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BP Could Face Up to $60B in Gov Penalties, Report Says

Source: The UK Guardian


Posted on 26 May 2010

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The oil disaster unfolding in the Gulf of Mexico could present BP with much higher costs than previously thought as a result of US government penalties of up to $60 billion, according to a report in Britian's paper, "The Guardian".

The penalties are in addition to BP's already huge bill for the clean-up mission, which stood at $760m yesterday, and potentially unlimited damages payable by the company to fishermen and other affected local communities. BP also faces billions of dollars of lost earnings as a result of its damaged reputation in the US, which could result in it being barred from bidding for future contracts.

The Guardian has obtained a confidential briefing, from a top-level US environmental lawyer who specializes in oil industry litigation, to stockbroker Canaccord, assessing the financial impact of impending legal action on BP.

He warned that, under US law, BP is liable for $1,100 in civil penalties for each spilt barrel of oil and gas, to be paid to the US federal and affected state governments. If BP is found to have acted with gross negligence – and there is no evidence so far that it has – this fine would rise to $4,300 for each barrel.

The issue of legal liability for the accident is complex, involving US federal and state laws. City analysts' calculations of the bill faced by BP have ignored the potentially ruinous cost of civil penalties.

They also highlight the implications for BP of establishing how much oil is leaking from the damaged pipeline, which is hard to measure – unlike a leaking tanker, which holds a finite amount of oil.

BP had been relying on official estimates for the spill of 5,000 barrels per day, which are based on satellite images taken of the surface of the sea above the leaking pipeline. But BP has been pumping hundreds of thousands of gallons of chemical dispersant close to the leak, resulting in vast underwater oil slicks. The company recently admitted that the actual figure is likely to be higher and some scientists say 115,000 barrels of oil per day are spewing into the Gulf. BP would be liable for $60b in civil penalties if oil continues to leak at the highest estimated level for the next two months, when a relief well being drilled to plug the reservoir is completed. With the spill in its fifth week, pressure is mounting as all attempts to stem the leak have been delayed or largely failed.

The Environmental Protection Agency has indicated BP faces fines over the disaster, and there is speculation that it could eventually face a criminal investigation.

BP is preparing to carry out its latest attempt to staunch the flow of oil from the damaged Deepwater Horizon well. The operation, which the firm hopes to start tomorrow, will involve pumping heavy fluids into the broken pipe and then capping it with cement.

The technique has proven successful in previous surface oil spills but it has never been tried at a depth of 1.6km under the sea and BP can only hazard that it has a 60% or 70% chance of working this time. BP said last night it will broadcast live video of the "top kill" during the procedure.

The crisis began on 20 April with the explosion of the Deepwater Horizon rig about 50 miles off the coast of Louisiana. Eleven workers died in the blast, and a private memorial service was to be held yesterday afternoon in Jackson, Mississippi.

The Obama administration is increasingly feeling the heat over why it has taken so long to contain the crisis. As a sign of how seriously the spill is being taken, Obama will break off a long weekend in Chicago on Friday to travel to Louisiana to witness the clear-up efforts.

Bobby Jindal, the governor of Louisiana, is increasingly acting as the conduit of criticism of both the oil giant and the government, vowing to mobilize the local National Guard to protect the sensitive ecosystems on the Gulf of Mexico in the absence of an adequate federal response. "We are not waiting for them," he said.

Senior figures in the Obama administration continued to voice frustration with BP, but also displayed internal confusion about what should be done to deal with the slipping timescale. The US interior secretary, Ken Salazar, hinted that unless BP gets a grip on the crisis the federal government would "push them out of the way". This was almost immediately contradicted by Thad Allen of the US Coast Guard: "To push BP out of the way would raise a question – to replace them with what?"

BP's chairman, Carl-Henric Svanberg, accepted that the accident had damaged the company's reputation but said that critics should remember that BP was "big and important" for the US.

"The US is a big and important market for BP, and BP is also a big and important company for the US," he said in an interview with the Financial Times.

Svanberg said the company's board felt that chief executive Tony Hayward was doing a "great job", in spite of criticism.

"This is not the first time something has gone wrong in this industry … Of course our reputation will be tarnished, but let's wait and see how we do with plugging the well and cleaning up the spill," he said.


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