THE BLOG
01/25/2015 04:33 pm ET Updated Mar 27, 2015

BP's Clean Water Act Fines Will Be Smaller Than Gulf States Thought

(This article is published in "The Louisiana Weekly" in the Jan. 26, 2015 edition.)

The penalty phase of the Gulf spill trial, pitting the federal government against BP Exploration & Production Inc. and Anadarko Petroleum Corp., began in U.S. District Judge Carl Barbier's courtroom on Poydras St. last Tuesday. This third and final segment of a trial without a jury could extend for another two weeks in New Orleans and is focused on U.S. claims for civil penalties under Section 311 of the Clean Water Act.

Two years ago, the Gulf states thought BP might pay as much as $21 billion in CWA penalties, based on a maximum $4,300 per barrel spewed in 2010. But on January 15, before this trial's phase three began, Barbier ruled that 3.19 million barrels of oil were discharged into the Gulf versus the feds' 4.2 million estimate. That count makes BP's highest possible CWA penalty $13.7 billion. An expected smaller fine affects Louisiana's ability to fund its $50 billion, 50-year 2012 coastal master plan. Under the 2012 RESTORE Act, 80 percent of civil and administrative CWA penalties for the Deepwater Horizon disaster will be directed to five Gulf states.

BP subsidiary BPXP in Houston was the lease holder and operated the Macondo well when it exploded off Louisiana's southeast coast on April 20, 2010, killing eleven rig workers. A nearly three-month gush polluted coastal areas in five states. Anadarko owned a 25-percent, non-operating interest in the well.

BP acted with gross negligence in precipitating the April 20, 2010 spill, Barbier ruled last September. This mid-January, he found that BP wasn't grossly negligent or reckless in its source-control efforts to stop the spill.

In opening comments Tuesday, U.S. Justice Department attorney Steven O'Rourke said BP will try to make the case that it has mitigated for the spill with cleanup work and by compensating victims. But he said BPXP broke the law when the rig exploded and the spill occurred. After that, the company "broke the law lying during the response," he said. Then BP began to comply with regulations that require cleanup and payment of claims. "Now they want credit for mere compliance," he said.

O'Rourke said BP continues to focus on its own hardships rather than the harm it caused. BP and Anadarko will say they've paid enough, "as though we should be thanking them for their expenditures," he said. But BP had to clean up oil to avoid losing its operating license in the Gulf. Meanwhile, for its part, Anadarko seeks no CWA penalty, he noted.

BP will argue it has spent over $40 billion on response claims, damages, litigation and other items, O'Rourke said. But he added that shouldn't be surprising since the disaster was the biggest U.S. offshore spill ever. O'Rourke conceded that BPXP made some payments that weren't required by law or the Unified Command in charge of the cleanup, and he said they could be considered if Judge Barbier is inclined to trim BPXP's CWA penalty from a possible $13.7 billion. "But you should stay close to that maximum amount because of the seriousness" of the disaster, he said.

"You can consider the criminal fine, and you should consider payments that were made by BPXP above and beyond what was required by law," O'Rourke said. The fine combined with those payments totals $2 billion. "You should not deduct all of that, but they're factors," he said, adding that the company's CWA civil penalty should be well north of $11.7 billion.

As for a civil penalty against Anadarko, "the maximum is $3.5 billion but we don't think you should impose anything that high," O'Rourke said. However, he said it should be significantly above a $1 billion CWA civil penalty that Deepwater Horizon rig owner Transocean paid in a 2013 settlement.

On Tuesday, Kirkland & Ellis attorney Mike Brock, representing BP, said his client spent $16 billion on its immediate spill response, which included capturing, burning and skimming oil, and another $34 billion in a continued response. BP implemented a spill response plan as soon as the explosion occurred, and its joint effort with the U.S. Coast Guard "significantly changed the outcome to the environment," he said. Thirty-seven percent of oil discharged from the well was removed, he said.

Brock noted that BP has already paid a CWA criminal penalty of $1.2 billion. He said BP's spill-related payments include $11.2 billion in Gulf Coast claims; $1 billion for researchers to collect and analyze environmental data; $500 million for an independent research group in the Gulf; nearly $600 million for a Vessels of Opportunity program employing fishermen to remove oil; millions of dollars that increased over time to each Gulf state to help with their spill responses; $230 million to Louisiana, Mississippi, Alabama and Florida for promoting tourism; $100 million for a rig workers' fund; and money for seafood testing and marketing.

Brock said BP remains committed to a clean Gulf and currently staffs two "fire houses" on the coast with standby personnel to deal with any remaining oil. He said the spill's impact on fish, birds, sea turtles, dolphins and coral was very limited. "There's an absence of measurable negative impacts" on fish populations, he said. "From the U.S. live-bird-oiling data collection observed in the relevant period, over 99 percent have no visible oil." Of the 400 sea turtles collected "through a very vigorous, very effective rehabilitation program, almost all were returned to the Gulf," he said.

Brock said the company's Gulf activities generate 2,300 jobs. He said BPXP's current value, considering the recent drop in oil prices, is $5.1 billion. The company can't afford possible CWA penalties well in excess of that amount. Judge Barbier, however, asked if penalties couldn't be structured so that they're paid over a number of years.

The U.S. government's witnesses last week said the spill's harm to the environment and coastal residents was greater than BP maintains. On Wednesday, professor Donald Boesch, president of the University of Maryland Center for Environmental Science, said post-spill studies indicated that oxygen-depleted seaweed reduced fish habitat. Ocean fish were potentially impacted by the disaster. A number of birds, mammals and turtles were stranded on beaches during the spill. Turtle carcasses found along the Gulf were well above historical rates. Almost 15,000 young turtle hatchlings were moved for their protection and released elsewhere.

"The number of dead dolphins washed up on beaches during 2010 went way up, and they went way up in particular during the months in which the spill was occurring," Boesch said. The oiled birds that were found could have been the tip of the iceberg, and many more may have been killed than were collected.

Boesch, a Ninth Ward native of New Orleans, said of the 1,100 miles of oiled Gulf coast, 220 miles were moderately to heavily oiled. Some coastal marshes were permanently lost. "In Louisiana, marshes don't come back once they're eroded and don't regrow without intervention" by pumping in dredged material, using river-sediment diversions or taking other steps, he said.

At Louisiana's Coastal Protection and Restoration Authority, the Natural Resource Damage Assessment-Oil Spill Team that's authorized to discuss spill-related matters late last week declined to comment on reduced expectations for CWA fines against BP. CPRA head Jerome Zeringue resigned last week and was replaced by Chip Kline, Governor Bobby Jindal's deputy director for coastal activities. Speculation is that Zeringue may run for a state political seat. end