BP faces billions more in penalties over spill

Oil firm grossly negligent, judge rules

Oil oozes around the burning BP Deepwater Horizon drilling rig on April 21, 2010. A judge found Thursday that the oil company acted with gross negligence in the rig explosion and oil spill.
Oil oozes around the burning BP Deepwater Horizon drilling rig on April 21, 2010. A judge found Thursday that the oil company acted with gross negligence in the rig explosion and oil spill.

Oil company BP PLC faces billions of dollars more in potential penalties after a judge found it acted with gross negligence in the 2010 explosion on a drilling rig in the Gulf of Mexico and the resulting oil spill, the largest offshore spill in U.S. history.

photo

AP

A worker picks up blobs of oil from the BP spill on June 4, 2010, on Queen Bess Island at the mouth of Louisiana’s Barataria Bay.

In a turning point after four years of legal wrangling over responsibility, U.S. District Judge Carl Barbier's ruling Thursday laid the bulk of the blame on BP for the explosion, which killed 11 men, and the spill. Acting with gross negligence means BP will be exposed to as much as $18 billion in additional government fines and penalties. The London-based company has spent more than $28 billion on the accident so far.

"This opens the window for a worst-case scenario to play out, although this will likely drag out for years," said Brian Youngberg, an analyst with Edward Jones & Co. in St. Louis.

Barbier found BP's co-defendants Transocean Ltd. and Halliburton Co. less responsible for the accident. The judge did not rule Thursday on how much oil was spilled, a key factor in determining the scope of additional fines. The millions of barrels of crude that poured from the seafloor harmed wildlife and fouled hundreds of miles of beaches and coastal wetlands.

BP said it "strongly disagrees" with the ruling and would appeal immediately.

"The finding that it was grossly negligent with respect to the accident and that its activities at the Macondo well amounted to willful misconduct is not supported by the evidence at trial," the company said in a statement.

"BP's conduct was reckless," Barbier wrote in a decision Thursday in New Orleans federal court. "Transocean's conduct was negligent. Halliburton's conduct was negligent."

The ruling leaves BP further weakened at a time when the search for energy resources grows riskier and more expensive. Asset sales from Ohio to Pakistan already have shrunk the company as it seeks to pay for the oil spill, which halted deep-water drilling for months and forced explorers to foot the bill for additional safety measures to access oil miles beneath the ocean's surface. More asset sales are probable.

Once one of the biggest and most powerful oil companies in the world, BP faces years more of uncertainty that will put continued pressure on shares and may open the company to takeover pressure from larger rivals such as Royal Dutch Shell PLC or Exxon Mobil Corp.

BP shares fell $2.82, or 5.9 percent, to close Thursday at $44.89 on the Nasdaq stock exchange in New York.

Thursday's ruling defines the scope of the ultimate payouts, which will be determined after a trial scheduled to begin in January in New Orleans.

If Barbier agrees with the government's spill estimate of 4.2 million barrels, the payout could ultimately be as high as $18 billion based on federal guidelines for pollution fines. If he sides with BP's estimate that only 2.45 million barrels spilled, it would reach $10.5 billion. A barrel of oil is 42 gallons.

Barbier has discretion in how the fines are ultimately decided.

"During the penalty proceedings, BP will seek to show that its conduct merits a penalty that is less than the applicable maximum after application of the statutory factors," BP said in its statement.

BP also may be subject to unspecified punitive damages from lawsuits. Legal appeals may prolong the outcome for more than a decade -- Exxon paid the final punitive damages from the 1989 Valdez spill off Alaska 20 years after the accident.

Barbier laid 67 percent of responsibility for the deadly disaster squarely on BP. The judge found co-defendant Transocean, owner of the drilling rig, was 30 percent responsible. Halliburton, which also worked on the well, was just 3 percent to blame. Earlier this week, Halliburton said it had agreed to settle most of the lawsuits stemming from its role in the spill for $1.1 billion.

BP had lost more than $3 billion in market value this year as the value of its stake in Russian producer OAO Rosneft has plunged on concerns that conflict between Russia and Ukraine could break out into full-scale war.

"The federal government has extracted more than a pound of flesh in many cases, such as in the aftermath of the financial crisis, but the extraordinary amounts of those fines haven't reversed the damage that was done," said Robert Mittelstaedt, dean emeritus of Arizona State University's W.P. Carey School of Business. "It's only made them weaker institutions."

Equipment failures and questions about lapses in oversight led to an overhaul of federal regulation governing U.S. offshore safety. The agencies controlling deep-water drilling were reorganized, with new rules put in place to strengthen requirements for equipment, inspections and accident response.

New drilling in the deepest waters of the Gulf of Mexico was shut down for almost a year, and permitting of new projects slowed under more stringent federal reviews.

Since deep-water drilling in the U.S. resumed in 2011, BP and its peers have returned to the Gulf of Mexico, where the company is seeking to drill deeper and at higher pressures than before. Gulf oil output rose to 1.3 million barrels a day in May, the highest level since 2011, according to the U.S. Energy Information Administration.

Information for this article was contributed by Harry R. Weber of Bloomberg News.

A Section on 09/05/2014

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