Five years and $28 billion later, the debate goes on: Has BP paid enough?
Dire economic predictions followed the 2010 explosion of the Deepwater Horizon drilling rig. Pessimists said the vast amount of oil flowing into the Gulf of Mexico would lead to mass layoffs, business closures and plummeting property values all along the Gulf Coast, not to mention the environmental costs.
The worst of these forecasts never came true. Economists and business leaders give BP credit for flooding local coffers with cash in the immediate aftermath of the spill, propping up core industries like tourism, seafood and energy. In all, the company has spent more than $14 billion on the cleanup and paid out $13 billion worth of private damage claims.
“The infusion of that capital into the Gulf Coast region has had a tremendous effect,” said Lafayette lawyer Patrick Juneau, who was tapped by BP, class-action attorneys and a federal judge to oversee BP’s multibillion-dollar settlement program.
However, that huge infusion of cash is beginning to ebb. For the better part of two years now, BP has been on the offensive against what the company alleges are greedy trial lawyers and fraudulent damage claims.
Federal prosecutors argue there are still bills to be paid. And some business owners and environmentalists argue that the spill’s most deserving victims are getting short shrift.
These are not purely academic arguments. After a third phase of the sprawling federal civil trial against BP, it now falls to U.S. District Judge Carl Barbier to decide how much the company still owes in fines under the federal Clean Water Act. And a part of what Barbier must consider is whether BP has already done enough to compensate the region.
BP says it has taken “an aggressive approach toward mitigating adverse economic effects of the spill,” pointing to a large chunk of the money — $17 billion — that was spent in the first year alone.
“The data prove that in industries important to the Gulf economy, there was no negative economic impact in most areas of the Gulf, and, where there were negative effects, the economy recovered quickly in part because of (BP)’s post-spill spending and its substantial efforts to mitigate potential economic impact,” the company wrote in a court filing last year.
The federal government isn’t convinced. “Given the enormity of this spill and its toll on individuals, society and the environment, and given BP’s egregious behavior, the court should only reduce the penalty if (BP) presents valid reasons to do so,” prosecutors said in a competing brief.
A significant impact
No one disputes that BP’s spending to date has had a significant impact. In 2010, the company set aside $43.5 billion to pay spill-related costs; about $15 billion is left in the kitty.
Local lawyers, accountants and insurance adjusters are raking in business from spill-related litigation. Area marinas, boat owners, charities, health clinics, research institutions and construction companies got grants or steady business from BP as a part of the company’s promise to “make it right” in the Gulf. And BP gave millions to help promote coastal tourism.
Loren Scott, a retired LSU economist hired by BP as an expert witness in court, reported that the tourism sector actually came out ahead.
“It is my opinion that (BP’s) spending after the spill — from money spent directly cleaning up beaches and skimming oil from the Gulf of Mexico waters to grants designed to support the quick recovery of tourism in the Gulf Coast region and promote Gulf seafood — had a significant mitigating impact against the economic consequences of the spill,” Scott said in a 2014 report.
Just weeks after the well was capped, Kenneth Feinberg, a lawyer and mediator known as the “master of disaster” for his experience in handing out compensation to victims of major disasters, including the 2001 terror attacks, began doling out BP’s money. He ended up settling with 221,000 individuals and businesses who were affected, paying them a total of $6.5 billion in just 18 months.
Feinberg was forced out when plaintiffs’ attorneys reached a 1,000-page settlement with BP in March 2012. He was replaced by Juneau, a court-appointed administrator who has approved another $5.4 billion in payments to 60,000 claimants.
BP initially estimated the 2012 deal would cost it $7.8 billion, but it now says the price will be at least $9.9 billion, not including thousands of business claims that are going through a new accounting review or an unknown number of claims that could still be filed until a June 8 deadline.
A big piece of BP’s cleanup costs — almost $600 million — went directly to fishermen and boat owners. BP hired thousands of fishing and supply vessels and crews to work in the massive effort by removing oil from the water, deploying boom and providing logistical support.
Boat owners received as much as $3,000 per day, and the captain and crew got another $200 each.
Nearly $280 million of the money went to Louisiana residents, BP says.
BP’s other early commitments were also swift: $1.3 billion to pay for hundreds of studies measuring the spill’s environmental impact, and up to $1 billion more for initial restoration projects. Hundreds of millions went to prop up Gulf Coast tourism — much of it spent in Louisiana — and tens of millions more went to testing and promoting locally caught seafood.
“It was important for us to help send that message out that we’re fine here, but there was a lot of misinformation that we had to fight,” said Mark Romig, president and CEO of the New Orleans Tourism Marketing Corp., which spent nearly $6 million it got from BP on advertising, particularly in areas that offered direct flights to the Crescent City.
“There’s no beach in the French Quarter that oil was flowing up on,” Romig added, “but people didn’t separate the notion they had. They just saw the whole Gulf Coast as a big black oil slick.”
Feinberg praises the oil giant’s willingness to open its wallet, at least initially. “I don’t know of any other Fortune 500 company, or any other company, that within weeks of a tragedy, without a finding of liability, decides to put up that type of money and turn over or delegate the process to a non-BP employee to try and process claims,” he said.
Spending has slowed
Still, BP’s spending on economic recovery has slowed down considerably. After spending $24 billion on cleanup, penalties and compensation in the first three years, the company has paid out just $4 billion in the past two years.
Billions of dollars have been held up by the company‘s repeated efforts to challenge its obligations under class-action settlements and to dispute the level of damage the oil spill caused.
When Juneau began swiftly paying claims in large numbers in 2013, BP tried to have him removed, saying he had “hijacked the settlement” and misinterpreted what claimants should qualify. The company appealed all the way to the U.S. Supreme Court and blocked all business loss payments for nearly a year.
Some critics, including Ricki Ott, an environmental activist and scientist, say BP knew its costs would be much higher than the company first publicly estimated, but that it agreed to put up tens of billions of dollars to appear responsive and prevent political momentum in Congress for changing the law that sets a meager $75 million cap on corporate liability for oil spills.
Clint Guidry, head of the Louisiana Shrimp Association, said the constant delays in the court process have kept BP’s money from effectively making fishermen whole. “Every day that we stall and don’t have all our money, we’re losing the value of the settlement,” Guidry said.
Other fishermen aren’t satisfied either, saying the overall deal was more mindful of people who lost revenue on a vacant condo than of those who rely directly on the Gulf’s health.
“That’s the thing that hurts more than anything else: They didn’t prioritize, in our opinion, the people that needed it and were affected the most,” said Danny Babin, general manager at Gulf Fish Inc. in Houma and a former chairman of the state Wildlife and Fisheries Commission.
A forgotten group?
And then there is the largely forgotten group of cleanup workers and coastal residents who claim exposure to the oil and the chemical dispersants used on it made them sick. They too were promised money — for skin, eye and breathing ailments, in a class-action settlement signed in 2012.
There are more than 40,000 claimants in the medical settlement. But three years after it was signed, administrator Matt Garretson has paid just 900 workers a total of $1.3 million.
Garretson acknowledges the payments have been slow, again due to a series of court appeals and disputes. But he says his operation is picking up the pace and hopes to finish processing claims by the end of 2016.
“Like any system where you’re processing claims, you get better as you go. You get more efficient. You figure out what was causing any bottlenecks and you work through technology, people and process to improve them, and I think we’ve done that,” he said.
Follow Richard Thompson on Twitter, @rthompsonMSY.