BP May Pay Billions More in Oil Spill Claims After Deal

Crude oil floats on the surface of Gulf of Mexico waters at the site of the sunken BP/Transocean oil drill the Deepwater Horizon, on April 27, 2010.

BP Plc (BP/), which agreed to pay more than $12 billion in government and private party settlements over the 2010 Gulf of Mexico oil spill, still faces claims seeking billions of dollars more for the catastrophe.

The $4.5 billion agreement yesterday resolving federal charges and civil claims by the Securities and Exchange Commission left the company at risk for as much as $17.6 billion in potential fines from alleged violations of the Clean Water Act and demands by the U.S. and Gulf states for enough money to restore the region’s coastline and waters to their condition before the spill.

Europe’s second-biggest oil company will face resistance from both state and federal authorities in trying to resolve the remaining pollution violations and natural resource damages claims before trial, said Garret Graves, chairman of Louisiana’s Coastal Protection and Restoration Authority. Both sets of claims will “easily be in the tens of billions of dollars,” Graves said in a phone interview.

BP may nevertheless escape a federal contracting ban as it tries to rebuild its reputation. The company, the Pentagon’s biggest fuel supplier with awards valued at about $1.35 billion in 2011, said it hasn’t been informed about a so-called contracting death sentence.

‘Down Payment’

BP’s criminal settlement with the Justice Department announced yesterday “represents but a down payment on the oil company’s obligation to mitigate the environmental and economic damage it unleashed on the Gulf Coast more than two years ago,” said Alabama Representative Jo Bonner, a Republican.

Bonner said in a statement that U.S. Attorney General Eric Holder called him before the settlement was announced and “gave his assurances that the Justice Department would vigorously pursue further civil penalties under the Clean Water Act.”

“Anything less would be unacceptable to our coastal communities,” Bonner said.

The U.S. has been in negotiations with BP to resolve all disputes over the spill, including civil claims brought by the government in a 2010 lawsuit alleging violations of federal pollution laws, Holder said at a news conference yesterday in New Orleans.

“We have not reached a number that I consider satisfactory,” Holder said. The pollution claims are scheduled to be heard in a non-jury trial set to begin Feb. 25 in federal court in New Orleans.

State Disagreements

Disagreements among state officials and other parties provided a stumbling block to reaching a global resolution of all government claims, said a person familiar with the negotiations. The states disagreed over which laws would govern the payments, which would affect the amounts paid and how much control local officials would have over the funds, said the person, who asked not to be identified because the talks were private.

The $4.5 billion settlement announced yesterday ended all criminal charges against BP over the spill and settled the Securities and Exchange Commission’s claim that the company misled investors about the rate of oil flowing into the Gulf of Mexico.

BP agreed to plead guilty to 14 criminal counts including 11 for felony manslaughter for the 11 people who died when the Deepwater Horizon drilling rig exploded and sank, the U.S. said. The company has also pleaded guilty to one misdemeanor count under the Clean Water Act, one misdemeanor count under the Migratory Bird Treaty Act and one felony count of obstruction of Congress, the U.S. said.

Manslaughter Charges

The U.S. also charged two BP well-site managers with involuntary manslaughter and a former executive with obstruction and false statements. Lawyers for all three men said their clients were innocent.

Arraignments for all three are set for Nov. 28 in federal court in New Orleans. BP is scheduled for a separate arraignment on Nov. 27 in the same court.

“Perhaps the greatest tragedy is the BP disaster could have been avoided,” Assistant Attorney General Lanny A. Breuer said yesterday in New Orleans. “We hope this settlement brings some measure of justice to the families of the workers who died on the rig.”

BP also underestimated the size of the spill to the public and Congress to make it seem as if “less damage was being done to the environment than in fact was really occurring,” Breuer said.

‘Accepted Responsibility’

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf Coast region,” BP Chief Executive Officer Bob Dudley said yesterday in a statement. “We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

The $4 billion settlement with the U.S. Justice Department includes a record $1.26 billion criminal fine, to be paid over five years. London-based BP said in a statement that it agreed to five years’ probation and will pay $525 million to settle the SEC claims.

The $525 million “will be used to compensate harmed investors for losses sustained from this fraud,” Rob Khuzami, director of enforcement at the SEC, said at the news conference in New Orleans.

Shareholder Lawsuits

The SEC agreement doesn’t resolve shareholder lawsuits brought in federal court in Houston that also allege the company understated the extent of the spill. The investors, who are seeking to be allowed to sue BP in a class, or group, action, say the company downplayed the size of the spill to bolster share prices.

The guilty plea “supports our claims,” said attorney Steven Toll, who represents BP investors in the lawsuit. “It will be helpful in the long run.”

The April 2010 Macondo well blowout and the explosion that set off the worst offshore oil spill in U.S. history. The accident prompted hundreds of lawsuits against BP; Transocean Ltd. (RIG), the Vernier, Switzerland-based owner and operator of the Deepwater Horizon rig; and Halliburton Co. (HAL), which provided cementing services.

The Justice Department sued BP in December 2010, alleging the company failed to prevent or contain the spill and seeking fines for each barrel of oil discharged.

Water Act

The government estimated that more than 4 million barrels of oil were spilled. If BP is found to be grossly negligent, a legal standard the government would have to prove showing the accident resulted from a conscious BP act or omission, it could be fined as much as much as $4,300 a barrel under the Clean Water Act.

BP set aside $3.5 billion to pay potential Clean Water Act fines, using its own estimate of 3.2 million barrels and a maximum fine of $1,100 per barrel without gross negligence.

BP faces a maximum possible fine of $17.6 billion for civil environmental violations alone if the company is found grossly negligent by the federal judge overseeing lawsuits stemming from the spill.

BP reached a settlement with most non-government plaintiffs in March, agreeing to pay an estimated $7.8 billion. That settlement averted a trial scheduled to determine liability for the disaster.

February Trial

U.S. District Judge Carl Barbier in New Orleans, who’s overseeing much of the spill litigation, has set Feb. 25 for a new nonjury trial to apportion fault and decide whether BP is liable for gross negligence.

The company said in its release that it will “continue to vigorously defend itself against all remaining civil claims and to contest allegations of gross negligence in those cases.”

In its proposed settlement in March, BP agreed to pay most claims for economic loss, property damage and injuries from businesses, property owners and other non-government victims of the spill. While BP estimated the settlement at $7.8 billion, it isn’t capped and could be more or less depending on claims made and paid.

BP also established a medical-monitoring program to handle claims from people who contend they are suffering health effects from the oil or chemicals used to clean up the spill.

The settlement excluded claims of financial institutions, casinos, private plaintiffs in parts of Florida and Texas, and residents and businesses claiming harm from the Obama administration’s moratorium on deep-water drilling prompted by the spill. It also didn’t cover federal government claims and those of Louisiana and Alabama, or lawsuits against co- defendants.

BP Partners

Those claims remain pending, along with the U.S. allegations of federal pollution law violations against Transocean and one of BP’s partners in the well, The Woodlands, Texas-based Anadarko Petroleum Corp. (APC) Another partner, Mitsui & Co. (8031)’s MOEX Offshore 2007, which had also been sued, has settled the U.S. claims.

BP and lawyers representing non-government victims of the spill won preliminary approval from Barbier for the proposed settlement in May and argued for final approval at a hearing on Nov. 8. A decision is pending.

The criminal penalty provided for in yesterday’s settlement is the largest in U.S. history, eclipsing the $1.195 billion paid by Pfizer Inc. (PFE) for marketing fraud in 2009.

Along with the criminal fine, the resolution with the Justice Department includes a total of $2.4 billion that will be paid to the National Fish & Wildlife Foundation over a period of five years. Another $350 million will be paid to the National Academy of Sciences over that same period.

BP Charges

Thirteen of the 14 criminal charges against BP are related to the accident itself and are based on negligent misinterpretation of the negative pressure test conducted on board the Deepwater Horizon, BP said. The final count involves BP’s communications on flow rate estimates to a congressional subcommittee, the Justice Department said in a court filing.

BP officials told Congress in May 2010 that the company’s “best guess” estimate of the spill flow rate was about 5,000 barrels a day, even though some of its own scientists had suggested much more oil was flowing into the Gulf, according to the Justice Department.

‘Deliberately Low-Balling’

“It is now clear that BP was lying to Congress,” Representative Edward Markey, a Massachusetts Democrat who helped lead a congressional investigation into the spill, told reporters yesterday. “They were deliberately low-balling the number, because their liability is directly tied to the number of barrels of oil that flow into the ocean.”

Two BP well-site leaders who supervised testing on the Macondo oil well were separately charged, according to court filings yesterday. The men, Robert Kaluza and Donald Vidrine, became aware of multiple indications that the well wasn’t secure and “failed to maintain control,” the U.S. said in the filing in the criminal case against BP in federal court in New Orleans.

David Rainey, the company’s former vice president of exploration for the Gulf of Mexico, was also charged, the U.S. said. Rainey was responsible for estimates on the size of the spill, the U.S. said.

Breuer said Rainey “cherry-picked” information from flow- rate reports to make the oil spill “appear less catastrophic than it was.”

Obstruction of Congress

Rainey was charged with obstruction of Congress and false statements. Kaluza and Vidrine were charged with involuntary manslaughter, seaman’s manslaughter and Clean Water Act violations, according to court filings.

“It is almost inconceivable that any fair-minded person would blame this hard-working and diligent man for one of the most catastrophic events in the history of the oil business,” Robert Habans, a lawyer for Vidrine, said in an e-mailed statement. “Don Vidrine is innocent of these charges and it is a failure of justice to blame this event on him.”

Kaluza is innocent, his attorneys Shaun Clarke and David Gerger, said yesterday in a statement.

“After nearly three years and tens of millions of dollars in investigation, the government needs a scapegoat,” they said. “Bob was not an executive or high-level BP official. He was a dedicated rig worker who mourns his fallen co-workers every day.”

Profoundly Disappointed

Rainey “has done absolutely nothing wrong,” his attorneys, Reid H. Weingarten and Brian M. Heberlig, said yesterday in a statement. “We are profoundly disappointed that the Department of Justice is attempting to turn a tragic accident and its tumultuous aftermath into criminal activity.”

Kurt Mix, a former BP engineer, was previously charged with destroying evidence in the probe of the spill. Mix has pleaded not guilty.

Yesterday’s settlement with BP should “now enable more clear discussions” between Transocean and the Justice Department over the drilling rig owner’s potential criminal exposure, Matt Conlan, an analyst at Wells Fargo & Co. (WFC) in New York, wrote in a note to investors yesterday. It’s unknown whether BP’s settlement will increase Transocean’s liability beyond the estimated $2 billion it’s already reserved, he wrote.

Lou Colasuonno, a New York-based spokesman for Transocean, and John Christiansen, spokesman for Anadarko, declined to comment on BP’s agreement with the U.S.

Halliburton ‘Confident’

“Halliburton remains confident that all the work it performed with respect to the Macondo well was completed in accordance with BP’s specifications for its well construction plan and instructions,” Beverly Stafford, company spokeswoman said yesterday in an e-mail. “Halliburton has cooperated with the DOJ’s investigation.”

The criminal case is U.S. v. BP Exploration and Production Inc., 12-00292, U.S. District Court, Eastern District of Louisiana (New Orleans). The criminal cases against the individuals are U.S. v. Kaluza, 12-cr-00265; and U.S. v. Rainey, 12-cr-00291, U.S. District Court, Eastern District of Louisiana (New Orleans).

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

To contact the reporters on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Photographer: DigitalGlobe via Getty Images

BP Plc, which has now agreed to pay more than $12 billion in government and private party settlements over the 2010 Gulf of Mexico oil spill, still faces claims seeking billions of dollars more for the catastrophe.

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Photographer: DigitalGlobe via Getty Images

BP Plc, which has now agreed to pay more than $12 billion in government and private party settlements over the 2010 Gulf of Mexico oil spill, still faces claims seeking billions of dollars more for the catastrophe. Close

BP Plc, which has now agreed to pay more than $12 billion in government and private party settlements over the 2010... Read More

Photographer: Benjamin Lowy/Getty Images

Crude oil floats on the surface of Gulf of Mexico waters at the site of the sunken BP/Transocean oil drill the Deepwater Horizon, on April 27, 2010. Close

Crude oil floats on the surface of Gulf of Mexico waters at the site of the sunken BP/Transocean oil drill the... Read More

Photographer: U.S. Coast Guard via Getty Images

BP Plc, the owner of the Macondo well that in 2010 caused the worst U.S. oil spill, has agreed to the largest U.S. criminal settlement in history, according to a person familiar with the deal. Close

BP Plc, the owner of the Macondo well that in 2010 caused the worst U.S. oil spill, has agreed to the largest U.S.... Read More

Photographer: Simon Dawson/Bloomberg

BP Chief Executive Officer Bob Dudley reiterated last month that the company is willing to settle with the U.S. “on reasonable terms.” Close

BP Chief Executive Officer Bob Dudley reiterated last month that the company is willing to settle with the U.S. “on reasonable terms.”

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