Gulf States and BP set for oil spill trial

25 February 2013 Last updated at 00:04
http://www.bbc.co.uk/news/business-21548117

BP and Gulf states set for trial over oil spill

BP is set to begin a civil trial over the 2010 Deepwater Horizon oil spill that became the US’s worst environmental disaster.

The UK oil giant will be pitted against the US states that were affected by the spill and the Department of Justice. It faces the biggest civil fine in history.

It comes after BP agreed in November to pay $4.5bn (£2.9bn) to settle criminal charges relating to the spill.

The trial is to be held in New Orleans.

The trial will determine the causes of the spill, and assign responsibility to the parties involved, including BP, contractor Halliburton, rig operator Transocean, and Cameron, which manufactured the blowout preventer meant to stop oil leaks.
Focus on negligence

The non-jury trial will unfold in two phases.

The first, beginning on Monday, will focus on the cause of of the 20 April 2010 explosion that claimed the lives of 11 men and released an estimated 4 million barrels of oil into the Gulf over 84 days.

“BP can hire all the smiling faces they can find for their commercials, but in court it’s a game-changer,” Garret Graves, the chairman of the Coastal Protection and Restoration Authority of the state of Louisiana, told the BBC.

“First of all, they will have to start telling the truth,” he said. “Second, let’s just say that’s not going to go over so well for BP. Even BP’s money can’t buy revisionist history.”

Federal District Court Judge Carl Barbier will then determine whether BP’s actions on the oil rig were simply negligent or grossly negligent, which would impose significantly bigger fines on the company.

BP chief executive Bob Dudley has said he firmly believes the company was not grossly negligent.

But the risks are so great for BP that it may try to reach an eleventh-hour settlement before the trial begins, analysts said.

“If they are found grossly negligent it will set the tone on the level of fines BP will have to pay, and the financial consequences will be huge,” said Nick McGregor, an oil analyst at Redmayne Bentley Stockbrokers.

“So while BP’s posturing in public is robust, I wouldn’t be surprised if they are aggressively trying to reach for a settlement behind the scenes,” he added.
Barrels of oil spilt

Robert Percival, an environmental law professor at the University of Maryland, said: “The risk for both sides is so great – for BP it’s their name, reputation and future contracts with the US government. For the US government it’s all the resources they’re spending on the trial – particularly if BP is not found grossly negligent.”

The second part of the trial, set to begin in early autumn, will attempt to determine how much oil was leaked, which would then determine the size of the federal fine.

Under the Clean Water Act, the fines are calculated as $1,100 for every barrel of oil spilt through ordinary negligence to as much as $4,300 a barrel through gross negligence.

The Department of Justice intends to demonstrate BP was grossly negligent, which puts the maximum penalty to about $17.6bn, the biggest civil fine ever levied.

Last Wednesday, BP won a ruling that 810,000 barrels of oil captured would not be counted in Monday’s civil case, which reduced the potential fine under the Clean Water Act by $3.4bn.

The minimum fine is now about $4.5bn – if BP is charged of simple negligence.

However, on top of that, the Gulf states of Louisiana, Alabama, Mississippi and Florida are demanding an additional $34bn in damages under the Oil Pollution Act, citing uncertainty over the long-term effects of the spill on their coastline as well as economic losses and property damage.

But BP has said it would “defend vigorously” against the claims, saying the methodologies used to calculate them were “seriously flawed”.
Rebuilding credibility

Once the world’s second-biggest oil company, BP has fallen to fourth place among the “oil majors” after selling off billions of dollars worth of assets to set aside money to cover liabilities related to the disaster.

In spite of the looming costs, BP still eked out a profit in the fourth quarter from a year earlier.

And so far BP has done an effective job of restoring its credibility through PR campaigns and providing compensation, analysts said. While the financial impact related to the spill will be huge, it is unlikely that its overall outlook will be damaged.

For example, BP has only been barred from getting contracts from the Environmental Protection Agency but not the US government, which surprised many lawyers, said Mr Percival.

“Many feel this [disbarment] is temporary, and as oil is so fungible there will always be a market for BP,” he said.

Leave a Reply