BP, Drilling Partners Sued by U.S. Government Over Gulf Oil Spill Damage

Units of BP Plc and four other companies were sued by the Obama administration over allegations they violated environmental laws in the largest offshore oil spill in U.S. history.

The lawsuit, filed yesterday in federal court in New Orleans, is the first brought by the U.S. over the oil spill caused by the explosion of the Deepwater Horizon rig in April. The Justice Department’s civil investigation is continuing, as is a probe of potential criminal violations.

The lawsuit seeks damages under the Clean Water Act and a declaration that four of the defendants are liable under the Oil Pollution Act for all removal costs and damages caused by the oil spill, including damages to the environment, according to a Justice Department statement. The lawsuit doesn’t ask for a specified amount of damages.

“The United States has sustained, and will continue to sustain significant costs and damages,” government lawyers said in the complaint. The U.S. “seeks in this action the imposition of Clean Water Act civil penalties for each barrel of oil that the defendants discharged into the Gulf of Mexico.”

The Clean Water Act authorizes the U.S. to seek civil penalties of $1,100 for each barrel of oil spilled, or in certain circumstances, as much as $4,300 a barrel from the companies involved, government lawyers said in a September filing with court in New Orleans. The government reported in August that 4.9 million barrels were spilled.

‘Very Expensive’

The clean water law penalties and natural resource damage claims expose BP to billions of dollars in potential damages, said Philadelphia attorney Fred Kuffler, an expert in marine pollution litigation who isn’t involved in the case.

“This is going to be a very expensive piece of litigation,” Kuffler said in an interview. “Somewhere along the line, BP is going to decide, ‘We need to make a deal with the government.’”

“We intend to prove that these violations caused or contributed to this massive oil spill, and that the defendants are therefore responsible -- under the Oil Pollution Act -- for government removal costs, economic losses, and environmental damages,” Attorney General Eric Holder said yesterday at a news conference.

“We have not asked for damages at this point because it’s going to take years to fully quantify what the damages are,” Tony West, an assistant attorney general who oversees the Justice Department’s civil division, said at the news conference.

Photographer: Jason Alden/Bloomberg

Robert Dudley, chief executive officer of BP Plc. Close

Robert Dudley, chief executive officer of BP Plc.

Close
Open
Photographer: Jason Alden/Bloomberg

Robert Dudley, chief executive officer of BP Plc.

Criminal Probe

The Justice Department is “at a different stage” with its criminal investigation compared with the civil case, Holder said. “We are moving as quickly as we can” on the criminal investigation, said Holder, who didn’t give any timetable for when it might conclude.

Yesterday’s lawsuit, said Scott Dean, a BP spokesman, “is solely a statement of the government’s allegations and does not in any manner constitute any finding of liability or any judicial finding that the allegations have merit.”

“Alone among the parties, BP has stepped up to pay for the clean-up of the oil, setting aside $20 billion to pay all legitimate claims,” Dean said in an e-mail. “We took these steps before any legal determination of responsibility and will continue to fulfill our commitments in the Gulf as the legal process unfolds.”

BP’s American depositary receipts fell as much as 2.6 percent to $43.29 in New York Stock Exchange trading after the filing. The ADRs, each representing six ordinary shares, closed yesterday at $43.86, down 58 cents.

Transocean, Anadarko

In addition to London-based BP, the owner of the well, defendants in the lawsuit include units of Vernier, Switzerland- based Transocean Ltd., which owned the rig, Anadarko Petroleum Corp. and MOEX Offshore 2007 LLC, part owners of the well that ruptured. Anadarko is based in The Woodlands, Texas. Mitsui & Co. owns 70 percent of Mitsui Oil Exploration Co., which holds 10 percent of the field where the Macondo well is located through wholly owned U.S. subsidiary MOEX Offshore, according to the Mitsui Oil website.

Transocean’s insurer, an underwriting unit of Sydney-based QBE Insurance Group Ltd., also was named as a defendant, though it can be held liable only up to the amount of insurance policy coverage under the Oil Pollution Act and isn’t being sued under the Clean Water Act.

“No drilling contractor has ever been held liable for discharges from a well under the Oil Pollution Act of 1990,” Guy Cantwell, a Transocean spokesman, said yesterday in an e-mail. “The responsibility for hydrocarbons discharged from a well lies solely with its owner and operator.”

‘No Authority’

MOEX Offshore said in an e-mailed statement that it is reviewing the complaint.

“As a 10 percent non-operator, MOEX Offshore had no authority or responsibility to direct activities on the Deepwater Horizon,” the company said.

The lawsuit alleges violations of federal safety and operational regulations that caused or contributed to the oil spill that began when an explosion and fire destroyed the Deepwater Horizon offshore drilling rig in the Gulf of Mexico, according to the statement.

Each defendant, other than the insurer, “caused or contributed” to the spill, the U.S. said in yesterday’s complaint. These defendants failed “to take necessary precautions to keep the Macondo Well under control,” failed to use “the best available and safest drilling technology,” failed to protect personnel and failed to maintain equipment and materials, the government said.

Drill Logs

The well partners’ joint operating agreement “required BP to provide the Anadarko Defendants and MOEX with detailed technical information regarding exploration and other operations performed in connection with the lease, including applications for and modifications of permits to drill, mud logs, mud checks and other information,” the U.S. said in the complaint.

In exchange, Anadarko and MOEX got the right to receive “daily reports, access to a secure website containing sampling and other data, and access to real time data from the rig,” the U.S. said.

“As a non-operating minority interest holder in the well, we were not involved in the operations or decisions that occurred on the drilling rig,” John Christiansen, an Anadarko spokesman, said in an e-mailed statement. “We recognize that we may have obligations under federal law, and we will continue to look to the operator to pay all legitimate claims as it has committed to do.”

“We stand by our statement of June 18, that the operator’s decisions and actions on the rig likely amount to gross negligence and/or willful misconduct,” Christiansen said.

More Defendants

Other defendants and claims could be added later, Holder said at the news conference.

Halliburton Co., which provided the cement to plug the well, wasn’t named as a defendant in the lawsuit.

BP captured 800,000 barrels of oil before the well was capped on July 15, according to a report in August by a team of government and academic scientists.

The company has set aside $40 billion to pay for cleanup and litigation from the spill. The company returned to profit in the third quarter with a net income of $1.8 billion after a record loss in the second quarter.

Beyond the Clean Water Act penalties, the U.S. also can seek damages for destruction of natural resources, loss of taxes and royalties and removal costs under the Oil Pollution Act, the government said in court papers in September.

Lawsuits Combined

The economic loss, environmental damage and personal injury suits are combined in a multidistrict litigation before U.S. District Judge Carl Barbier in New Orleans for pretrial organization and evidence-gathering, or discovery.

Lawyers in the combined lawsuits on behalf of thousands of businesses and individuals filed a master complaint yesterday in federal court in New Orleans.

BP and other companies connected to the well “ignored crucial safety issues, cut corners and violated federal and state law to save time and money in favor of production and profit,” lawyers for thousands of businesses and individuals claiming economic losses from the spill said in the complaint. “Their cost-cutting measures were outrageous.”

Separate groups of suits by BP shareholders claiming securities fraud or mismanagement are pending before a federal judge in Houston.

The U.S. lawsuit will become part of multidistrict litigation, according to the Justice Department statement.

The case is U.S. v. BP Exploration & Production Inc., 10-04536, U.S. District Court, Eastern District of Louisiana (New Orleans) The combined case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10-md-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporters on this story: Justin Blum in Washington at jblum4@bloomberg.net; Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.

To contact the editors responsible for this story: Mark Silva at msilva34@bloomberg.net; David E. Rovella at drovella@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.