Fireboats try to extinguish the blaze on the Deepwater Horizon oil rig south of Venice after an explosion on Wednesday, April 21, 2010. The explosion killed 11 workers on the rig. (Photo by Michael DeMocker, NOLA.com | The Times-Picayune)
BP entered into a settlement with the U.S. Justice Department on Thursday of?all criminal claims involving the Deepwater Horizon oil spill for $4 billion, to be paid in installments over five years, and a settlement with the Securities and Exchange Commission that will include the payment of $525 million over three years. The company also pleaded guilty in U.S. District Court in New Orleans?to 11 felony counts of misconduct or neglect of ships' officers relating to the loss of 11 lives in the explosion in April 2010.
The settlement is likely to prove a boon for Louisiana, with $1.2 billion to be used to rebuild barrier islands and built a Mississippi River freshwater and sediment diversion.
During a Thursday afternoon news conference in New Orleans, a cadre of federal officials took BP to task because of the explosion and spill, citing a culture of profit and privilege at the company, including instances when BP purposely downplayed the amount of oil flowing into the Gulf.
U.S. Attorney Eric Holder said the government's action against the company is "to hold accountable those who bore responsibility for this tragedy.'' Holder said the government also?is looking forward to the civil trial, now scheduled for Feb. 25, "in which we intend to prove that BP was grossly negligent in causing the oil spill."
Joining Holder at the podium, Lanny Breur, assistant attorney general for the criminal division, said the explosion of the rig "was?a disaster that resulted from BP's culture of privileging profit over prudence; and we allege that BP's most senior decisionmakers onboard the Deepwater Horizon negligently caused the explosion."
Breuer said the government hopes BP's acknowledgement of its misconduct, through its agreement to plead guilty to 11 counts of felony manslaughter, "brings some measure of justice to the family members of the people who died onboard the rig."
In a BP news release, the company said it would "vigorously defend itself against remaining civil claims." The company is expected to argue that, despite the guilty plea, the actions of its employees amounted to an accident, and BP should not be found "grossly negilgent" in the trial over Clean Water Act civil violations, which would limit its liability under the Clean Water act to as little as $5 billion. If it is found grossly negligent, the company could be facing fines of $21 billion or more, based on the release of 4.1 million barrels of oil during the spill.
"All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region," said Bob Dudley, BP's Group Chief Executive. "From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. We apologize for our role in the accident, and as today's resolution with the U.S. government further reflects, we have accepted responsibility for our actions."
Louisiana is scheduled to receive half of the $2.4 billion in fine money set aside for environmental projects, for projects listed in the state's Master Plan for coastal restoration and protection Holder said.
Coastal Protection and Restoration Authority chairman Garret Graves said the specific projects have not yet been chosen, but that the barrier islands may include projects already proposed for Barataria Bay and Terrebonne Parish, and in the Breton and Chandeleur islands. The diversions could include a major diversion of freshwater and sediment into Barataria Bay or a proposal to divert Mississippi River water into the Central Wetlands Unit adjacent to the Lower 9th Ward in New Orleans and Chalmette, and farther east into wetlands destroyed by the Mississippi River-Gulf Outlet.
Many of those projects already have been proposed by the state for funding under the earlier $1 billion that BP has set aside as an advance payment on its expected, long-term Natural Resource Damage Assessment requirements.
Louisiana Gov. Bobby Jindal praised the settlement as "an important first step in holding BP accountable for the tragic loss of 11 lives in the Deepwater Horizon tragedy."
"The largest criminal fine in history is certainly fitting for the inexcusable negligence that led to this disaster," Jindal said, adding that the spill's impacts continue to acrue in the state on a daily basis.
"In Louisiana, our fishermen are experiencing extraordinary impacts," he said. "Shrimp, crabs, oysters and other seafood are in decline. The majority of BP's liability remains outstanding and we will hold them fully accountable."
Under the plea agreement, BP will plead guilty to 11 felony counts of misconduct or neglect of ships' officers relating to the loss of 11 lives (the equivalent of manslaughter charges); one misdemeanor count under the Clean Water Act; one misdemeanor count under the Migratory Bird Treaty Act; and one felony count of obstruction of Congress. The agreement must still be approved by U.S. District Judge Sarah Vance, before whom BP officials appeared on Thursday.
"Thirteen of the 14 criminal charges pertain to the accident itself and are based on the negligent misinterpretation of the negative pressure test conducted on board the Deepwater Horizon," said the BP news release announcing the settlement. The pressure test was aimed at determining whether drilling fluids had enough pressure to block the flow of gas to the surface, which is believed to be the cause of the explosion that killed 11 workers and injured many others.
"BP acknowledged this misinterpretation more than two years ago when it released its internal investigation report," the news release said. "Today's agreement is consistent with BP's position in the ongoing civil litigation that this was an accident resulting from multiple causes, involving multiple parties, as found by other official investigations."
The last criminal count involves two BP communications made to a member of Congress during the spill response about flow rate estimates. The member of Congress was not named. The Justice Department contends BP misled Congress, and thus the public, about the immensity of the oil release during its early days.
BP has also agreed to a term of five years' probation.
Holder said the Thursday charges would not end the criminal investigation.
"In fact our criminal investigation remains ongoing and we will continue to follow all credible leads and pursue any charges that are warranted," he said.
But the settlement agreement also includes a commitment by the Justice Department to forego additional charges against the corporation, but not individuals, as long as the company continues to assist in any additional criminal investigation.
The Justice Department also agreed to "advise any appropriate suspension or debarment authority that, in the department's view, the defendant has accepted criminal responsibility for its conduct relating to teh Deepwater Horizon Blowout, explosion, oil spill and response by virtue of this guilty plea," which could assist BP in avoiding being barred from future contracts with the federal government, including supplying oil products to federal agencies.
The agreement calls for $2.394 billion of the settlement money to be paid to the National Fish & Wildlife Foundation and $350 million to be paid to the National Academy of Sciences, both over five years.
The National Fish & Wildlife Foundation often works closely with the U.S. Fish & Wildlife Service on environmental restoration issues involving national parks and refuges, and it is likely that some of that money will be used for restoration projects in Louisiana.
The National Academy is the nation's foremost science organization, which conducts studies at the behest of Congress and federal agencies on a wide variety of scientific and engineering topics.
Academy President Ralph Cicerone said the money would fund a 30-year program of research "to advance scientific and technical understanding to enhance the protection of human health and environmental resources in the Gulf Coast region including issues concerning the safety of offshore oil drilling and hydrocarbon production and transportation in the Gulf of Mexico and on the United States' outer continental shelf."
Money also will be spent to develop advanced environmental monitoring systems, Cicerone said.
David Uhlmann, the former head of the Justice Department's Environmental Crimes Section and a law professor at the University of Michigan, said BP is likely to pay even more in natural resource damage claims as well as civil penalties under the Clean Water Act.
"The criminal fine is a record amount, but it pales in comparison to the $30-to-$40 billion that BP faced under the Clean Water Act," Uhlmann said in an e-mail Thursday. The earlier high penalty was a $1.2 billion fine paid by the Pfiser drug company in 2009 for marketing fraud involving Bextra pain medicine.
The fine imposed against Exxon Valdez following its 1989 grounding and oil spill in Prince William Sound, Alaska, was only $150 million, and a federal court waived $125 million of the fine in exchange for the company's cleanup efforts.
Such a waiver will not be allowed, under the provisions of the plea agreement, which also prohibit the company from receiving tax benefits in the United States or elsewhere for paying the fine. The company also won't be able to use the fines as an offset against other outstanding civil complaints, including the potential Clean Water Act fines, according to the agreement.
BP said that under the plea agreement, the company also will take additional actions, enforceable by the federal court, to enhance safety of drilling operations in the Gulf of Mexico.
"These requirements relate to BP's risk management processes, such as third-party auditing and verification, training, and well control equipment, and processes such as blowout preventers and cementing.
The agreement also requires the appointment of two monitors -- both to serve for four years -- to keep track of process safety and risk management procedures concerning deepwater drilling in the Gulf, and to monitor ethics, including a review and recommendations for improvement of the company's code of conduct and its implementation and enforcement.
BP said it hasn't been advised by any federal agency of plans to suspend or debar the company in connection with the plea agreement. Under federal law, companies convicted of certain criminal acts can be debarred from contracting with federal agencies.
The SEC resolution includes an injunction prohibiting BP from violating certain U.S. security laws and regulations. The SEC claims are premised on flow rate estimates contained in three reports provided by BP to the SEC on April 29 and 30 and May 4, 2010, which was within the first 14 days of the accident. The SEC resolution is still subject to federal court approval.
Robert Khuzami, director of enforcement for the SEC, said the $525 million fine is the third largest in that agency's history.
Despite its size, the settlement is likely to assist BP in assuring its investors that the company's two years of efforts to reduce its liability from the accident and spill are succeeding.
BP said it already had recorded charges against its pre-tax income through September 2012 for $38.1 billion related to the Deepwater Horizon accident and spill, which included the $525 million for the SEC settlement. The criminal charge settlement will add $3.85 billion to those charges on its books, and will be reflected in the company's December 2012 financial statement, as well as any other adjustments needed during the fourth quarter.
Legal experts and industry analysts who have been following the case generally agreed that the deal was fair to both sides, but that the price tag would likely pale in comparison to what BP faces in civil penalties for natural resource damages and claims under the Clean Water Act.
Edward Sherman, a law professor at Tulane University who studies complex litigation, said that while some people may have been surprised at the "relative smallness" of the settlement, "you have to remember that these are only the criminal penalties, and there are still other actions pending."
Factoring in the time saved by not going to trial, "this seems to me to be a reasonable amount," Sherman said. "Even a company that's as large as BP cannot easily come up with that sum of money."
Blaine LeCesne, a tort law professor at Loyola University, said it's hard to measure how high the government's criminal claims could have climbed "because you don't know how many potential violations could've been brought, and what the collective amount of that could've been."
Still, LeCesne said the settlement is a step in the right direction for BP because it allows the company "to know exactly what the loss is, and it'll bring an end to those criminal prosecutions, from a company standpoint."
"It's a sizable punitive action, and obviously it's going to cause BP some financial discomfort," LeCesne said.
Pavel Molchanov, an oil company analyst with Raymond James, said that unlike the government's civil suit, which is slated to go to court in February, there was no roadmap or framework in place as to what the criminal penalties would add up to.
"It simply depends on what the two sides agree on," said Molchanov, adding that the deal will bring BP's total provision for the 2010 disaster to about $42 billion.
"It's not cheap, obviously, but it helps to reduce the legal overhang surrounding the company," Molchanov said.
That'll change during the government's civil proceedings, which will set penalties based on the number of gallons of oil and other chemicals that were spilled into the Gulf, though that final tally is likely to be a matter of contention to both sides.
Still, several legal experts, including Holly Doremus, a professor at the University of California at Berkeley who specializes in environmental law, don't expect the settlement reached Thursday will have a bearing on the potential civil penalties, which is "really about putting back together what they've messed up."
"No matter how much money they pay in criminal penalties, that doesn't fix the damage," Doremus said.
A series of government investigations in the wake of the Macondo well blowout have since spread blame for the disaster.
In early 2011, a presidential commission reported that BP, Halliburton and Transocean were all responsible for time-saving and cost-cutting decisions that created unacceptable risk at the well, citing a series of systematic problems and not pointing fault of any one individual.
Later that year, a team of Coast Guard officials and federal regulators issued a report that found BP was ultimately responsible for the spill, charging that the company violated federal regulators, ignored important warnings and made bad decisions during the cementing of the well, which was a mile beneath the Gulf of Mexico.
BP has said it accepts some responsibility for the spill while urging other companies to pay their share.
David Logan, dean of Roger Williams University School of Law, said that resolving the criminal settlement should provide BP executives with "some sense of relief."
"There are probably an unprecedented number of pieces to this puzzle, and now another one has slit into place," Logan said, calling the settlement "about the best they could hope for."
While some Gulf Coast residents may have heard of the criminal charges and wondered aloud whether former BP chief Tony Hayward would be whisked away in cuffs, Logan said that was unlikely from the start. Instead, two BP well-site leaders, Robert Kaluza and Donald Vidrine, each face 22 manslaughter charges in the deaths of 11 men killed in the explosion.
"It's rare you actually see the top dog doing the perp walk," Logan said.
Meanwhile, in looking at whether the settlement was the right call for the British oil giant, Molchanov said that "ultimately, it's a matter of opinion."
"In our view is that it is an appropriate step for the company to take, a very understandable and legitimate step for the company to take," he said. "Of course, $4 billion is a lot of money, but they are getting a big legal overhang lifted in return."
Source: http://www.nola.com/news/gulf-oil-spill/index.ssf/2012/11/bp_enters_45_billion_settlemen.html
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