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BP’s U.S. Defense Contracts Doubled Since Year of Gulf Oil Spill

BP Plc’s Pentagon contracts have more than doubled since the year of the Gulf of Mexico oil spill, the biggest in U.S. history.

The company’s awards surged to $2.51 billion in the year ended Sept. 30 from $1.04 billion in fiscal 2010, the year of the oil rig explosion, according to data compiled by Bloomberg. BP’s share of the military’s petroleum market jumped to 12 percent from 8.5 percent during the period.

The London-based supplier was suspended Nov. 28 from winning new government work after it agreed to plead guilty to criminal charges for its role in the spill. Until then, the Defense Department was free to boost its purchases with BP.

The Pentagon “greatly rewarded the company for the oil spill,” said Charles Tiefer, a University of Baltimore law professor and former member of the U.S. Commission on Wartime Contracting. “This is alarming since the billions of dollars of environmental harm by BP make it the worst federal government contractor in history.”

The Deepwater Horizon well blowout on April 20, 2010, killed 11 workers. The spill sullied hundreds of miles of the coastline and crippled the region’s fishing and tourism industries.

More than two years after the disaster, the Environmental Protection Agency announced the temporary ban. The action doesn’t affect existing contracts.

Contract Suspension

BP should have been suspended directly after the spill, said Tyson Slocum, director of the energy program for Public Citizen, a non-profit consumer watchdog group in Washington.

“This is the really disturbing thing: The government accelerated its contracts with a company that was under active criminal investigation,” Slocum said in an interview. “This raises questions about the Obama administration’s real commitment to addressing corporate crime and protecting taxpayers from abusive contractors.”

Scott Dean, a BP spokesman, declined to comment. The EPA didn’t explain in its announcement of the suspension why it waited for more than two years to temporarily bar the company.

The Defense Logistics Agency, which buys most of the military’s fuel, awarded the bulk petroleum contracts competitively, said Michelle McCaskill, a spokeswoman for the office.

BP was an eligible contractor until its suspension, and it won contracts when its “offer represented the lowest cost to the government,” she said.

Oil Competitors

BP is among the companies that have gained from the Pentagon’s appetite for oil. The Defense Department, the world’s single largest consumer of energy excluding countries, spent $17.3 billion on petroleum in fiscal 2011, a 26 percent increase from $13.7 billion the previous year, according to military figures.

Rising oil prices accounted for most of the department’s increase in petroleum costs in fiscal 2011. The wars in Iraq and Afghanistan also have contributed to a boost in petroleum spending since 2005.

BP’s suspension may give competitors an edge in bidding for future government work. At least two of the firm’s contracts, with an estimated value of about $900 million, have expired since November, according to the Defense Logistics Agency. The work was awarded to San Ramon, California-based Chevron Corp. and New Braunfels, Texas-based Refinery Associates of Texas Inc.

The defense agency said in November that it anticipates receiving offers from other suppliers to fill future requirements.

BP Displaced

BP’s competitors also benefited from the Defense Department’s oil demands. Royal Dutch Shell Plc displaced BP as the Pentagon’s biggest fuel contractor last year. The Hague, Netherlands-based company’s defense awards more than doubled to about $2.64 billion in fiscal 2012 from two years earlier.

World Fuel Services Corp. ranked No. 3 behind BP. The Miami-based company had $1.94 billion in contracts, more than three times as much as it won in 2010. The fourth-largest supplier was San Antonio-based Valero Energy Corp., with $1.57 billion, more than double what it won in 2010.

The EPA hasn’t said how long BP’s temporary ban will be in place, though suspensions generally last fewer than 18 months or until after legal proceedings. The company and the government are still locked in a dispute over civil claims tied to the Gulf oil spill.

Tiefer, the professor, said he expected the suspension would be over by mid-April.

“The government may lift the suspension and resume billion dollar purchases from BP much sooner than it should,” he said. “It will be over by tax day.”

To contact the reporter on this story: Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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