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BP Is Barred from Taking Government Contracts

Source: NY Times


Posted on 29 Nov 2012 by Neilson

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BPThe United States government has temporarily banned the British oil company BP from new federal contracts, citing the company's "lack of business integrity."

The decision comes after BP agreed to plead guilty this month to criminal charges over the 2010 Deepwater Horizon blowout and oil spill that killed 11 workers and polluted hundreds of miles of Gulf of Mexico shoreline. As part of its settlement, the company agreed to pay penalties of $4.5 billion, including $1.26 billion in criminal fines.

The Environmental Protection Agency said Wednesday that BP's suspension from new contracts would remain in effect "until the company can provide sufficient evidence to E.P.A. demonstrating that it meets federal business standards."

Although the suspension does not affect the company's existing federal contracts, the action is nonetheless a blow to BP. It is one of the government's largest contractors, with $1.47 billion in federal business in 2011, according to a ranking compiled by the General Services Administration. Much of that revenue comes from the Defense Department, to which it provides more than $1 billion a year in fuel.

"It is not great news for BP, as they want to do business in the U.S.," said Iain Pyle, an analyst at Bernstein Research in London.

The company's shares closed down 0.4 percent in London trading, although they rose slightly later in New York trading. Its depositary receipts on the New York Stock Exchange rose 13 cents to $41.48.

An E.P.A. official said that BP would have to satisfy the terms of its plea agreement, made with the Justice Department, before the agency would consider lifting the ban.

In addition to paying the fines and penalties, the company must hire a safety monitor to oversee its deepwater operations, retain an ethics monitor to ensure that company employees do not again skirt federal laws and regulations, conduct safety and environmental audits for each drilling rig, and ensure that all equipment and workers meet federal safety and training standards.

Government officials would not speculate on how long it would take the company to meet those conditions.

The E.P.A.'s decision appeared to take BP by surprise. During a conference call with analysts on Nov. 15, the day the company and the government announced the plea deal, BP's general counsel, Rupert Bondy, said, "We have not been advised of the intention of any agency to suspend or debar us in connection" with the settlement. The deal, however, stated that the government reserved the authority to restrict BP's ability to receive government contracts or other benefits.

A BP spokesman, David Nicholas, said Wednesday that despite the E.P.A.'s action, the company remained "engaged" with the agency. "We are working through a process demonstrating present responsibility," he said, referring to the legal standard that BP needs to meet before the suspension is lifted.

BP's finances could suffer if the suspension is not lifted quickly because the United States accounts for such a large part of its business, representing 19 percent of its global oil and gas production in the third quarter and about one-fourth of the profit in its important exploration and production unit.

The heart of its American business is the Gulf of Mexico, where BP helped lead the way into deepwater drilling in the late 1980s. Its operations in the gulf, previously the source of some of its most profitable oil, are still a long way from returning to prespill levels. According to a company spokesman, production from fields it operates there now averages about 150,000 barrels a day of oil or its natural gas equivalent, which is only about one-third of output before the spill.

The slump is largely a result of BP's being unable to conduct routine maintenance drilling because of the moratorium the government imposed on all gulf drilling after the blowout. That moratorium was lifted in October 2010, but new permits were not issued until early 2011. Although many oil companies were affected by the moratorium, BP was hit hardest because it was the region's biggest deepwater oil and gas leaseholder.

Even before the E.P.A. announced its decision, BP had voluntarily decided not to participate in a gulf lease sale that the Interior Department held on Wednesday, according to a company spokeswoman.

Representative Edward J. Markey, Democrat of Massachusetts, had earlier called for a contracting ban on BP for its actions after the spill and for misleading Congress about the rate of oil flow from the damaged well.

"After pleading guilty to such reckless behavior that killed men and constituted a crime against the environment, suspending BP's access to contracts with our government is the right thing to do," Mr. Markey said Wednesday. "The wreckage of BP's recklessness is still sitting at the bottom of the ocean, and this kind of time out is an appropriate element of the suite of criminal, civil and economic punishments that BP should pay for their disaster."

BP says it has invested $52 billion in the United States over the last five years, more than in any other country, and it employs 23,000 Americans.

In another sign of the spill's continuing fallout, BP is still selling assets elsewhere to help pay for the disaster's costs, which total about $42 billion so far.

On Wednesday, BP announced the sale of North Sea oil fields representing about 25 percent of its British oil and gas production to Taqa, an energy company that belongs to the Abu Dhabi government, for about $1.1 billion.

Although BP has agreed to a settlement of criminal charges in the Deepwater Horizon case, it still faces billions of dollars in pollution fines under federal environmental laws.

Prosecutors are also continuing to investigate and bring charges against individuals involved in the case.

In New Orleans on Wednesday, two former BP rig supervisors were arraigned on manslaughter charges arising from the disaster. One of the supervisors, Robert Kaluza, told reporters before entering a plea of not guilty that he had not caused the accident, according to The Associated Press. He and Donald Vidrine, another site leader, were indicted on a charge of failing to heed abnormal well pressure tests.

Mr. Kaluza's lawyer, Shaun Clarke, said his client was a scapegoat. "Bob and Don did their jobs," he said, according to the A.P. report. "They did them correctly and they did them in accordance with their training."

A former BP vice president, David Rainey, also pleaded not guilty to misleading Congress about the spill's flow rate.


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