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BP Faces New Bout of Spill Liability

Source: WSJ - Tom Fowler

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Posted on 19 Feb 2013 by Neilson

BP liabilityBP PLC already has agreed to pay more than $30 billion in fines, settlements and cleanup costs for the 2010 Deepwater Horizon explosion and oil spill. Now it is placing a big bet that by going to trial next week, it can hold down the cost of one of its last major potential liabilities for the disaster.

The London-based oil company says both the law and the facts of the case make facing a federal judge in a trial a safer bet than reaching a settlement with Gulf Coast states, businesses, individuals and the federal government for environmental-related claims.

"There seems to be a bit of conventional wisdom that the Clean Water Act penalties are going to be either a $5 billion outcome or a $22 billion outcome," Rupert Bondy, BP's general counsel, said in a phone interview. "In fact it's a range that starts very well below $5 billion."

The trial, one of the last major pieces of unresolved litigation from the Gulf disaster, is the first of two that will be heard by U.S. District Judge Carl Barbier. It wraps together hundreds of civil claims and cross-claims made against BP, Transocean Ltd., Halliburton Co. and other companies. The trial will determine what degree of culpability BP and the other companies have for the blowout on the Deepwater Horizon drilling rig, which killed 11 workers and triggered the largest offshore oil spill in U.S. history.

The second trial, which is scheduled for the fall, will determine how much oil leaked into Gulf waters.

Both trials will help shape the size of fines under the Clean Water Act. For example, if the judge determines BP was "grossly negligent" instead of simply negligent it could be subject to fines as high as $4,300 per barrel of oil spilled, although other factors will also be considered. The trials will also help determine the companies' exposure to other claims from the states and private businesses.

BP has already paid more than $14 billion in spill cleanup, and committed to pay almost $10 billion to people, businesses and governments, $4 billion in a criminal settlement, and more than $2 billion in environmental restoration and research.

Few Clean Water Act cases go to trial, Mr. Bondy noted, and those that have often end with per-barrel penalties that are significantly less than the maximum allowed. BP argues that it wasn't grossly negligent for the spill. It also argues that the spill was significantly smaller than the 4.9 million barrels estimated by the U.S. government. The company said it plans to argue in the fall trial that at most 3.2 million barrels of oil was spilled.

"Facing demands that we believe are excessive, not anchored in reality or the merits of the case, we are preparing ourselves to start the trial in one week's time," Mr. Bondy said Monday.

A spokesman for the Justice Department said the government was fully prepared for trial. "We intend to prove that BP was grossly negligent and engaged in willful misconduct in causing the oil spill," Justice Department spokesman Wyn Hornbuckle said in an email.

An 11th hour settlement remains possible before the trial, or once it is under way. The trial was initially supposed to take place a year ago, but was delayed after BP and some of the original plaintiffs reached a settlement the night before it was to begin.

One impediment to a settlement appears to be disagreements between the Justice Department and the U.S. states along the Gulf Coast, which have made claims against the company of more than $30 billion, according to an official familiar with the case. State officials met with the Department of Justice in Washington, D.C., last Thursday and Friday to craft terms of a combined civil settlement offer, this person said. It wasn't clear if an agreement was reached, however.

A pretrial seating chart for the courtroom reflects the scale and complexity of the trial, scheduled to begin Feb. 25 in the New Orleans federal courthouse. More than 46 lawyers for state and federal governments and the private parties will be seated before the judge, while an additional 20 seats in the audience are reserved for the parties. About 20 spaces are for media, leaving some 60 seats for spectators. Fifteen flat screen monitors will be scattered throughout the courtroom while a large screen projector fills most of one wall of the courtroom.

While BP has already settled with thousands of businesses, other companies including financial-services firms, oil-field-services firms-and even BP-branded gas stations-maintain the spill hurt their business in some way and are seeking redress through the trial. These businesses are represented by the same group of lawyers, known as the Plaintiffs Steering Committee, which represents the parties that settled.

"The Plaintiffs Steering Committee is going to put on its case of negligence and gross negligence against BP, Transocean, Halliburton and Cameron virtually exactly as it would have a year ago," said Jim Roy, a lead attorney for the remaining plaintiffs. "I would say that the evidence that is going to come out at this trial is going to expose significant corporate mismanagement of safety for BP, Transocean, and Halliburton."

BP previously sued Transocean and Halliburton to cover costs associated with spill cleanup. The judge has already ruled that contracts the companies had with BP indemnified them against most spill-related costs, even if the judge determines the companies were grossly negligent. In that event, they could be subject to punitive damages, however.

"Transocean is confident in its position heading into trial and is fully prepared to present its case," Transocean said in a statement.

Halliburton Co. declined to comment and Cameron International Corp. officials didn't reply to requests for comment.


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