BP’s chief executive Tony Hayward was forced to resign in the aftermath of the disaster
Congress passed legislation restricting BP’s business here and many assumed that a sale of its assets in the Gulf of Mexico was on the cards.
So what will this eventually cost?
The oil spill has had a huge impact on communities around the Gulf of Mexico
There’s the financial cost – BP’s accounts for 2010 put aside $41bn to pay for the spill, two and a half times more than BP's entire profit in 2009.
While it’s true it might cover all the costs, it very well might not with the meter is still running, particularly on the legal fees.
One of the biggest costs could be the fine levied by the Environmental Protection Agency as the EPA sets its fines on a per-barrel basis.
So BP will be fined between $1100 and $4300 for every barrel that was spilled.
Once everyone’s agreed on how many barrels that was then the fine will be set according to how negligent BP is deemed to have been.
In short, if the company is found to have been grossly negligent and something like 4.5 million was spilled, that’s a fine of over $19bn.
Admittedly that’s a worst-case scenario for the biggest single civil case, but with hundreds of other cases behind that, the company itself admits it has no useful way of forecasting the total legal bill.
So with a shattered reputation, a lost CEO and costs in the untold billions, it’s hardly surprising BP describes itself as a changed company.
But in certain crucial respects BP has not changed, because it never did get out of the US oil exploration business.
As oil analyst Fadel Gheit from Oppenheimer says: “The Gulf of Mexico is the most profitable part of the world for BP.”
He says that if, for the sake of round numbers, you assume BP sells oil at $100 per barrel, a barrel from the Gulf can be broken down as follows:
BP pays $20 of the $100 to the US government in royalties - i.e. for the right to extract the oil in the first place.
It then spends something like $25 getting the oil out of the ground (in truth, Mr. Gheit says, BP is much more efficient than this.)
The US government then taxes BP’s earnings at a rate of 34%.
All of which means that BP is left with a little over $36 dollars of profit for every $100 barrel it gets from the Gulf of Mexico.
It’s also clear from such arithmetic that billions of dollars are at stake for the US government.
The extent of the oil spill’s effect on wildlife in the region is still not yet clear
Given the bitter arguments over spending and debt, the US government needs all the billions it can find.
Thousands of people on the Gulf Coast may rely on it for their livelihoods, and it will again provide a vital source of revenue and energy for the US.
That doesn’t belittle the scale of the human and environmental catastrophe so much as it reflects the size and importance of BP.
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