Oct. 30 (Bloomberg) -- BP Plc will be fined a record $87.4 million by the U.S. for failing to correct safety shortfalls at a Texas refinery after a 2005 explosion that killed 15 workers, the U.S. Occupational Safety and Health Administration said.

“This administration will not tolerate disregard of our laws,” Labor Secretary Hilda Solis said today on a conference call, announcing the proposed penalties. If additional safety violations are not addressed, “it could lead to another catastrophe.”

OSHA this month rejected BP’s request for more time to comply with a settlement over the blast, which left 170 people injured. London-based BP, Europe’s second-largest oil producer, said in a statement that it’s “disappointed” with the penalty.

“The size of the fine will draw attention to the fact that OSHA is more serious than they have been in the past about insuring compliance for safety issues,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Other refiners are looking at their situation and making sure they are in compliance.”

The Texas City refinery is the fourth-largest in the U.S., counting a plant in the U.S. Virgin Islands, and has a capacity of 470,000 barrels a day, according to data compiled by Bloomberg.

BP Contesting

BP is formally contesting the decision by OSHA. “We continue to believe that we are in full compliance,” Texas City Refinery Manager Kevin Casey said in an e-mailed statement. “We look forward to demonstrating that.”

The company had 15 days to pay the penalties and take corrective action, or contest the fines through a hearing process. The previous largest fine by OSHA was $21 million in 2005, also against BP.

OSHA said it has issued 270 notifications to BP for failing to correct hazards at the Texas City refinery over a four-year period after the explosion. OSHA is issuing a $56.7 million fine for those transgressions. OSHA also identified 439 new “willful and egregious” violations of safety-controls at the refinery. That will lead to $30.7 million in additional fines.

The company has “serious systemic safety problems,” Jordan Barab, the acting assistant labor secretary for OSHA, said on the conference call. “I think the fact that there are so many life-threatening problems indicates they have a systemic safety problem at this refinery,” he said.

The 2005 Texas City blast “in part, was caused by defective pressure relief systems,” Solis said. “BP still lacks important information about the hazards of its pressure vessels and the company continues to lack clear operating procedures that could prevent another disastrous explosion.”

Full Operations

The refinery resumed full operations at the end of last year after running at reduced rates following Hurricane Rita and the explosion. The company spent $1 billion to upgrade production units and improve safety at the plant, where the restart was part of BP’s plans to close an earnings gap with competitors.

BP failed to take necessary steps to resolve faults in pressure-relief systems or address “residual risks” as the settlement required, Mark Briggs, director of OSHA’s Houston office, said in a letter to the company dated Oct. 15. BP didn’t provide a valid reason for the delay, according to the letter.

“It’s like divorce court,” said Lipow. “BP is claiming they are fully in compliance, OSHA is saying they are not. We have two statements that are diametrically opposed and without seeing more specifics it’s hard to tell what the exact situation is.”

Mike Wright, head of health and safety for the United Steelworkers union, which represents as many as 30,000 U.S. refinery workers, said he hopes the penalty sends a message to other companies.

“Our people are telling us there are a lot of problems through the industry,” he said.

To contact the reporter on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net.

Last Updated: October 30, 2009 13:38 EDT