BP Faces Uncertainty on Third Anniversary of Deepwater Horizon Disaster

Deepwater Horizon on fire in the Gulf of Mexico, April 21, 2010. File photo.
Deepwater Horizon on fire in the Gulf of Mexico, April 21, 2010. File photo.
By Margaret Cronin Fisk

April 19 (Bloomberg) — BP Plc faces the third anniversary of the 2010 oil spill in the Gulf of Mexico tomorrow with no sure knowledge of how much more it will have to pay government and private plaintiffs over the disaster.

Last year BP agreed to pay an estimated $8.5 billion to settle lawsuits by most plaintiffs as well as $4 billion to the U.S. government in criminal penalties. The company is also facing claims from plaintiffs who weren’t covered by last year’s settlement and as much as $17 billion in fines over violations of the U.S. Clean Water Act.

What the company still may owe will hinge greatly on decisions by U.S. District Judge Carl Barbier, who is overseeing litigation spurred by the April 20, 2010, blowout of BP’s Macondo well and the subsequent explosion that sent 4 million barrels of oil into the Gulf.

Barbier will decide fault for the incident and whether BP or its contractors were grossly negligent, which could trigger higher damages or fines. As BP presented its last witness April 17 at the nonjury trial over liability for the accident, Barbier said he wouldn’t issue an immediate decision.

The judge said he would probably give lawyers for BP, its co-defendants, private party plaintiffs and the U.S. 60 days to submit their arguments and proposed findings to him. He said he would also provide 20 days for replies. Nothing will happen before the filings and the decision may linger beyond this summer.

Second Phase

Barbier has said that he may not issue a judgment on fault and gross negligence before a scheduled second phase of the trial set for Sept. 16. That phase will concern the size of the spill and the efforts to contain it. Barbier said he’s considering a third phase to determine penalties. Damages trials would follow.

Barbier may issue the decision on liability and gross negligence before the second phase as a means of forcing further settlements, said John Levy, an attorney specializing in complex litigation, including maritime and environmental law. Part of the reason trials are split into separate phases is to push such resolutions, Levy said.

“They help the parties see the light that is coming at the end of the tunnel,” he said.

“His decision will help to simplify and narrow the case going forward,” said Levy, of Montgomery McCracken in Cherry Hill, New Jersey. “Certain parties may settle out. Certain issues may settle out.”

Transocean, Halliburton

The blast aboard the Deepwater Horizon drilling rig killed 11 workers and set off the largest offshore oil spill in U.S. history. The accident sparked hundreds of lawsuits against well owner BP; Vernier, Switzerland-based Transocean Ltd., owner of the Deepwater Horizon; and Houston-based Halliburton Co., which provided cementing services for the project.

The plaintiffs also sued Cameron International Corp., which made blowout-prevention equipment used on the rig, and M-I Swaco, a Schlumberger Ltd. unit that provided the rig’s drilling fluids. Barbier dismissed both companies from the lawsuits during the liability trial that began Feb. 25.

A key issue for the remaining defendants is whether Barbier finds they acted with willful or wanton misconduct or reckless indifference — the legal requirement for establishing gross negligence.

For London-based BP, a finding of gross negligence would mean the company might be liable to the U.S. for more than $17 billion in Clean Water Act fines, as well as unspecified punitive damages to claimants who weren’t part of the $8.5 billion settlement the company reached with most private-party plaintiffs last year.

Punitive Damages

Transocean and Halliburton could be held liable for punitive damages for all plaintiffs if the companies are found to have handled their duties on the rig in a grossly negligent manner. The companies aren’t facing compensatory damages, based on a ruling by Barbier last year that the project contract required BP to indemnify them such costs.

Lawyers for the U.S. and oil-spill victims contended in the nonjury trial that BP was over budget and behind schedule on the deep-water Macondo well off the Louisiana coast, prompting the oil company to cut corners and ignore safety tests showing the well was unstable.

They also alleged Halliburton’s cement job was defective and Transocean employees made a series of missteps on the rig, including disabling safety systems, failing to properly maintain the installation and not providing adequate training for its crew.

Pointing Fingers

BP claimed during the trial that Transocean failed to maintain the drilling rig and Halliburton provided defective cementing services. Transocean and Halliburton pointed fingers back at BP.

Any decision by Barbier will be subject to appeal, which would further delay determination of costs, Levy said. “An appeal may have to wait until after additional phases,” he said.

As attorneys prepare the post-trial legal arguments, new lawsuits over the spill have been pouring into the federal courts for several weeks, primarily by plaintiffs who were excluded from last year’s settlement. The filings are due immediately to beat the three-year statute of limitations on such claims.

Casinos, States

The $8.5 billion agreement didn’t cover claims of financial institutions, casinos, private plaintiffs in parts of Florida and Texas, and residents and businesses claiming harm from the deep-water drilling moratorium. It excluded federal government claims and those of Gulf Coast states Louisiana and Alabama, and lawsuits against other defendants.

Some of the new claims are substantial, including a lawsuit brought in New Orleans federal court this month by Vantage Drilling Co., which alleged that it incurred a $265.5 million increase in financing costs for a drilling rig as a result of the spill.

Other new lawsuits include one brought by the city of Marathon, Florida, over environmental damage and lost tax revenue, unpaid taxes connected to the spill, and similar claims by several coastal counties in southeast Texas, including Jefferson County and Chambers County, which lie between Houston and the Louisiana border.

Fresh Wave

Beyond government claims, a fresh wave of suits has been filed by others excluded from the settlement, ranging from Florida casino workers whose tips declined to real estate developers who said they lost financing to build multimillion- dollar oceanfront resorts.

Texas longshoremen, coastal insurance agencies, small-town lenders, and several employment agencies are also suing. In each of these cases, the victims say they presented their damages to BP as required by law, and the company either rejected their claims or failed to timely respond.

Claims by excluded plaintiffs, if they’re not also settled, would be considered in any damages trials.

BP and Transocean, which were both sued by the U.S. under the Oil Pollution Act, also face unspecified costs from claims by the federal government and the Gulf Coast states for natural resource damages. Under the law, the owner of the oil spilled is responsible for paying to put natural resources back to pre- incident conditions.

Guilty Plea

When Transocean pleaded guilty in January to a misdemeanor Clean Water Act violation and agreed to pay $1.4 billion, including $400 million in criminal penalties, it didn’t resolve the natural-resource damages claims. Transocean has said that its liability for such damages is limited because the oil spilled belonged to BP and its well partners, Anadarko Petroleum Corp., which owned a 25 percent stake, and Mitsui & Co.’s MOEX Offshore 2007, which had a 10 percent share.

MOEX settled government claims for $90 million last year, while Anadarko still has U.S. claims pending against it. Anadarko wasn’t part of the liability trial. Barbier said the company couldn’t be sued under maritime law because it didn’t have control of the operation.

Government trustees for these natural resources have been assessing the potential costs since the first weeks after the spill. The assessments haven’t been completed and, while BP has made interim payments, the final claims by these governments remain unknown.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Copyright 2013 Bloomberg.