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February 19, 2013 1:01 am
With the trial over the 2010 Deepwater Horizon disaster less than a week away, BP has decided to come out fighting. After years of cautious statements and formulaic denials, it has now turned bullish about why it expects to face a Clean Water Act penalty far smaller than the worst-case possibilities of about $21bn.
“In a way we are looking forward to the trial,” says Rupert Bondy, BP’s general counsel.
“We have said all along we would be prepared to settle on reasonable terms, [but] we are prepared to go to trial.”
At first glance, his confidence might seem misplaced. The bad decisions by BP staff that led to the fatal explosion on the Deepwater Horizon rig on April 20 2010 have been thoroughly established by a series of inquiries, and BP’s poor safety record in the US, including the 2005 Texas City refinery explosion that killed 15 people, is inescapable.
The company has already admitted negligence in its $4.5bn settlement of the criminal charges arising from the spill, in which it pleaded guilty to 14 criminal charges brought by the Department of Justice, including 11 counts of manslaughter for the 11 men who died on the rig. Even so, BP believes that if Judge Carl Barbier, presiding at the New Orleans court hearing the case, gets to decide on a Clean Water Act penalty, it could be less than $5bn.
As BP has said many times in the past, it rejects the allegation of gross negligence, which carries a maximum penalty of $4,300 per barrel spilt, while ordinary negligence carries a penalty of up to $1,100 per barrel.
Independent legal experts say the distinction between the two is not always clear, but Mr Bondy argues: “What is clear is that [gross negligence] is a very high bar, and we firmly believe the bar is not met in this case.”
He adds that BP’s admission of negligence in the criminal charges is different from an admission of gross negligence.
Even if the judge disagrees, however, BP has two further arguments for reducing its penalty. One is its rejection of the US government’s estimate of 4.9m barrels spilt.
Mr Bondy says: “It isn’t as though it was a ship like the Exxon Valdez, where a volume of oil has been loaded on, so you know what the maximum amount of it is . . . there’s a lot of analysis.”
The US government has had experts calculating how much oil spilt from the well, using techniques such as analysing video footage of the leak, and BP has its own rival calculations, which have come up with a number 20-50 per cent lower.
BP also argues that the 810,000 barrels it collected in its various containment systems should not be included when calculating penalties, an argument that it says has now been accepted by the US government.
That would make the maximum possible volume of oil spilt 4.1m barrels. BP’s final line of defence is to point out that the maximum penalties under the Clean Water Act are just that: upper limits rather than typical awards.
The act specifies factors to be taken into account when judges set penalties, some of which, such as the polluter’s efforts to minimise and mitigate the effects of the spill, should work in the oil company’s favour.
As a possible comparison, Citgo, the Venezuelan-owned fuel refining and retail group, suffered a serious spill at its Lake Charles refinery in 2006, for which it ended up paying $6m in Clean Water Act penalties, or $111 per barrel, about 10 per cent of the maximum possible given that it was not found to have acted with gross negligence.
The judge cited the company’s efforts to clean up the spill as one reason for reducing the penalty, saying the impact of the spill “could have been much worse”.
Mr Bondy argues that compared to BP’s more than 40,000 people at one time working on responding to the spill, “no company has done more faster to meet its commitments to economic and environmental remediation in the wake of an accident”.
The fact that the civil case between the US and BP is coming to court at all is, in a sense, a failure for both sides, exposing them to the uncertainty of a trial.
That we have reached this point suggests that the gap between the two sides is still very wide.
Last-minute deals are always possible – the courthouse steps are always the traditional place to settle – but this may be a difference of views that only Judge Barbier can resolve.
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