Energy

Continued spillover from BP oil spill

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Michael Bastasch Energy Editor
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If you thought the Gulf oil spill disaster was over, guess again. The $7.8 billion settlement between BP and thousands of businesses and individuals on the Gulf Coast represents the first of many settlements to come. According to a report by ProPublica, the recent settlement does not address “state lawsuits and federal claims under the Clean Water Act and Oil Pollution Act,” which could cost BP over $21 million, and the agreement “has little to do with efforts to assess the extent of environmental damage and to pay for them.” Further complicating the suit is the fact that BP could still face criminal suits and the possibility of being barred from receiving future federal contracts.

The $7.8 billion settlement will come out of the $20 billion fund set aside in June 2010 by BP, but there is no cap on the payout, meaning the costs could potentially be higher (than). Lawsuits have mostly been filed by people who have sought greater damages than the BP fund was likely to be able to pay out. As ProPublica notes:

“But because the settlement will be paid out of the same fund, and amounts to a little more than half of what remains in it, it’s not yet clear how much plaintiffs will receive or what will happen to other claimants if the fund runs dry.”

However, the current agreement is less than many expected BP to pay, and it doesn’t look like BP will owe any more than they had already agreed to pay, according to ProPublica.

“The proposed settlement represents significant progress toward resolving issues from the Deepwater Horizon accident and contributing further to economic and environmental restoration efforts along the Gulf Coast,” Bob Dudley, BP’s CEO, in a statement issued.

Despite BP’s optimism over the current settlement, they still face the possibility of a litany of costly civil and criminal fines in the future.

Because the recent settlement effectively cut off the individual claims from the issue of paying for environmental damages, those issues and assessments will come from future civil suits brought by the states and the federal government for negligence under the Clean Water Act and Oil Pollution Act. Since the spill, several government investigations have found that BP and its contractors made careless mistakes in the final hours of its complex oil well.

The settlement does not cover civil penalties, and the Wall Street Journal reported that civil penalties could cost between $1,100 and $4,300 per barrel oil spilled under the Clean Water Act. Government estimates put the number of barrels spilled at 4.9 million, meaning penalties could be between $5.4 billion and $21 billion. The higher fines would be applied if the court finds that BP was “grossly negligent”, which is an argument government lawyers say they plan to make, according to the Journal.

BP’s track record may make it more vulnerable to civil charges, ProPublica reports. BP has over a decade of accidents, criminal and civil lawsuits brought against it, including several oil spills in Alaska and a deadly explosion at a refinery in Texas City, Texas. These past events could result in debarment, meaning the Environmental Protection Agency would disqualify BP from receiving future federal contracts, including leases to drill. Debarment would be the ultimate civil penalty.

BP also has potential criminal penalties to contend with. The Department of Justice has launched an investigation and is considering bringing criminal charges against BP under the Clean Water Act. ProPublica notes that officials are deciding whether to “prosecute individual BP executives for decisions made in the days leading up to the deadly explosion, as well as charges against the corporation itself.”

If the Justice Department does pursue criminal charges, BP would be subject to penalties twice as much as the economic damage of the the oil spill. That could mean $28 billion in criminal fines, and the government could argue to double the recent $7.8 billion and $6.5 million settlements BP has already agreed to out of court.

David Uhlmann, a University of Michigan law professor and former head of the Justice Department’s Environmental Crimes Section, thinks that the fines could be much higher — around $40 billion — if the government includes damages to wetlands and beaches in their penalties.

The Journal notes, “Mr. Uhlmann noted there never has been a U.S. corporate criminal penalty of even $2 billion, but that he could see BP paying one close to $10 billion.”

BP has already set aside a total of $37.2 billion to pay for spill-related damages. It has spent $22 billion on cleanup and restoration.

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