The US government sues BP and others for oil spill

BP has been slowly recovering from the horrific four month-long oil spill that followed an oil rig explosion on 20 April in the Gulf of Mexico.

But dampening that recovery was the announcement by the US Justice Department last Wednesday that it was suing the oil giant and eight others for negligence in relation to the incident, signalling the start of a lengthy legal saga.

The government has refused to put a specific figure on the amount of damages it is seeking, largely because they don’t know what the total cost will be. But legal experts are suggesting it could amount to anywhere between US$40 billion and $60 billion.

The defendants and accusations

Nine companies have been named in the lawsuit: BP and its fellow exploration licence holders Andarko (x2 companies) and Mitsui; Triton Asset Leasing; Transocean, the rig owner and part operator (x3 companies); and a QBE insurance syndicate in Lloyds, Transocean’s insurer.

Despite several reports alleging they cemented the well incorrectly, American firm Halliburton hasn’t been named in the suit. Neither has Cameron International, the company that provided the seemingly faulty well cap.

However, US Attorney General Eric Holder said that it was an ongoing process and that additional defendants and charges could be added to the lawsuit.

For now, the charges have been laid under the Oil Pollution Act and the Clean Water Act.

The government has made the following accusations:

• Failing to take necessary precautions to keep the Macondo well under control in the period leading up to the 20 April explosion

• Failing to use the best available and safest drilling technology to monitor the well’s condition

• Failing to maintain continuous surveillance

• Failing to use and maintain equipment and material that were available and necessary to ensure the safety and protection of personnel, equipment, natural resources and the environment

That is essentially legal speak for alleging that BP and its partners caused or contributed to the explosion on the Deepwater Horizon rig and the gigantic oil spill that followed.

The government has said that they intend to hold the defendants responsible for government removal costs, economic loss (lost revenue to businesses) and environmental damages, without limitation on the amount.

The defendants will inevitably have to pay the government something. But what will determine whether the sum is larger than expected is if the government can prove that the defendants were grossly negligent in their failures to do the above.

The potential cost

The cost of the cleanup, the damage to the environment and the economic loss to businesses is still unknown as the cleanup is still underway and compensation claims are still being processed.

But in addition to these costs, the companies face a minimum fine of $1,100 per barrel of leaked oil. This makes the total fine $5.3 billion, given the US government claims 4.9 million barrels were spilled (BP is disputing this figure).

But if the defendants are proven to be grossly negligent, then the fine would increase to $4,300 per barrel, or $21 billion.

BP itself has been extremely up front about its financial obligations. It has set aside US$40 billion for the total cost – $20 billion for damages claims, $11 billion to pay for the cleanup and $9 billion to cover any possible fines.

This will cover most of what the government is demanding in the lawsuit, which is why share price only slightly dropped on the news.

The only fear for BP investors is the threat of major fines stemming from gross negligence, which would add an extra $16 billion to the bill and make it extremely difficult to get money out of BP’s two licence partners.

What now?

The trial, which will be held in a district court in New Orleans, won’t actually begin until 2012, and the case could last years if not decades if all the appeals and different legal options are pursued (the lawsuit for the Exxon Valdez spill in Alaska lasted over 20 years).

BP, who knew the lawsuit was coming, has said that they will respond in a timely manner (they have 30 days), but that none of the claims constitute a finding of liability as yet.

Transocean has issued a stronger statement saying that they shouldn’t be held responsible for the actions of others and that no drilling contractor has ever been held liable for such mistakes under the Oil Pollution Act.

Various investigations are still ongoing into the accident, but it is the findings of the Justice Department’s own investigation that will be used to support the government’s case.

Meanwhile, 300 separate lawsuits have been filed in relation to the spill and are now slowly making their way through the court system.

The spill may have ended for the companies involved in the Deepwater Horizon oil rig disaster, but the legal battles have only just begun.

By The Casual Truth

Photo – US Attorney General Eric Holder