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BP Said to Seek U.S. Settlement of Spill Pollution Claims

BP Plc Macondo well site in the Gulf of Mexico
The fund held 10.5 billion kroner in BP shares at the end of June. Photographer: Derick E. Hingle/Bloomberg

BP Plc is negotiating with U.S. officials to settle pollution claims over the 2010 Gulf of Mexico oil spill that may leave the company liable for as much as $17.6 billion in fines, a person familiar with the talks said.

The government cited the energy company with violations of the federal Clean Water Act for the offshore spill, the biggest in U.S. history. Officials are seeking fines of as much as $4,300 for each of the 4.1 million barrels spilled after the explosion of the BP-leased Deepwater Horizon oil rig.

The company is also in settlement talks with other firms tied to the spill, said the person, who declined to be identified because the matter isn’t public. BP is set to begin a Feb. 27 trial in New Orleans federal court in which it and other companies will face claims by business owners and residents from the region who had their property and livelihoods damaged or destroyed. The Macondo well blowout killed 11 people, sullied hundreds of miles of coastline and damaged fishing and tourism.

The trial before U.S. District Judge Carl Barbier will unify hundreds of lawsuits by fishermen, tour operators and state and local governments. BP, meanwhile, is seeking to shift some of the blame, and damages claims, onto co-defendant companies which helped drill and operate the well.

The Clean Water Act allows the government to seek fines of $1,100 per barrel of oil spilled automatically. That can rise to as much as $4,300 a barrel if a judge finds the company was grossly negligent in allowing the pollution to occur.

Calculating Penalties

At $1,100 a barrel, the maximum penalty would be $4.51 billion using the government’s estimate of barrels spilled. A finding of gross negligence would boost that to $17.6 billion.

Daren Beaudo, a BP spokesman, declined to comment on settlement talks.

BP needs to settle Clean Water Act claims before a trial over its level of culpability for the spill, said David Uhlmann, former head of the U.S. Justice Department’s environmental-crimes unit.

“There’s no rational justification for going to trial,” said Uhlmann, now a law professor at the University of Michigan. The incentive for “BP is overwhelming for a settlement.”

The settlement cost for London-based BP, Europe’s second-largest oil company, may reach $25 billion on government claims alone, including as much as $10 billion for Clean Water Act violations, Uhlmann said.

Beyond the Clean Water Act, the company may also pay a $10 billion criminal fine and another $5 billion in natural-resource damages payments to the U.S. and the Gulf Coast states, he said.

Already Settled

BP has already settled with Anadarko Petroleum Corp. and Mitsui & Co.’s Moex Offshore LLC unit, partners in the well, and with Cameron International Corp., which provided blowout-prevention equipment. Anadarko agreed to pay $4 billion to BP, while Moex paid $1 billion and Cameron $250 million.

Those settlements let BP lower its reserve to cover costs related to the sinking of the rig to $37.2 billion from more than $40 billion, the company said this month.

BP reported Feb. 7 that its fourth-quarter net income rose to $7.7 billion from $5.6 billion a year earlier. BP shares, which climbed 1.1 percent to 494.9 pence at 1:55 p.m. in London, had gained 6.4 percent this year before today.

BP will probably resolve all litigation with co-defendants Transocean Ltd. and Halliburton Co. before trial rather than face them as opponents in court, said Anthony Sabino, a law professor at St. John’s University in New York.

“It’s always a smart strategy to reduce the number of your adversaries before trial, especially if it’s a codefendant that might heap blame upon you,” Sabino said. “You settle as soon as you can as best as you can with the adversaries who can do you the most damage.”

Hundreds of Lawsuits

The explosion spurred hundreds of lawsuits against BP as well as Transocean, the Vernier, Switzerland-based owner and operator of the Deepwater Horizon drilling rig that exploded; Houston-based Halliburton, which provided cementing services for the project, and the Woodlands, Texas-based Anadarko, which owned 25 percent of the well.

At trial, Barbier is to determine whether BP or any of the other companies engaged in gross negligence or willful misconduct. He won’t consider any criminal allegations.

The Justice Department has said it was investigating possible criminal violations related to the blowout and spill. None of the companies has been charged with a crime.

Laura Sweeney, a Justice Department spokeswoman on criminal matters, and Wyn Hornbuckle, a government spokesman on BP civil matters, declined to comment.

Fishermen Sue

If BP settles with the federal government and its co-defendant companies, Barbier may order mediation over the remaining claims scheduled for trial on Feb. 27, said Sabino.

“It makes all the sense in the world to send this to mediation,” he said.

BP is prepared to settle with other parties before trial if the conditions are right, Chief Executive Officer Robert Dudley told Bloomberg Television Feb. 7.

“With a reasonable settlement, we will settle,” he said. “If it’s not a reasonable settlement, we’ll go to court.”

Beverly Stafford, a spokeswoman for Halliburton, and Jared Allen, a spokesman for Transocean, declined to comment on settlement talks. Transocean and Anadarko also face Clean Water Act violations.

Quick Settlement

The U.S. may also want a quick settlement of the Clean Water Act claims as much as BP -- before Barbier rules on gross negligence, Sabino said.

The government would “hate to have a precedent against them on the books,” he said. Even if Barbier ruled for the U.S., the government could lose on appeal, he added.

“An adverse ruling against them would have a bad effect for decades,” in terms of U.S. environmental law enforcement, he said. “The smart move is to settle.”

The states who have filed lawsuits over the spill, however, may balk at an early settlement of so-called natural-resource damages claims tied to the destruction of the environment in gulf states, according to Alabama Attorney General Luther Strange and Louisiana Attorney General Buddy Caldwell.

“We are open to settlement if it’s fair to Alabama,” said Strange in an interview.

Under federal pollution law, responsible companies are required to restore natural resources to a pre-spill condition. The states are trying to avoid settling before the full extent of such costs is known, Caldwell said in an interview.

More Suits

A settlement with the U.S. wouldn’t resolve disputes between BP and the other companies over how to apportion blame for the blowout and spill.

“BP’s No. 1 priority is to resolve its litigation with Halliburton and Transocean,” said David Berg, a Houston-based trial lawyer who doesn’t have a stake in the case. BP can’t go to trial with codefendants pointing fingers at it, he said. It provides too much ammunition for plaintiffs’ attorneys, he said.

Transocean and Halliburton may settle pollution claims by the U.S. government after BP does, using the U.K.-based oil company’s payment as a guideline for negotiations, Sabino said.

Barbier has already ruled that provisions in the drilling contract require BP to pay any direct damage claims against Transocean and Halliburton.

Lawsuits by businesses and property owners will be the last to settle, Uhlmann predicted.

“BP will be more than willing to go to trial with victims who have spurned the Gulf Coast Claims Facility and sued,” he said. The facility is an out-of-court body set up by BP to resolve claims brought by parties alleging harm from the spill.

Single-Digit Billions

Any compensatory damages for the victims who haven’t settled through the facility would probably be “in the single-digit billions,” he said.

Punitive damages, meant to punish defendants rather than directly compensate victims, are limited by the amount of compensatory damages, Uhlmann said, citing a U.S. Supreme Court decision in the lawsuit over the 1989 oil spill caused by the grounding of the Exxon Valdez off the coast of Alaska.

BP and the other defendants would be better off settling all the litigation before trial, Berg said.

“This is not something that anyone wants to try,” he said. “The stakes are too high.”

The case is In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2-10-md-1979, U.S. District Court, Eastern District of Louisiana (New Orleans).

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