BP’s ‘gross negligence’ caused Gulf oil spill, federal judge rules
A federal judge in New Orleans yesterday ruled that BP’s “gross negligence” and “willful misconduct” had caused the massive oil spill in the Gulf of Mexico in 2010 and that the company’s “reckless” behavior made it subject to fines of as much as $4,300 a barrel under the Clean Water Act.
The ruling by District Court Judge Carl Barbier means that the government can impose penalties nearly four times as large as it could if BP were not found guilty of gross negligence.
The ruling could open up the company to fines of as much as $18 billion. BP has set aside $3.5 billion for potential Clean Water Act fines and has noted that in previous oil spill cases, the government and the courts have imposed penalties far lower than the maximum. Nonetheless, the price of BP shares tumbled nearly 6 percent on the news.
BP issued a statement yesterday saying that it “strongly disagrees with the decision issued today.”
“The law is clear that proving gross negligence is a very high bar that was not met in this case,” the company said. “BP believes that an impartial view of the record does not support the erroneous conclusion reached by the District Court.”
“The court found BP grossly negligent. I find the ruling a gross injustice,” said Fadel Gheit, an oil analyst for Oppenheimer & Co. who has argued that the company has already paid dearly for the accident. “It is a bad day for BP and its shareholders and also a bad day for our system of justice.”
Barbier said that drilling rig owner and operator Transocean and oil services giant Halliburton were also “negligent” in the events that led to the blowout of BP’s Macondo well that set fire to Transocean’s Deepwater Horizon rig, killed 11 workers and triggered the largest oil spill in U.S. history. Barbier apportioned 67 percent of the fault to BP, 30 percent to Transocean and 3 percent to Halliburton.
The judge did not, however, say that Transocean or Halliburton was guilty of “gross negligence.” As a result, the two companies will not be subject to punitive damages. And Barbier said that while “the conduct of BP’s employees was egregious enough that exemplary or punitive damages would be appropriate,” he cited other appellate cases as precedent and said that BP “is not liable for punitive damages.”
Transocean last year agreed to pay the government $1 billion to settle its Clean Water Act liabilities related to the oil spill, and it paid an additional $400 million in criminal penalties. But Barbier had harsh words for the company, saying that it “was aware that its crews lacked training about the proper use of diverters” that should have directed dangerous hydrocarbons away from the rig. He also said that Transocean had not lined up the diverter properly.
Halliburton has vigorously denied that its cement job designed to seal the well shut was a reason for the blowout, and the government has not sought to impose Clean Water Act fines on the company. But Barbier said that “the cementing program at Macondo clearly did not prevent the direct or indirect release of fluids from a stratum, through the wellbore, and into offshore waters, and this failure was, in fact, a proximate cause of the incident.”
Barbier also said that the indemnities BP granted Transocean and Halliburton in their contracts were still valid, which could leave BP bearing the entire cost of any fines, advisers to Transocean said.
Barbier underlined BP’s responsibility, saying the company failed to conduct several tests that might have raised alarms about the stability of the well and that it misinterpreted other tests – such as a critical negative pressure test - that did indicate that the well was failing.
The judge said that after BP well site leader Don Vidrine ordered the removal of drilling mud that was a counterweight to the oil further down the drill pipe, “it was only a matter of time before the well would again become underbalanced.” And he said that BP’s accident investigation omitted mention of a phone call at 8:52 p.m. that Barbier said was a crucial part of the chain of events when “the opportunity to avoid disaster had not yet passed.”
The question of negligence is the first part of a three-part court case about the fines the government can impose on the London-based oil giant. This part assigns blame. The second part will determine the size of the spill. And the third part will determine the final amount of Clean Water Act and punitive fines.
BP estimates the size of the oil spill at 2.45 million barrels, far below the Justice Department estimate of 4.2 million barrels.
BP has spent about $27 billion to clean up the spill and compensate the people and businesses that it harmed. The company has taken $43 billion of charges against earnings, it said in its most recent earnings release.
At the same time, the company has increased its drilling activity in the Gulf of Mexico. At the end of 2013, the company was operating 10 deepwater rigs there. It has brought several new wells online.
Pavel Molchanov, an energy analyst at the investment firm Raymond James, said that “BP will appeal, and the appeals process is likely to be dragged out for years.” He said he had assumed that BP would end up spending closer to $50.8 billion in Macondo-related expenses, and the negligence ruling did not alter his estimates.
All three parts of the ongoing court case are separate from BP’s settlement with private plaintiffs claiming economic damages. That settlement, which BP expects will cost about $9.2 billion, is also before Barbier.
The lead attorneys in that case, James Roy and Stephen Herman, issued a statement yesterday saying that “the Court has now laid bare the full extent of the level of BP’s misconduct.”
Sen. Edward Markey, a Massachusetts Democrat, one of the leading congressional critics of BP at the time of the spill, said that “it was clear that the company compromised safety for speed, and today’s ruling once again confirms that assessment.” He said “BP should be fully held to account” for the spill.