Barring a last-minute settlement, a federal judge in New Orleans is set to begin hearing testimony Tuesday as he considers how many billions of dollars BP and a minority partner in its ill-fated Macondo well should have to pay as a penalty for their roles in the massive 2010 Gulf of Mexico oil spill.
This latest phase of the sprawling federal civil trial will play out as the disaster’s fifth anniversary approaches. Eleven men died when the Deepwater Horizon rig caught fire and exploded April 20, 2010, about 50 miles off the Louisiana coast, releasing millions of barrels of oil into the Gulf, into wetlands and onto beaches.
U.S. District Judge Carl Barbier, who is overseeing litigation tied to the spill, ruled last week that 3.19 million barrels of oil were released, essentially the midpoint of a higher estimate offered by the federal government and a lower one from the giant oil company.
That decision sets a $13.7 billion ceiling for BP’s civil liabilities under the Clean Water Act, a fine of up to $4,300 per barrel of oil released. By setting a figure that was less than the government had claimed, Barbier’s decision spared BP from a potential penalty of almost $18 billion.
Most legal experts following the trial expect BP will still be hit with a hefty civil penalty.
“BP will pay a substantial, multibillion-dollar penalty that reflects the catastrophic nature of the Gulf oil spill,” said David Uhlmann, a law professor at the University of Michigan. “BP is not likely to pay the maximum penalty, because the court is required to consider not only the spill but also how BP responded to the spill. At least in that respect, BP did a lot of things the right way for the first few years.”
Most of the money that’s collected — 80 percent — will go to the five Gulf Coast states most impacted by the spill.
Barbier must weigh eight factors that will guide him in assessing a civil penalty for violating the federal pollution law. They include the seriousness of the violation, the company’s culpability, efforts to minimize the accident’s impact, its history of violations, penalties already imposed for the spill, the financial impact of the penalty to the company, any economic benefit to the company as a result of the accident and “any other matters as justice may require.”
In pretrial court briefings, BP’s attorneys argue that a maximum penalty would represent a “gross outlier compared to penalties in any other case or settlement.”
Arriving at a final number will be a balancing act for Barbier, experts say.
“The amount of oil that leaked is a question of fact, but the amount of the penalty is a question of wisdom and judgment: too little, and others will not be sufficiently deterred. But BP should not be given a financial penalty that amounts to anything close to a death sentence for the operation of deepwater wells,” said Joseph Lavitt, a law professor who teaches insurance law and torts at the University of California at Berkeley.
Three weeks of testimony
The trial’s upcoming phase involves BP and Anadarko Petroleum Corp., a Texas-based oil exploration company that owned a minority financial stake in the Macondo project.
Attorneys for the companies and prosecutors from the U.S. Department of Justice have laid out their cases in pretrial briefings. The government is expected to present its case first, followed by BP, then Anadarko. The U.S. will have a chance for rebuttal testimony. All told, the trial is scheduled to take three weeks.
The process to determine what BP and others face in civil penalties has been underway for years. The trial’s initial eight-week phase in 2013 was used to assign liability for the disaster among its main players: BP, rig owner Transocean and Halliburton, which was BP’s cement contractor on the well.
The trial’s second phase, which ran nearly two weeks in late 2013, reviewed steps taken in the accident’s aftermath to stop the oil’s flow and estimate how much of it was released during the 87-day episode.
With BP already facing a price tag from the spill of more than $40 billion and rising, the company contends in court filings that it has paid enough. After the spill, it initiated “the largest and most effective response in history” and “spared no expense and placed no limits on the massive resources it provided,” BP’s brief said.
“Many Gulf beaches were left cleaner than they had been in years, seafood landings data shows levels that are now consistent with those pre-spill, and tourism records have been broken,” the company argues.
For its part in the spill, BP pleaded guilty to 11 counts of felony manslaughter, obstruction of Congress and a series of environmental crimes; it agreed to pay a $4 billion fine. That was in addition to more than $27 billion paid in response and cleanup costs and in settlement payments to Gulf businesses and individuals who suffered losses tied to the incident.
A lesson learned
Some legal experts following the case say that BP’s mounting legal costs from the catastrophe were likely a wake-up call about safety to other Gulf drilling operators.
“We can expect BP to be more careful, and that message has been ferried to others,” said David Logan, a visiting law professor at Florida State University who has closely followed the trial. “Almost no company would want to go through the legal hell that BP has gone through and continues to go through.”
BP also argues that because the price of oil has fallen sharply in the past six months, a penalty on the high end of the spectrum would have an especially damaging effect on the company — a contention that has drawn some skepticism.
“I don’t think anybody thinks that the fossil fuel industry is suddenly becoming unprofitable,” said Uhlmann, a former head of the Justice Department’s Environmental Crimes Section. “The most that I expect BP will obtain from the downturn in the oil markets is perhaps a more generous payment schedule than it might otherwise receive.”
From testimony heard in the trial’s first phase, Barbier ruled last year that BP’s conduct preceding the spill was “reckless.” That decision left BP vulnerable to paying a higher Clean Water Act penalty, up to $4,300 per barrel of oil instead of $1,100 per barrel.
Now, federal prosecutors are setting their sights on a record fine, arguing that “if ever there was a case that merits the statutory maximum, this is it.”
In its pretrial brief, the Justice Department said: “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, using the factors set out in the statute. But most of the factors do not call for any reduction from the maximum amount.”
The government’s witnesses are expected to try to refute many of BP’s claims that the region has fully recovered.
In addition, prosecutors will contend that the spill was BP’s fault in the first place, so money spent on cleanup shouldn’t win it favor now. The Clean Water Act requires responsible parties to pay for clean-up costs and damages to natural resources — a final price tag that is still to be determined in the coming years.
“There is no reason that BP should get a reduced civil penalty merely for funding response actions required by law, and paying claims authorized by law,” the government contends.
Anadarko, the well’s minority investor, is slated to offer a handful of witnesses who will argue that the company should face no penalty “because it bears no fault for the discharge, it has already paid more than $4 billion in damages, and there is no reasonable justification for any punishment,” as it contends in a pretrial brief.
“Anadarko had no operational control over the Deepwater Horizon, and as a matter of law Anadarko was not negligent, breached no legal duty, did not cause or contribute to the discharge, and bears no fault,” the brief says.
Any civil penalty assessed to Anadarko will likely be dwarfed by BP’s. The government has alluded to a $1 billion penalty paid by Transocean as “a guidepost for the appropriate penalty for the party (Anadarko) who co-owned the well and stood to profit from the oil produced had the well been completed successfully.”
“Anadarko should be paying a significant penalty for its role as a minority owner of the Macondo well, but nothing approaching the penalty that BP will face,” Uhlmann said.
Anadarko and the government, he noted, are “both taking extreme positions,” with one side arguing for a billion-dollar penalty and the other contending that no penalty at all is justified.
Billions of dollars are ultimately at stake in Barbier’s eventual decision in the trial’s penalty phase, with most of the money going to Gulf states affected by the 2010 disaster. The Restore Act, passed in 2012, designates the majority of Clean Water Act penalties for a variety of new uses along the Gulf Coast.
Criminal cases continue
Meanwhile, the government’s criminal prosecution of mostly rank-and-file workers for their roles in the spill continues in the background. BP’s top two supervisors onboard the Deepwater Horizon rig at the time of the explosion, Donald Vidrine and Robert Kaluza, face criminal charges for allegedly misinterpreting a critical safety test and ignoring clear warning signs that the Macondo well was in danger. The men are set to be tried on manslaughter charges in the deaths of the 11 workers who died on the rig.
Last year, U.S. District Judge Stanwood Duval Jr. dismissed 11 additional charges of seaman’s manslaughter against both men, ruling that the statute covering that crime is meant to be applied to a captain or someone tasked with operating and navigating a vessel, not the supervisors of a drilling operation.
Federal prosecutors have asked the 5th U.S. Circuit Court of Appeals to reinstate those charges. That request is pending.
Former BP engineer Kurt Mix won a new trial last year after being found guilty of obstructing justice by illegally deleting text messages about how much oil was flowing from the well. After his conviction, Mix was granted a new trial by Duval, who cited juror misconduct. Federal prosecutors have appealed that ruling, which also is pending before the 5th Circuit.
And David Rainey, BP’s former vice president of exploration for the Gulf, is slated to stand trial in March on obstruction charges for allegedly lying to Congress about how much oil was gushing from the busted well. He has pleaded not guilty.
Follow Richard Thompson on Twitter, @rthompsonMSY.