BP Can Again Compete for U.S. Leases and Contracts After Spill

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March 14, 2014

US Coast Guard Photo

By Mark Drajem, Jim Snyder and Jef Feeley

March 14 (Bloomberg) — BP Plc won the right to again compete for U.S. contracts and new leases in the Gulf of Mexico, where its massive 2010 oil spill prompted regulators to bar it from new government business.

The agreement with the Environmental Protection Agency will allow BP, which had been the Pentagon’s biggest fuel supplier, to seek lucrative federal contracts again and bid for oil exploration leases. Next week, a U.S. auction is set for the right to drill in the Gulf, where the London-based company is the second-largest producer.

The end of the suspension is a milestone in BP’s recovery from the worst U.S. offshore oil spill, which forced it to sell about $38 billion in assets to meet the costs of cleaning up pollution and compensating victims. A judge in New Orleans is considering BP’s degree of responsibility for the disaster and the scale of fines to impose under the Clean Water Act.

“It marks another step, in our view, toward the rehabilitation of BP’s reputation, standing and position in the key North American market,” analysts at Deutsche Bank AG said in a note to clients today. The timing is “helpful” given the upcoming licensing round, they said.

BP shares rose as much as 0.8 percent to 482.4 pence in London as the benchmark FTSE 100 index dropped for a sixth day. The stock traded little changed at 478 pence at 2:52 p.m. local time.

Premature Decision

Tyson Slocum, director of the Public Citizen’s Energy Program in Washington, said the decision was premature.

This “lets a corporate felon and repeat offender off the hook for its crimes against people and the environment,” Slocum said in a statement. BP “was on criminal probation at the time of the 2010 Deepwater Horizon disaster, and it has failed to prove that it is a responsible contractor.”

The U.S. Bureau of Ocean Energy Management, part of the Interior Department, on March 19 plans to auction leases covering more than 40 million acres on the Gulf for oil and gas exploration.

Bob Dudley, BP’s chief executive officer, said this month the Gulf is one of four “key regions” for growth. It drilled 63.6 million barrels in the Gulf in 2013, second only to Royal Dutch Shell Plc, according to Interior Department data.

The company declined to comment yesterday on whether it will participate in the auction next week.

Lengthy Negotiation

“After a lengthy negotiation, BP is pleased to have reached this resolution, which we believe to be fair and reasonable,” John Mingé, chairman and president of BP America, said in an e-mailed statement.

The company’s 45-page administrative agreement with the EPA announced yesterday will last five years. It obliges BP to comply with a set of safety, ethics and corporate governance requirements. The company will also retain an independent auditor, who will conduct an annual compliance review and report to the agency.

“This is a fair agreement that requires BP to improve its practices in order to meet the terms we’ve outlined together,” Craig Hooks, an EPA assistant administrator, said in a statement.

The settlement with the government over the contracting ban won’t have any effect on other lawsuits over the 2010 spill, Carl Tobias, who teaches mass-tort law at the University of Richmond in Virginia, said in an e-mail yesterday.

A judge in New Orleans is weighing how to assess blame for the disaster among the three main companies involved — BP, Transocean Ltd., the owner of the drilling rig that burned and sank, and oilfield services provider Halliburton Co.

Judge Barbier

U.S. District Judge Carl Barbier also must determine how much oil spilled, a key measure for determining how much BP will eventually have to pay in Clean Water Act penalties. The oil company could be facing more than $17 billion in fines.

The EPA imposed the contract suspension in 2012 after determining that BP hadn’t fully corrected deficiencies that led to a fatal explosion aboard the Deepwater Horizon rig.

In August, BP sued the EPA in federal court in Houston seeking to lift the suspension. The company’s request was backed by the British government and U.S. Chamber of Commerce, the biggest business lobbying group in Washington. As part of the deal yesterday, BP said it would drop that lawsuit.

The EPA’s lawyers asked a judge yesterday for a “stay pending dismissal” of BP’s lawsuit over the ban, according to court records.

Federal Contracts

The government suspended BP’s rights to seek federal contracts after the company pleaded guilty to 11 counts of felony seaman’s manslaughter, two pollution violations and one count of lying to Congress in connection with the spill.

BP agreed to pay $4.5 billion in related criminal and civil penalties and faces additional fines, as well as to thousands of claims by individuals and companies. It’s also agreed to resolve most private-party lawsuits as part of an uncapped settlement BP now values at about $9.2 billion

In addition to the spill, the EPA cited the 2005 explosion at a BP-owned Texas City, Texas, refinery and two oil spills in Prudhoe Bay, Alaska, as grounds for the 2012 debarment.

At the time of the April 2010 spill, BP was on probation after pleading guilty in 2007 to a felony air-pollution charge and paying a $50 million fine for the explosion in Texas City that killed 15 workers.

BP has four major producing hubs in the Gulf — Mad Dog, Thunder Horse, Atlantis and Na Kika. The company has boosted the number of drilling rigs in the region to 10 from six before the Deepwater Horizon accident. Underlying production grew for the first time since 2009 in the Gulf last year.

The push into the Gulf comes as BP has struggled to make its onshore U.S. business profitable. It announced plans last week to separate the unit that handles output in the lower-48 states to try and make it more competitive with smaller producers.

The case is BP Exploration & Production Co. Inc. v. McCarthy, 4:13-cv-O2349, U.S. District Court, Southern District of Texas (Houston).

–With assistance from Jonathan D. Salant and Kathleen Miller in Washington and Harry R. Weber and Laurel Brubaker Calkins in Houston.

Copyright 2014 Bloomberg.

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