Tag Archives: BP

Gross Negligence: the BP Approach to the Gulf Oil Spill

Gulf of Mexico disaster. image wikipedia

BP wants its money back — hundreds of millions of dollars of it — but a federal judge said Wednesday (Sept 24. 2014) that the oil giant must stand by the agreement it made with the companies it compensated for losses blamed on the 2010 Gulf oil spill.BP argued that a flawed funding formula enabled nearly 800 businesses to overestimate their spill-related claims.

One construction company hundreds of miles from the coast received $13.2 million, but deserved $4.8 million at most, BP said. Another company selling “animals and animal skins” was overpaid about $14 million, and about 50 others shouldn’t have been paid at all, the company said.  About 150 claimants should return a total of $185 million, and overpayments to the rest haven’t been calculated, attorney Kevin Downey argued.

U.S. District Judge Carl Barbier was not persuaded, thwarting BP’s latest attempt to control potential liabilities now approaching $50 billion.  The judge agreed weeks ago to change the compensation formula for any future payments, but ruled that a deal is a deal when it comes to the money BP has already paid out. Under that deal, claimants agreed not to sue, and BP agreed that no future court action could change their payments….

Barbier said he would rule later on the issue of compensation for cleanup workers whose chronic medical problems weren’t diagnosed until after the deal’s cutoff date of April 16, 2012. The settlement entitled cleanup workers with chronic conditions including rashes and breathing problems to receive up to $60,700 if the problems first surfaced within days of their cleanup work…

BP’s closing share price was $50.20 the day of the explosion, and fell to $22.80 in June 2010, before the well was capped. Shareholders returned after BP set aside $42 billion to cover its liabilities, reassured the financial damage was contained.  That’s no longer so clear: The judge’s ruling this month that BP showed gross negligence and willful misconduct added a new level of uncertainty around BP’s spill-related expenses, reducing its market value by $9 billion in a single day.,,BP’s total potential liabilities now include up to $18 billion in fines and penalties that could be imposed for violating federal pollution laws, and more than $27 billion BP says it has already paid to restore the coast and settle damage claims.

JANET MCCONNAUGHEY and JONATHAN FAHEY,Businesses Won’t Have to Return BP Spill, Associated Press, Sept. 24, 2014

See  also http://www.alphabetics.info/international/2012/09/12/bp-and-gross-negligence/

Halliburton Pleads Guilty to Destruction of Evidence in Deepwater Horizon

Halliburton

Halliburton Energy Services Inc. has agreed to plead guilty to destroying evidence in connection with the Deepwater Horizon disaster, the Department of Justice announced on July 25, 2013.. A criminal information charging Halliburton with one count of destruction of evidence was filed today in U.S. District Court in the Eastern District of Louisiana.

Halliburton has signed a cooperation and guilty plea agreement with the government in which Halliburton has agreed to plead guilty and admit its criminal conduct. As part of the plea agreement, Halliburton has further agreed, subject to the court’s approval, to pay the maximum-available statutory fine, to be subject to three years of probation and to continue its cooperation in the government’s ongoing criminal investigation.

According to court documents, on April 20, 2010, while stationed at the Macondo well site in the Gulf of Mexico, the Deepwater Horizon rig experienced an uncontrolled blowout and related explosions and fire, which resulted in the deaths of 11 rig workers and the largest oil spill in U.S. history. Following the blowout, Halliburton conducted its own review of various technical aspects of the well’s design and construction. On or about May 3, 2010, Halliburton established an internal working group to examine the Macondo well blowout, including whether the number of centralizers used on the final production casing could have contributed to the blowout. A production casing is a long, heavy metal pipe set across the area of the oil and natural gas reservoir. Centralizers are protruding metal collars affixed at various intervals on the outside of the casing. Use of centralizers can help keep the casing centered in the wellbore away from the surrounding walls as it is lowered and placed in the well. Centralization can be significant to the quality of subsequent cementing around the bottom of the casing. Prior to the blowout, Halliburton had recommended to BP the use of 21 centralizers in the Macondo well. BP opted to use six centralizers instead.

As detailed in the information, in connection with its own internal post-incident examination of the well, in or about May 2010, Halliburton, through its Cementing Technology Director, directed a Senior Program Manager for the Cement Product Line (Program Manager) to run two computer simulations of the Macondo well final cementing job using Halliburton’s Displace 3D simulation program to compare the impact of using six versus 21 centralizers. Displace 3D was a next-generation simulation program that was being developed to model fluid interfaces and their movement through the wellbore and annulus of a well. These simulations indicated that there was little difference between using six and 21 centralizers. Program Manager was directed to, and did, destroy these results.

In or about June 2010, similar evidence was also destroyed in a later incident. Halliburton’s Cementing Technology Director asked another, more experienced, employee (“Employee 1”) to run simulations again comparing six versus 21 centralizers. Employee 1 reached the same conclusion and, like Program Manager before him, was then directed to “get rid of” the simulations.

Efforts to forensically recover the original destroyed Displace 3D computer simulations during ensuing civil litigation and federal criminal investigation by the Deepwater Horizon Task Force were unsuccessful.  In agreeing to plead guilty, Halliburton has accepted criminal responsibility for destroying the aforementioned evidence.

Excerpt, Department of Justice, Halliburton Agrees to Plead Guilty to Destruction of Evidence in Connection with Deepwater Horizon Tragedy,July 25, 2013

Fictitious Deals: Who Pays for the Unregulated Oil Market

futures market oil

The European Commission declared that it feared oil companies had “colluded” to distort benchmark prices for crude, oil products and biofuels. Royal Dutch Shell, BP, Norway’s Statoil and Italy’s ENI  all said that they were co-operating with the commission. The competition authorities also called on the London offices of Platts, a subsidiary of McGraw Hill, an American publisher and business-information firm, which sets reference prices for these commodities.

The volumes of oil and products linked to these benchmark prices are vast. Futures and derivatives markets are also built on the price of the underlying physical commodity. At least 200 billion barrels a year, worth in the order of $20 trillion, are priced off the Brent benchmark, the world’s biggest, according to Liz Bossley, chief executive of Consilience, an energy-markets consultancy. The commission has said that even small price distortions could have a “huge impact” on energy prices. Statoil has said that the commission’s interest goes all the way back to 2002. If it is right, then the sums involved could be huge, too.

The authorities are tight-lipped about their focus, but they seem to be examining the integrity of benchmark prices. Each day Platts’s reporters establish a reference price by following the value of public bids and offers during a half-hour “window” before a set time—4:30pm in London, for example. This “Market-on-Close” (MOC) method is based on the idea that using published, verifiable deals to set the price is more reliable than having reporters ring around their pals, who might be tempted to talk their own books.  Platts keenly defends the MOC method. It points out that it ignores bids, offers and deals that are anomalous or suspicious. “We are not aware of any evidence that our price assessments are not reflective of market value,” it says, before declaring that it stands behind its method.

Yet such price-setting mechanisms have come in for criticism. The International Organisation of Securities Commissions (IOSCO), a grouping of financial regulators, said last year that the potential for false reporting “is not mere conjecture.” Total, a French oil giant…told IOSCO that benchmark prices were out of line with the underlying market “several times a year”.

Nobody knows what, if anything, the present investigation will find. The authorities should be scouring firms’ books for trades within the half-hour window that are offset in the futures markets. Perhaps they will find deals used in Platts’s assessment that are quietly unwound by the oil companies in private. They should also check shipping registers to see that cargoes have actually changed hands, or whether deals are fictitious. If any of these tricks could distort the benchmark by even a few cents, it might create a handy profit on contracts that are priced off it.

Oil consumers have been quick to rage at news of this week’s raids. The belief that oil companies rip off consumers is as unshakable as the idea that Rockefeller was good with money. “Our members…will be incandescent if what many have long suspected—that is price fixing—proves to be true,” said Robert Downes, of the Forum of Private Business, a British group that backs small firms. In fact, if there have indeed been price distortions, then these could as well have nudged prices down as forced them up—because oil traders make money on price movements, not just rises.

It is a complicated picture and the EU’s competition authorities are likely to take months or years before deciding whether they suspect any oil companies of having committed a crime. Meanwhile, a reform of the oil markets is unlikely to come anytime soon. Despite IOSCO’s fears of price distortion, it backed away from recommending changes—after fierce lobbying from the industry.

Trading in oil: Libor in a barrel, Economist,, May 18, 2013, at 77

Crying over Spilled Oil is Useful; BP Deepwater Horizon

An oil containment boom deployed by the U.S. Navy surrounds New Harbor Island, Louisiana.  Image from wikipedia

After the Deepwater Horizon oil rig exploded in 2010, killing 11 workers and spewing a lake of oil into the Gulf of Mexico, BP knew it would be punished severely. So far, the British oil firm has set aside $42 billion to pay fines, compensate victims and clean up the mess. Of this, some $36 billion has already been paid out or earmarked. America has also temporarily barred the company from bidding for federal contracts.

In all, BP has shelled out $14 billion to stop the spill and restore the coast to the way it was. It has paid out or earmarked $17.5 billion to compensate individuals and small businesses, plus another $4 billion to settle criminal charges with the Department of Justice. It has also set aside $3.5 billion to pay penalties for oil leaks under America’s Clean Water Act.  These have yet to be determined. A civil trial, set to begin on February 25th in New Orleans, will apportion blame for the accident, determine how much oil gushed out and apply financial penalties. The federal government is demanding $21 billion in compensation for spilt oil. To get that much, it must prove BP was “grossly negligent”. It must also persuade the court to accept its estimate of the size of the leak, rather than

As if that were not enough, BP’s annual results, released on February 5th, harboured another nasty surprise. Tucked away on page 42 were details of hefty new claims against the oil giant. Alabama, Mississippi, Florida and Louisiana are demanding $34 billion for economic losses and property damage. These mainly relate to tax revenues allegedly lost as a result of disruptions to businesses, says BP.  The oil giant knew that a bill was in the post: a three-year statute of limitations will soon expire. However, it was not expecting the bill to be so big. BP disputes the way the sum has been calculated and is ready to fight the claims in court. It reckons that the states will have a tough job substantiating their calculations of forgone taxes.

Both claims seem likely to be settled out of court…BP would far rather end the matter quickly and get on with its business. The uncertainty over the final bill is weighing down its share price. And its sheer size is daunting. If all the claims against it are upheld, BP’s total bill will amount to $90 billion or so. By way of comparison, Saddam Hussein’s Iraq was ordered to pay reparations of $52 billion ($88 billion in today’s money) for invading Kuwait.

One reason why a settlement has proved elusive is that the case is so complex. It involves three pieces of legislation and several layers of federal, state and local government with precious little co-ordination between them. For example, BP notes that 11 tiny Louisiana parishes have made a separate claim for damage to local wildlife. BP’s woes are not over.

The Deepwater Horizon disaster: Spills and bills, Economist, Feb. 9, 2013, at 66

What Transocean Pays for the Oil Spill in the Gulf

transocean headquarters Huston.  Image from wikipedia

Transocean Ltd. appeared in federal court in New Orleans after reaching a $1.4 billion settlement with the U.S. over the 2010 Gulf of Mexico oil spill….The company agreed last week to plead guilty to a misdemeanor count of violating the Clean Water Act and to pay $400 million in criminal fines and $1 billion plus interest in civil penalties. Under the agreement, Transocean will undergo five years’ probation and establish a technology innovation group to focus on drilling safety, devoting a minimum of $10 million to this effort…..

The agreement doesn’t cover costs to Transocean for natural-resources damage under the Oil Pollution Act of 1990, the company said. That law requires responsible parties to reimburse governments for restoring natural resources to pre- incident conditions.  Transocean said last week that the company’s liability for these damages was limited by a 2012 court ruling that it wouldn’t be liable under the Oil Pollution Act for subsurface discharge from the well.

The blowout and explosion aboard Transocean’s drilling rig sent millions of barrels of crude leaking into the gulf. The accident prompted hundreds of lawsuits against Transocean, London-based BP, the well’s owner, and Houston-based Halliburton Co. (HAL), which provided cementing services. BP previously agreed to pay $4 billion to the Justice Department to resolve charges connected to the spill and $525 million to settle the U.S. Securities and Exchange Commission’s claim that the company misled investors about the rate of oil flowing into the gulf.  BP announced Nov. 15 that it reached a deal with the Justice Department to plead guilty to 14 counts, including 11 for felony seaman’s manslaughter. U.S. District Judge Sarah S. Vance said last month that she would determine at a Jan. 29 hearing whether to accept BP’s plea.

The criminal case is U.S. v. Transocean Deepwater Inc., 13- cr-001, U.S. District Court, Eastern District of Louisiana (New Orleans). (pdf)

Margaret Cronin Fisk & Allen Johnson Jr, Transocean Appears in Court After $1.4 Billion Spill Pact, Bloomberg, Jan. 9, 2013

See also How much oil spills cost

 

 

BP: a culture of corporate recklessness

The Obama administration has accused BP of gross negligence and willful misconduct in causing the Deepwater Horizon oil spill of 2010. In a new court filing, the Department of Justice appears bent on blaming BP for the worst oil disaster in U.S. history.  The court document blasts BP’s leadership in no uncertain terms. Referring to “A Culture of Corporate Recklessness,” it states that “The behaviour, words and actions of these BP executives would not have been tolerated in a middling size company manufacturing dry goods for sale in a suburban mall.” It criticizes “the utter lack of any semblance of investigation of the systemic management causes deeply implicating the corporate managers and leadership who caused and allowed the rig-based mechanical causes to fester and ultimately explode in a fireball of death, personal injury, economic catastrophe, and environmental devastation.”

Referring to a “negative pressure test” performed by BP and Transocean hours before the blowout, the report states, “That such a simple, yet fundamental safety-critical test could have been so stunningly, blindingly botched in so many ways, by so many people, demonstrates gross negligence.”  The designation of “gross negligence” under the Clean Water Act, is an important distinction because it would mean the company could face $21 billion in civil damages alone—almost quadruple the penalty if “gross negligence” is not confirmed. BP also faces criminal charges.

The case may not go to trial, which is scheduled to begin January 14. Both sides are negotiating to reach a settlement to resolve both civil and criminal violations.  The Justice Department reportedly sought a $25 billion agreement from BP, but now may be willing to settle for $15 billion.

Justice Dept. Accuses BP of “Gross Negligence” over Gulf Oil Spill, AllGov.com, Sept. 7, 2012

The Unstoppable Oil Pollution: Penghu Islands and BP Oil Spill

Taiwan’s offshore Penghu County is facing a serious oil pollution threat along some of its shores from a stranded Thailand-flagged freighter, a local official said Tuesday [Feb, 21, 2012].  The Oberon ran aground in shallow water off Mudou islet, part of the Penghu archipelago, early Sunday in strong winds.   All 16 of the vessel’s crew were taken off the battered vessel and the Penghu Defense Command dispatched 200 military personnel to clean leaked fuel oil from the beaches of nearby Siyu Township.More than 64 tons of oil had so far been collected, Col. Li Zi-cheng said.The contamination is “quite serious,” Li told CNA in a telephone interview.”We will continue the cleaning work in the coming week,” he added. The Penghu Islands, also known as Pescadores, are an archipelago off Taiwan in the Taiwan Strait consisting of 90 small islands and islets covering an area of

Penghu islands facing serious oil pollution from stranded ship, CNA, Feb. 21, 2012

 

The state of Mississippi has reached an agreement on civil penalties with one company over the BP oil spill.  On Tuesday, Attorney General Jim Hood announced the settlement with MOEX Offshore.  MOEX will pay $5 million to the Mississippi Department of Environmental Quality’s Pollution Emergency Fund.  The company also agreed to pay an additional $5 million on supplemental environmental projects to promote conservation.  The U. S. and five Gulf State affected by the spill jointly negotiated a $90 million settlement with MOEX. Hood says the settlement is only for civil penalties and does not cover damages.

View over the Deepwater Horizon site, WTVA, Feb. 21, 2012